Low Participation Plagues the City for a Second Year
The STaR numbers are in and for the second year in a row, city homeowners are receiving just over half the money available to them in the form of property tax relief. Because of low participation rates, city residents will receive just $58.8 million of the $101.9 million in property tax savings they could have realized under the program this year. In 1998, a similar pattern emerged-$31.8 million of a possible $57.1 million was claimed.
The STaR (School Tax Relief) program consists of two types of state funded property tax exemptions-a basic exemption of $30,000 for all homeowners and an enhanced exemption of $50,000 for homeowners age 65 and over with incomes less than $60,000. For New York City residents, STaR also includes personal income tax (PIT) relief in the form of a refundable credit and a rate reduction.
Participation rates in New York City were quite low relative to the rest of the state (56 percent versus 87 percent) when the enhanced STaR exemption was implemented last year. This year, as the basic STaR exemption begins its three-year phase in, city participation will, at most, reach 59 percent, although it may be as low as 27 percent. We will know more about this year's STaR participation as more data becomes available in coming weeks.
STaR Property Tax Relief Exacerbates Intra-City Inequities
Within New York City, class 1 homeowners participated in STaR's property tax relief program at a rate higher than that of class 2 coop and condo owners in 1998. The heavy concentration of class 1 houses in Staten Island led that borough to have the highest participation rate (75 percent). Manhattan, with its heavy concentration of class 2 coops and condos, had the lowest participation rate (41 percent).
In addition to participating in higher numbers, each class 1 participant saved more, in percentage terms, than each participating class 2 homeowner due to how tax savings were applied to each tax class-a calculation spelled out in the STaR legislation. In fact, while class 1 owners experienced an average 24 percent reduction in property taxes per participating household, class 2 participants saved an average of 11 percent. Given that class 2 households face higher effective tax rates to begin with, STaR compounds the disparate property tax treatment of class 1 versus class 2 homeowners in New York City.
Even With 100% Participation, STaR Wouldn't Do Much For NYC
In its first year, STaR saved low- to middle-income senior citizen homeowners $497 million in property taxes statewide. In New York City, where the average property tax savings was $323 per eligible household, participants saved a total of $31.8 million, just 6.4 percent of statewide property tax savings. Even if all eligible city homeowners had participated, the city's share of property tax savings would have been less than 11 percent.
This benefit share is not surprising given the city's low homeownership rate and relatively low effective property tax rates. Furthermore, in contrast to the rest of the state, where most districts use property tax revenues to fund all local education spending, city taxpayers shoulder the burden of local education support in all of their tax payments, as general revenue funds are used for education.
In recognition of the city's unique characteristics, and in an attempt to raise the city's share of statewide savings, city residents were given PIT relief in addition to property tax relief. A PIT credit was fully phased in for seniors and partially phased in for non-seniors in 1998, saving city residents an additional $85 million and bringing the city share of total tax savings to 20 percent. A PIT rate reduction is scheduled to begin phasing in this year.
Who Really Benefits From STaR?
While property tax relief under STaR favored certain households within the city over others last year, homeowners around the state were the true beneficiaries of STaR. Notably, the largest shares of tax savings went to the high wealth/high tax suburban districts outside the city (Westchester, Nassau and Suffolk counties).
Even with the addition of PIT relief for city taxpayers, the city's share of STaR tax savings (20 percent) was substantially lower than both the city's share of local education spending (29 percent) and the city's share of economic activity contributing to state revenues (40 percent). Based on the state's projected $2.7 billion in tax savings at full implementation (both property and personal income tax relief), IBO has estimated that even with 100 percent participation, the city's share of total STaR tax savings would be just 24 percent.
In determining the impact of STaR on New York City, it is important to look at the spending side as well. Enactment of STaR was linked to a set of education spending initiatives-including early grade class size reduction, universal pre-kindergarten and minor maintenance aid-which would be particularly beneficial to the city.
This year, the Governor's budget has proposed eliminating funding for these initiatives and replacing them with a smaller block grant. This would force the city to chose between funding the initiatives with local tax revenues, scaling back, or even abandoning them completely. Ultimately, it is possible that while homeowners around the state see their local school tax burdens reduced, city homeowners will see their burden grow.