Dedicated Taxes

by Mark Berkey-Gerard and Anne Schwartz, Jun 30, 2003

Like many New Yorkers, Forest Hills resident John Romanski has been frustrated by the recent budget battles at City Hall.

Romanski's property taxes went up more than a hundred dollars a year when Mayor Michael Bloomberg and the City Council raised them by 18.5 percent last fall. Then this spring, the mayor has closed firehouses, cut teacher's aides, threatened to reduce trash pickups in his neighborhood, and even proposed closing the Queens zoo. (For more on the final budget agreement see Breaking Down the Budget Game)

If his property tax increase was not going pay for all of these services, Romanski wondered, how was it being spent?

"I thought that if my real estate tax was divided up for essential services like police, fire, and sanitation, and the city was cutting back, then I might be in line for some kind of rebate," he said.

If Romanski lived in Nassau County, he would have had a little better idea of how his property tax money was being spent. In Jericho, for example, residents get a bill that includes not only a county and town tax, but also a tax to support libraries, and a separate levy to fund schools.

However, New York City operates with a highly consolidated government and budget process. Every year, $20 billion in taxes are collected and put into a general fund and then distributed to various agencies according to a budget decided by the mayor and the City Council.

Some argue that this kind of budget process means that things like education, parks, libraries, and cultural institutions routinely get shortchanged.

One way to relieve this problem - and citizens' confusion about where their money is going - is to institute dedicated taxes that go to specific purposes.

In April, Manhattan District Attorney Robert Morgenthau called for a "public safety tax" on commuters who earn a living in New York City to boost funding for the city's police, firefighters, hospital employees and other public safety workers.

Last year, the New York City Council proposed a personal income tax surcharge that would cost the average New Yorker $25 a year and would generate $400 million a year for school construction.

And for years, some parks advocates have been lobbying for a dedicated funding stream to pay for green space, such as is done in such cities as Chicago, Seattle, Denver, and Minneapolis. (See sidebar on Minneapolis parks.)

But in New York, which already has the highest taxes of any city in the country, would dedicated taxes provide reliable sources of funding or make it even harder to balance a $44 billion budget?


Most large cities, like Los Angeles, Chicago, and Houston, rely on just two taxes - the property tax and sales tax. But New York City has more than two dozen taxes including property, general sales, personal income, and business income taxes. (See chart for local taxes.)

Part of the reason that New York City must get its revenue from a wider range of sources is it also spends its money on a wider range of services. Most cities do not have the large municipal workforce, the extensive police and fire departments, and social service programs that New York does.

"In New York State half of Medicaid and welfare are borne by local governments," said George Sweeting, deputy director of the Independent Budget Office, who notes that in many cities the state and federal government pay the entire bill for these programs. "That forces the city to look at a range of revenue."


The idea of a dedicated tax may seem alien in New York City, but it has been used in the past.

In 1989, the City Council and then Mayor David Dinkins approved the "Safe Streets-Safe City" surcharge on the property tax and persuaded the State Legislature to approve an income tax surcharge as well. In allowing the tax hike, the state required the city to have at least 38,310 officers, an increase of more than 6,000. The additional funding has been credited with dramatically reducing crime in the city.

In 1996, when the tax expired, City Council Speaker Peter Vallone proposed extending the surcharge for three years to renovate and build schools, but Mayor Rudolph Giuliani rejected the idea.

And although most New Yorkers are not aware of it, they already pay taxes that go to specific purposes.

A quarter percent of the local city sales tax as well as a portion of mortgage recording tax goes to the Metropolitan Transportation Authority to help fund subway, bus, and commuter rail service. And there is a $1 a month tax on every New Yorker's phone bill that goes to 911 emergency phone service.

And there are also designated fees that residents and businesses in certain areas pay.

In the city's 44 Business Improvement Districts, the property owners in a defined area vote to pay a special assessment on the property tax for security, street cleaning, park improvement, and other services above and beyond what the city provides.

In Battery Park City, which an independent state authority operates, more than a third of the $5.9 million spent annually in the parks on horticulture, maintenance, and programming comes from "civic facility fees" paid by residents and developers.

The Department of Environmental Protection, which oversees the city's water and sewers, is the one city agency that has its own revenue stream. Funding for maintaining and upgrading these systems comes from water and sewer fees levied and collected by the independent New York City Water Board. These fees are used to back bonds issued by the New York City Municipal Water Finance Authority for capital improvements. The State Legislature established the two independent agencies in 1984 because of a concern that the city was not adequately funding the modernization of the essential systems that supply and safeguard drinking water and collect and clean wastewater.

"We have dedicated funding for water and sewer because long ago it was realized that a good water and sewer system requires a long term view [and] should not be left up to the annual political shenanigans," said John Rooney, an advocate for funding parks in a similar manner.



Most school districts in New York State are required to win voter approval for any substantial increases in their school budgets. That rule, however, does not apply to New York City, Yonkers, Rochester, Syracuse and Buffalo - often labeled the "Big Five" - in which school spending is subsumed by the larger, municipal budget process.

New York City schools get their funding from the state and the city budgets and must compete with other services like the fire department or sanitation for funding. The governor and State Legislature in Albany negotiate state education funding as part of the state budget package. Money is distributed to the various school districts through 40 different complicated aid formulas.

Some argue that means that New York students do not get their fair share. In 1999, New York City spent $9,623 per-pupil - $694 less than the state average of $10,317. The average downstate suburb, including Westchester, Rockland, Orange, and Nassau counties, spent $12,520 per student. Last week, the Court of Appeals, the state's highest court, agreed that the funding for education has been inequitable, and ordered the state to find a new formula so that schoolchildren in New York City are no longer at a disadvantage.

A personal income tax surcharge proposed by the City Council in 2002 would have generated $400 million a year for school construction. But Mayor Bloomberg never pursued the idea and it was abandoned when the mayor and the City Council chose to increase property taxes 18.5 percent to raise $1.7 billion for the general budget.

This year, the idea of a dedicated tax for education was never part of the budget process as the mayor gained approval from Albany to increase the sales and income taxes.

Some feel that if New Yorkers were given more say over how their tax money is spent - in particular on education - that city residents would support the idea.

"In my opinion, the majority of people would say `yes' to increasing the amount of money going to education if they knew the money was being well spent," said Councilmember Robert Jackson, who serves on the education committee. With the court's ruling last week, Jackson's opinion may soon be tested.


A dedicated real estate tax is the major source of funding for some of the country's s best park systems - including Seattle, Chicago, and Minneapolis. (See side bar on Minneapolis parks.)

"By and large, the systems that have dedicated funds are in better shape and do a better job," said Peter Harnik, author of Inside City Parks.

From 1991 to 2002, for example, the city spent $1.9 billion in capital funding on parks - borrowed money on which the city pays interest - much of which went to restore things that had fallen into disrepair.

The Independent Budget Office has calculated that a dedicated property tax of 1.5 percent of assessed value could raise about $100 million for parks, roughly half of recent park budgets but far less than park advocates believe is needed. A dedicated tax of that size would raise property taxes $48 for the average coop, $29 for a rental apartment in a large building, and $34 for a single-family house.

David Lutz, the director of the Neighborhood Open Space Coalition, has been calling for a dedicated funding source for parks, favoring a tax on plastic grocery bags, beverage bottles and takeout containers. It would be similar to Ireland's year-old 15-cent plastic bag tax, which is earmarked for the environment - although that tax has been so successful in reducing supermarket bag use and litter that it has raised a fraction of the money expected.


Many library systems across the nation are funded by local taxes. Homeowners on the North Shore of Long Island, for example, pay about $70 a year to fund their own library system.

New York has a system of libraries - the New York Public Library, Brooklyn Public Library, and Queens Borough Public Library, as well as the New York Research Libraries - that operate on a mix of city, state, and federal revenue as well as private contributions.

If the city were to dedicate part of the property tax for libraries, property owners would see a rise in assessed value from more than a third of a percent to almost one percent, depending on the borough, according to an Independent Budget Office estimate. To fund the New York Public Library, which serves the Bronx, Manhattan, and Staten Island, the average single-family home owner would pay about $58 more a year and the average condo owner would pay about $174 a year.

The idea of a library tax has not caught on and the alternative during the recent budget crisis has been to seek private funding. Recently the Carnegie Corporation donated $4.5 million and the Starr Foundation gave $1.5 million in an effort to raise additional money for library operation.

Cultural Centers

Recently, the Brooklyn Museum of Art announced that it would be forced to close for two weeks in August because of budget cuts. It is one of 34 institutions owned by the city or on city property that make up the Cultural Institutions Group, whose budget would be reduced to $77 million from $105 million under the mayor's proposed budget.

As with libraries, Mayor Michael Bloomberg's solution has been to encourage private donations.

"What I would suggest is that you write a check, get all of your friends to write checks, and if every one of your friends gets another person to write checks, with six degrees of separation, pretty soon everybody will be supporting the culturals," Bloomberg said.

Another idea, which was never discussed in this year's budget process, is to issue a hotel tax to help fund the Department of Cultural Affairs.

Under a scenario analyzed by the Independent Budget Office, increasing the hotel tax by 1 percent could raise additional $39 million for museums, theatres, zoos and botanical gardens. On the downside, the extra tax might reduce hotel stays, decreasing the city's total receipts from the hotel tax and the sales tax.


While advocates argue that dedicating taxes would generate a stable revenue and help protect schools, parks, libraries and museums from cuts, many budget experts consider dedicating taxes to specific services an unwise public policy.

"From a fiscal perspective, it is less attractive because it can skew priorities, particularly in a downturn like we're in at the moment, when competition for tax funding is very intense," said Ronnie Lowenstein, director of the Independent Budget Office. "At times like these, if you lock in a certain piece for parks or tourism or libraries, it limits the city's options."

The kind of dedicated tax that would be worth exploring, according to Edmund J. McMahon, of the Manhattan Institute, is one going to very local districts organized around neighborhood services, following the model of a Business Improvement District.

For example, if a park adds value to the surrounding area, those residents might be willing to pay for it. "If a neighborhood park is well kept up, if it's nice and clean and has a full array of services, it obviously helps keep up the property value," said McMahon.

However, in the last eight months, New Yorkers have seen hikes property tax, sales tax, income taxes, and cigarette taxes, so the chance that politicians or the public would go for more seems unlikely.

"I think most people feel we've had enough already," said Marcia Van Wagner of the Citizens Budget Commission.