Some Thoughts on Tax Exemptions in the Ulster County Budget
Did you know that New York State law requires county government budgets to include a report every year on the value of all real property within the county that is exempt from property taxation? For example, in Ulster County, New York, this year there are 15,673 properties on the rolls with either full or partial property tax exemptions, organized in 98 categories in accord with the provisions of law that created them, with a total value of $3.642 billion. This total comprises just over 15 percent of the aggregated value of all real property in the county in 2019 (roughly $20 billion).
Some of these exemptions exist for just plain common sense reasons. For example, it would be absurd for a local government to tax its own properties or those of other local governments serving all or some of the same people. Think about it: if there were no exemptions for public properties owned by local governments, the county would have to increase the levy on you and me to get the money to pay taxes to itself, towns, villages, and school districts – raising our tax burden.
That said, there are some exceptions, provided for in the law when a benefit gained by the people in one jurisdiction may excessively burden those in another. The excellent new first-time Popular Financial Report just released by County Comptroller March Gallagher notes that Ulster’s top property taxpayer was the New York City Department of Water; it paid the county and localities within its watershed taxes on properties valued at $1.239 billion in 2019.
Many exemptions are required by the state constitution or state law. The idea here is that the exempted properties – sometimes state owned, sometimes owned by not-for-profits – provide social benefits and a stimulus to local economies. If the exempt property is privately held, it is additionally argued (by some) that the public benefit is often less costly than it would be if the facility or service were directly provided by government. This case was made in a Benjamin Center regional open space study, for example, in defense of the state constitutionally-based exemption that benefits the Mohonk Preserve. But local leaders frequently balk at the state “mandated” character of these sorts of exemptions, framing them as the absence of local choice. They often say that most of the benefits these exemptions provide are regional, statewide or even national, while the locality bears the uncompensated costs in lost tax base, increased operating costs, burdens on infrastructure and altered quality of daily life.
Some exemptions, like those for military veterans and senior citizens, do provide for local choice by municipalities and school districts. Most jurisdictions opt in to provide them. They are partial; the entire value of eligible properties may not be exempted. For seniors, there are income eligibility thresholds. This year in Ulster County there are 6,939 veterans’ exemptions with a total value of $290,490,487 and 3,108 senior citizen exemptions with a total value of $242,433,850. If these properties were fully taxed at this year’s tax rate, those with veterans’ exemptions would provide $1,071,026 in revenues and those with senior citizens exemptions $893,844. Or alternatively, if the levy remained the same, the overall tax rate would have been lowered by 2.5 percent.
Public finance experts call these sorts of partial exemptions “tax expenditures.” They benefit individuals in particular constituencies, but do not appear as spending in the budget. For the most part, once adopted as policy, this makes them less visible in annual deliberations over budget choices. For comparison, consider the amounts budgeted by the county this year to be spent for Veterans Services and the Office for the Aging. The total for Veterans Services is $897,845; about half of this expense ($482,563, 53.7 percent) is met from locally raised revenue. The proposed budget for the Office for the Aging is $3,162,922, of which just $317,679 (10 percent) is locally raised. That is, veterans and seniors get far more county taxpayer support from tax expenditures than from spending reported in the county’s operating budget.
To be clear, this is not an argument for elimination of tax exemptions for veterans and/or seniors. In fact, I am both a veteran and a senior. (I qualify for the former exemption, not the later.) I do think, however, that these “tax expenditures” on the revenue side of the budget should be made more visible and known with regular review, as are other county government financial commitments. This might best be achieved by including them – along with all the other local choice tax exemptions – within the appropriate departmental accounts, in a separate category in the county’s operating budget. This would make the totality of what the county funds, how it’s paid for and who benefits clearer to both decision makers and citizens.