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Xu, Y. and Warner, M.E. (2015) "Fiscal Austerity in New York State: Differential Regional Impacts of the Property Tax Cap." Cornell University, Ithaca, NY.

New York implemented its property tax cap on local governments in 2012. This restrictive property tax cap limits all municipalities (except New York City) to property tax increases of 2% or the CPI, whichever is lower. This uniform cap, which ignores differences in local fiscal capacity and need, is expected to have disproportional impacts on local government revenues. The cap is projected to increase local fiscal stress, lead to more public service cuts, and potentially result in greater regional inequality. Using NYS Comptroller data, we conducted a “what--‐if” model to project the impact of property tax revenue loss if the current property tax cap had been implemented for the previous decade. We find a dramatic drop in property tax revenues for all government types but the cumulative effects result in a property tax gap that is especially high for towns and villages, whose reliance on property tax revenue is highest. The total property tax loss is higher on Long Island where the property tax burden is highest in the State. Next we use regional economic impact models (IMPLAN) to analyze the economic impacts of the property tax cap on employment, income, output and sectors across regions in New York State. Despite Long Island’s higher tax revenue loss, the negative economic impacts are similar on Long Island and Upstate. Upstate’s economy is weaker than Long Island and it suffers disproportional negative economic impacts of the tax cap. Sectors in higher education, like private colleges and universities, as well as in health, like nursing facilities, are more negatively affected in Upstate. To address this unintended consequence, more spatially targeted state aid and more state centralization of spending responsibility is needed. Such mandate relief is key for the state to avoid undermining local efficiency and economic growth.

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Subject: Upstate NY Fiscal Stress