THE EFFECT OF THE 2007-2008 EXECUTIVE BUDGET’S PROVISIONS RELATING TO
STATE EDUCATION AID AND STAR PROPERTY TAX RELIEF
ON NASSAU AND SUFFOLK COUNTY TAXPAYERS
Long Island Association (LIA)
Long Island Education Coalition (LIEC)
Membership of the Long Island Education Coalition:
Council of Administrators and Supervisors
Eastern Suffolk BOCES
Long Island Association of School Personnel Administrators
Long Island School Public Relations Association
Nassau County BOCES
Nassau County Council of School Superintendents
Nassau County Elementary School Principals Association
Nassau County Secondary School Administrators Association
Nassau Region PTA
Nassau-Suffolk School Boards Association
Nassau Association of School Business Officials
New York State United Teachers (Nassau/Suffolk)
Reform Educational Financing Inequities Today (R.E.F.I.T)
School Administrators Association of New York State
(Nassau/Suffolk)
SCOPE Education Services
Suffolk Association of School Business Officials
Suffolk County High School Principals Association
Suffolk County School Superintendents Association
Suffolk Region PTA
Western Suffolk BOCES
March 2007
Summary of Findings, Conclusions, and Recommendations
For many years,New York State has provided education aid to school districts using a complex multi-factor formula that has not taken into account, among other things, regional differences in the cost of teacher wages, goods, and services. In recent years, as educational costs have risen, the State has attempted to offset a portion of the resulting property tax increases through School Tax Relief (STAR) payments and supplemental STAR payments to residential taxpayers.
Because of the lack of a regional cost adjustment in the state education aid formula, as well as a lack of proportionality in the aid that Long Island receives relative to its share of overall state student enrollment, the amount of education aid that Long Island’s school districts receive relative to their costs has been declining every year. The result has been a constantly rising property tax burden for residential as well as business taxpayers.
Today, Long Island taxpayers use 20% more of their gross household income to pay property taxes than New Yorkers in general. Their per capita tax burden significantly exceeds that of New York City taxpayers, and is likely the highest in New York. Some evidence exists that Long Islanders pay the heaviest property tax burden in the nation. Long Island suffers from the inaccurate perception that the region is wealthy. In fact, 34 percent of Long Island students live in school districts whose wealth is below the statewide average; in eastern Suffolk County that percentage is as high as 67 percent.
For many years, the Long Island Association (LIA) and the Long Island Education Coalition (LIEC) have called for reform in the way education aid is allocated, and for a resolution of the inequities that the State education aid system has visited upon Long Island taxpayers. Our statements on this subject extend back to January 1996, when we released our first edition of “Long Island Education: Data and Facts on Costs and Outcomes.” It continued through the position we took before the New York State Commission on Education Reform in January 2004. And it remains consistent in this study.
Among other things, we have called for an increase in education funding statewide; simplification of the aid formula; the creation of multi-year appropriations to improve planning; and the use of a regional cost adjustment formula in the education aid calculation. In the absence of those changes, which the State Legislature declined to make during the last eleven years, we have called for a simple and easily understood correction: provide Long Island with the same proportion of education aid that we have of students, about 16.8 percent.
In the 2007-2008 Executive Budget, Governor Eliot Spitzer has proposed an overall increase of $1.4 billion in education aid statewide. The Executive Budget also proposes significant fundamental changes in the way education aid is both calculated and allocated throughout the State. It proposes to replace the current complex formula with a simpler “foundation aid” formula that includes a regional cost index, which would provide $982 million in additional aid to school districts in 2007-2008. And it outlines a Four-Year Educational Investment Plan, which projects school aid increases using the proposed new formulas through 2010-2011.
The Executive Budget also proposes an enhanced “middle class” STAR program [hereinafter “enhanced STAR payments”] to supplement the existing “basic and enhanced” STAR payments [hereinafter “regular STAR payments”], and that, in considering each region’s relative share of total aid, both education aid and total STAR payments should be taken into account. The enhanced STAR funds would be allocated to households using a sliding scale means test based upon increasing household income.
The LIA and the LIEC have pointed out that STAR is not state aid to education but rather a property tax subsidy for qualified homeowners. While STAR is a critically important program, STAR funding has a significantly different purpose and impact than educational aid.
This study was undertaken to evaluate the effect that these new approaches to education aid and property tax relief would have on Long Island overall, and representative residential and business taxpayers in particular. Education aid is a complicated subject that cannot be analyzed easily, or briefly. It also has as many practical effects on taxpayers as there are taxpayers themselves. Consequently, this study tries to present the analysis of the Executive Budget’s proposal in as understandable a way as the facts will allow; and it uses real-life examples of residential and commercial/industrial taxpayers to illustrate its effects in a way that real Long Islanders can apply to their own circumstances.
The Executive Budget’s education aid and STAR proposals would begin to address several of the education aid reforms that the LIA and LIEC have been calling for. It would increase State spending on K-12 education, begin to simplify the education aid formula, and begin to recognize regional cost differences.
The proposal would increase education aid to Long Island school districts by about $113 million. It would, however, reduce education aid dollars for Long Island by about $60 million as compared to the amount the Island would have received if the formulas and shares in place last year remained unchanged. The proposal would provide about $208 million in enhanced STAR funds allocated based upon the household income means test. It would not reinstate the STAR “rebate” program enacted for last year’s budget, which brought about $173 million to Long Island taxpayers.
When education aid allocations and enhanced STAR payments are considered jointly, the proposal is likely to provide a net gain to a majority of Long Island residential taxpayers. However, a significant percentage of residential taxpayers, probably in excess of 25 percent, are likely to lose money as a result of the proposal.
Although there may be a net gain to a majority of Long Island residential taxpayers in the first year of the proposal, we are concerned about the long-range impact of the proposal. In addition to the reduced regional share that the proposal produces, several categorical aids that traditionally have recognized the unusual local financial effort of Long Islanders and the high cost of doing business on Long Island, have not been included in the foundation formula. It is unlikely, therefore, that the formula will keep pace with increasing local effort and costs.
Because, under current law, STAR payments are not made to commercial and industrial taxpayers, the proposal would not benefit businesses on Long Island. In fact, because the proposal would decrease education aid dollars coming to Long Island, which would inevitably increase the property tax levy, the proposal would increase the taxes businesses have to pay. We estimate the total property tax increase for businesses at approximately $116 million in 2007-2008.
That additional burden on business taxpayers would come at a time when Long Island’s economy is struggling to grow. It could have the effect of tipping the region’s economy in a negative direction.
Perhaps most important, however, is that the proposal would not rectify the inequities that Long Island taxpayers have suffered with respect to education aid, inequities that have left them with disproportionate and unfair property tax burdens. The reforms in education funding that the Executive Budget rightly seeks to make will be hollow in our region of the State unless they also set things right for Long Island taxpayers.
We recommend that specific adjustments be made in the proposed foundation formula for 2007-2008 to more fairly account for the inequity suffered by Long Island taxpayers. We recommend that the Governor create a commission to review and revise the foundation formula for future years. We also recommend that the enhanced STAR program sliding scale proposed in the Executive Budget be modified to more realistically and more fairly apply to the circumstances in which most Long Islanders live. And we recommend that the STAR program be extended to commercial and industrial taxpayers so that the STAR program does not continue to represent a shift of the property tax burden from residential to business taxpayers.
In the absence of these changes, which would preserve but modify the Executive Budget’s scheme for education aid and enhanced STAR payments, and which are consistent with our prior recommendations, we continue to call for a more simple solution to the inequities that Long Island has suffered: that Long Island receive a share of education aid that is in proportion to its share of the State’s student population, about 16.8 percent.
Background
Paying the Cost of Education on Long Island
The total budgeted cost of K through 12 education on Long Island last year was $9,132,870,934. Of that amount, $6,363,003,510 was paid by local property tax levies.
Long Island’s 124 school districts receive financial assistance from the State of New York to help defray the costs of providing a K-12 education to the region’s almost 475,000 students. That “State education aid” directly reduces the property taxes that residential, commercial, and industrial taxpayers would otherwise have to pay to support the schools. In 2006-2007, Long Island school districts received $2,175,435,766 in State education aid.
Residential taxpayers also receive School Tax Relief (STAR) payments from the State to further offset the cost of school-related property taxes. In 2006-2007, those STAR payments to Long Island taxpayers totaled $909,067,767. Commercial and industrial taxpayers do not receive STAR payments to offset school-related property taxes.
STAR payments are not education aid, meaning that they do not go to defray the cost of education; they go to residential taxpayers to offset a portion of the school-related property taxes they pay. If the amount equal to Long Island STAR payments were allocated to school districts as State education aid for operations, the Island-wide school-related tax levy would be 14 percent lower.
In 2006-2007, the State provided taxpayers with an additional STAR payment as part of the STAR Local Property Tax Rebate Program (“the rebate”). All residential taxpayers who had registered with the normal STAR program were eligible for the rebate. Commercial and industrial taxpayers, which do not receive STAR payments, were not eligible for the rebate. The amount of rebate varied by school district based upon a formula that included the tax rate for each school district as of July 1, 2004. According to the State Department of Taxation and Finance, the total amount of rebate funds issued to Long Island residential taxpayers before November 15, 2006 was $173,111,584.
Long Island’s School Tax Burden: A Significantly Unfair Gap
Long Islanders use 20% more of their gross household income to pay property taxes than New Yorkers in general; however, our cost of education per pupil is 6.6% below the state average when regional cost differences are considered. Those calculations were made as part of the LIA’s Innovate Long Island program in 2006. A summary of the calculations can be found at A fuller description of that calculation can be found on the Eastern Suffolk BOCES website at
Long Island is more heavily dependent on property taxes than the rest of the State because the State share of education aid to Long Island schools has been decreasing. Thirty-nine Long Island districts last year received less than 10% of their revenue from the State. Fifty-five school districts received 10 percent to 30 percent of their revenue from the State. Only 214 school districts in the state receive 30 percent or less of their revenue from the State, and 94 of those districts, or 44 percent, are on Long Island.
According to the State Education Department’s Fiscal Analysis and Research Unit, as of 2004 Long Island had 16.7 percent of the State’s K-12 students, but received only 12.7 percent of total State education aid.
In addition, a State aid dollar on Long Island buys significantly less than in other regions of the State. The purchasing power of $1,000 in the lowest cost region (North Country) is the equivalent of only $702 on Long Island.
Long Island experienced an average annual enrollment growth of 1.8% over the past 10 years preceding 2003-2004. Enrollment in the rest of the State was essentially unchanged (0.24% annually) during that same period of time.
Long Island has several very wealthy school districts based upon an analysis of combined wealth ratios (CWR). However, several of the “wealthy” districts are small while there are many “poor” large districts. 34 percent of Long Island students live in districts with below average wealth Island-wide; in eastern Suffolk County, that figure is as high as 67 percent. There is a wide gap between perception and reality when it comes to the wealth of Long Island schools.
There also is a wide gap between perception and reality when it comes to the relative cost of education on Long Island.
Long Island’s regionally adjusted per pupil expense ($10,017) is approximately 6.6% below Putnam ($10,727), the county at the median. The largest cost factor for any school district is teachers’ wages. Long Island school districts are near or below the State median for teacher wages at all school levels.
For example, the statewide mean wages for elementary school teachers is $67,180; the mean on Long Island is $67,370. The mean wages for experienced elementary teachers statewide is $81,190; on Long Island the mean is $79,380. For secondary school teachers, the statewide mean is $68,850; on Long Island it is $69,500. The statewide mean for experienced secondary school teachers is $82,310; on Long Island that mean is $81,810.
As a result of all these factors Long Islanders are bearing a disproportionate tax burden. As the following chart shows, when viewed on an overall per capita basis, Long Islanders bear a significantly heavier tax burden than New York City taxpayers.
Estimated Tax Burdens, Nassau-Suffolk vs. New York City, 2004
(Without Additional School Funding)
Indicator / Nassau-Suffolk / New York CityTotal Population / 2,812,212 / 8,164,706
Total Personal Income / $129,427,536,000 / $329,382,839,000
State Personal Income Tax by Residence* / $4,215,550,000 / $7,471,562,000
Real Property Taxes / $8,671,057,602** / $11,251,868,136
NYC Personal Income Tax / N.A. / $6,121,727,000
Total Taxes / $12,886,607,602 / $24,845,157,136
Per Capita Taxes
/ $4,582 / $3,043Per Capita Income / $46,023 / $40,342
Tax Burden (PC Taxes/PC Income) / 9.96% / 7.54%
- 2003 is the latest year available; **Includes taxes for counties, cities, towns, villages, school and fire districts; N.A. – Not Applicable; Sources: Bureau of Economic Analysis, U.S. Commerce Department; New York State Comptroller; New York City Comptroller; New York State Department of Taxation and Finance.
Prior LIA/LIEC Recommendations for Reform
The LIA and LIEC have been calling for many years for fundamental reform of the manner in which State aid to education is calculated and allocated. In 1996, we issued our first joint report on the costs and outcomes in Long Island education, and at that time called for the addition of a regional cost factor in the State education aid formula. Subsequently, former Governor George Pataki several times proposed the addition of a regional cost factor to somesignificant parts of the education aid calculation, but the Legislature never adopted it.
Last year, the LIA’s Innovate Long Island sub-committee on K-12 Costs, Outcomes, and Funding made several recommendations that were adopted by the LIA and LIEC. They were:
- Substantially increase education funding in New York State. Even an additional $3.9 billion will only increase the share to the national average of 48.7%.
- Establish State Aid Formulas that:
- recognize regional cost differences within the State
- recognize differences in school district needs based upon demographic, achievement and wealth data
- guarantee every school district a minimum share of State aid
- provide multi-year appropriations to improve planning
- simplify the existing complex system
- In the absence of increased funding, and the establishment of formulas that are responsive to these priorities, the share of state education aid directed to Long Island should be increased. The share should be equal to the share of statewide enrollment (16.7%) on Long Island. This would drive an additional $850 million in aid to Long Island school districts.
The Executive Budget Proposal in General
The 2007-2008 Executive Budget proposes to significantly change education funding in general. It would eliminate over 30 separate school aid elements that, collectively, make up the current overall State school aid formula. It would replace them with a “foundation aid” formula, which, among other things, would include a regional cost index.