Viewpoint: Long Island should resolve “unsustainable’ property tax conundrum with a novel income tax formula

Karen Rubin

For the first time in, well, forever, I am feeling that Long Island is on the move. Governments of both Nassau and Suffolk counties are clear-eyed about confronting challenges – some systemic – in sustainable ways, do not seem to be sabotaged (so far) from in-fighting (that is, a Democratic County Executive working with the Republican-controlled Legislature), and the counties are even working collaboratively as a Long Island Region.

But, “There are two major impediments to Long Island’s sustainability,” John Cameron, of the Long Island Regional Planning Council, told the Long Island Business Council. “The first is an unsustainable tax burden, and the second is lack of diversity in housing – ie. rental housing – for the workforce and empty nesters.”

The two counties are cooperating on retaining the services of a consultant to evaluate alternatives to the property tax burden.

There are basically three categories of taxes: property, income and sales (though a municipality has other sources of revenue, including fees and fines).

Long Island, he says, is more heavily dependent on property taxes than any other in the nation (two-thirds going to support schools).

“We looked at alternatives – identified the inequities experienced in some communities- for example, some lower-income, minority communities are more adversely impacted by property tax; communities with low commercial tax base pay undue burden of taxes.”

That falls into the problem of the tax certiorari issue of an assessment system that is deemed unfair and has produced an unvirtuous cycle of tax challenges and refunds (Nassau County is drowning in $1 billion in liabilities costing $100 million a year in interest, alone).

How to break the cycle?

First by undertaking a fair assessment (which the Curran administration is now doing, unfreezing the eight-year freeze on the rolls and conducting a new assessment) and then having the courts adjudicate, rather than capitulate (I think to connected attorneys) to refund-seeking property-owners; looking for ways to increase the tax base that conforms with retaining the suburban character of our communities (the best solution is Transit-Oriented Development; mixed-use development, Complete Streets strategies which promote the walkability, bikeability and liveability of a community, and yes, affordable housing, as well as cultivating new technology-based enterprise).

There was even talk – get this – of some form of income tax to replace (I would suggest replacing part) of the property tax, such as New York City has.

An income-tax alternative to the property tax is worthy to contemplate, but I would submit, in a different way than income tax has been thought of before.

There is no question that property taxes are regressive – people who live in homes that have increased in value over decades do not necessarily earn the incomes to pay that share of the property tax pie.

But I have long argued that our suburban single-family homes are socially engineered for families who will take advantage of quality public schools (that accounts for two-thirds of the property tax bill); the high property taxes nudge empty-nesters out to make room for new families, who similarly will benefit from quality public schools (while empty-nesters recoup their investment).

Otherwise, you have homes occupied by empty-nesters for say 20 years -an entire generation -depressing school enrollment that results in buildings being underutilized, budgets being slashed, as happened in Great Neck in the 1980s, until a new generation comes in and finds aging buildings overcrowded and in disrepair.

An alternative for empty-nesters who want to stay in their communities is housing that better fits their needs (something that the Village of Great Neck is contemplating with its revisioning of Middle Neck Road and East Shore Road) and, significantly, comes with nominal, even token property tax liability.

A new formula for financing schools and local communities could be a combination of property tax (at a much lower share) and income tax also makes sense to promote affordability of home ownership to young families.

It is important to interject here that home ownership, once a pillar of the American Dream, is still a vital American value, and that just making rental housing available is not the solution to affordable housing.

Homeownership leads to stable communities and I would argue, engaged voters and citizens who see their tax dollars as an investment in community services, quality of life and yes, home value. It is the difference between marriage and living together.

Home ownership, as opposed to renting, also contributes to a family’s ability to amass wealth: a mortgage decreases over time as a share of a family’s expenses because of inflation so there is more money to spend on say, college (which contributes to higher income and wealth), while rent continues to increase with inflation; and in most instances, the value of a home increases over time, providing the family with a retirement nest egg.

A goal of society, then, should be to promote home ownership, but that is not the goal of banker/landlords.

The problem with income taxes in the way they are now collected by state and federal government is that they are not tied to an actual budget.

The way that is done now is that school districts prepare a budget and assess tax revenues based on raising that amount of money and not a dollar more.

But income taxes work differently – the state and federal governments prepare their budgets and then get their income taxes, and hope the gap isn’t significant.

So a new formula – one that replaces, say two-thirds of the revenue generated now from property tax with an income tax – is important to start with the objective: to properly and fairly fund our schools and local services.
The resident’s share would be determined in the same way as property taxes – a share of the pie – which would be assessed by submitting the prior year’s state income tax form. Like property taxes, all that income would become the total valuation, and the resident’s share would be allocated.

This will immediately elicit screams that wealthy neighborhoods will have no trouble funding public schools. But that is already the case.

As it is, wealthier communities have their property taxes lowered because of commercial activity; the equalizer has been more state aid going to those communities, which would continue to be the case with this new income tax-property tax formula.

Sales tax is the third key source.

In Suffolk, sales tax revenue amounts to $1.6 billion – half of the county’s $3.2 billion budget. Property tax, in contrast, amounts to only $49 million.

This is why Long Island is pushing so hard for the state to make sure e-commerce collects sales tax. Suffolk projects that it is losing $10 million-11 million a year in sales taxes through sales diverted from its own brick-and-mortar merchants to out-of-state e-commerce vendors.

Economic revitalization is also key to the sustainability of Long Island, which once was a leader in the defense and aerospace industries, and should be a leader in biotech, advanced precision medical research, stem cells, renewable energy (offshore wind), especially considering the concentration of brainpower and research centers across the island (Stony Brook, Long Island University, Farmingdale, NYIT, etc.)

PSEG LI’s support of offshore wind and solar power is key but their municipalities can do far more with biomass from its sanitation systems (no reason why an entrepreneur doesn’t collect the wasted cooling oil from the thousands of Long Island restaurants and convert to biodiesel); with capturing heat for electricity in their buildings, requiring electric vehicles for their fleets; putting solar panels on public buildings; utilizing green roofs on buildings. This is also economic revitalization: the businesses that produce these products, the workers who install and maintain. Clean energy is the fastest growing industry in the country- five of the fastest growing jobs in the US are in clean-energy; US wind added 25,000 workers to 102,000 in 2016; solar added 73,000, a 25% increase.

PSEG LI is very much engaged in the economic development piece of the Long island sustainability puzzle. The utility recently instituted two programs: Vacant Space Revival program, which offers a first-year discount to a new small business of $1500 to $10,000, depending on size.

A second program, Main Street Revitalization Program, provides for grants up to $100,000 for revitalization projects, from a façade improvement to an entire building or neighborhood.

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