Daily Archives: June 21, 2011

A proposed limit on property tax increases will last for five years, according to a basic agreement between Gov. Andrew Cuomo and top legislators.

At that time, legislators would have to vote to keep the tax cap alive—or opt to let it expire, according to aides for Assembly Majority Leader Ron Canestrari (D-Cohoes).

The deal was announced earlier on Tuesday by legislative leaders, who spent most of the afternoon in closed-door talks with their members explaining all the aspects of the legislation. It is unclear when a vote could occur.

Under the deal, property taxes would be limited to 2 percent growth per year, or inflation, whichever is lower. The cap could be discarded in any given year if 60 percent of voters agree to do so.

Legislators briefed on the deal said potential exemptions to the cap include transportation costs, such as bus purchases, as well as capital expenditures and long-term lease payments.

Business groups have pushed for limited, narrow exemptions. They contend the cap will be watered down if some of the fastest-rising costs, such as health care and pension payments, are made immune from the cap.

Powerful education unions and local government officials are among those warning of layoffs and cuts in services if a tax cap is approved. Cuomo, among others, campaigned on the issue.

The legislative session was scheduled to end Monday, but legislators have stayed in town, facing a range of unresolved issues. It is unclear when they will adjourn.

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There is an easy way to shore up state pension systems, or so many leaders elected last year believed: States should move to offering 401(k)-style retirement plans. Eight new governors and numerous new legislators said they would support shifting state employees to these plans, following a move the private sector made long ago. Kansas, Kentucky, Nevada and Oklahoma appeared especially ready to make the change.

But 401(k) fever seems to be over, at least for now. No state this year replaced its traditional fixed-benefit pension with a new plan in which employees set aside a portion of their pay and assume the risk in making investment decisions. Only one state, Indiana, implemented such a plan for new employees, but made it optional.

Enthusiasm for the switch waned after consultants and legislative researchers told state officials that it would cost money before it saves money. That was a difficult sell at a time when many states faced their fourth consecutive year of big budget deficits.

The problem is that changing from a so-called “defined benefit” plan to a “defined contribution” plan comes with huge transactional costs. When the old plan is closed, the employees and retirees who remain in the plan still receive their pension checks even as the number of employees contributing to the plan drops — new hires contribute to the new plan. The state has to make up the difference. In Kentucky’s case, the increased cost would be $8 billion over 15 years. The Nevada price tag: $1.2 billion over the next two years.

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