New York’s “Real Property Tax Cap” and “Real Property Tax Freeze Credit” Survive Challenge

In a recent decision, the Albany County Supreme Court upheld the “Real Property Tax Cap” and “Real Property Tax Freeze Credit” provisions of New York’s Education Law against a challenge from New York State United Teachers (“NYSUT”)

Background

In 2011, due to rapidly increasing property taxes levied by local governments and school districts, New York enacted Education Law § 2023-a (“Real Property Tax Cap”). The Real Property Tax Cap imposes a soft limit on the amount of property taxes that may be levied by, or on behalf of, any school district. Governmental entities seeking to levy taxes in excess of the soft limit must obtain the approval of a supermajority (60%) of a local government’s governing body or, in the case of a school district, the district voters.

To further encourage governmental entities to slow the growth of property taxes, New York enacted Education Law § 2023-b (“Real Property Tax Freeze Credit”) in 2014. The Real Property Tax Freeze Credit provides a tax credit to eligible homeowners residing in districts that stay within the soft limit imposed by the Real Property Tax Cap.

NYSUT initially brought a lawsuit in Albany County Supreme Court only challenging the Real Property Tax Cap. The Court dismissed the lawsuit, but allowed NYSUT to bring an amended lawsuit, which also challenged the Real Property Tax Freeze Credit.

Albany County Supreme Court Upholds New York’s Real Property Tax Cap

In the amended lawsuit, NYSUT raised three arguments challenging the constitutionality of the Real Property Tax Cap. The Albany County Supreme Court rejected all of them.

First, NYSUT contended that the Real Property Tax Cap violates the Education Article (Article XI) of the New York Constitution by eroding local control of education spending, which has the effect of limiting educational opportunity everywhere. The Court dismissed this argument and noted, “[s]ince the decision to raise funds lies with the voters, [the] State itself is not withholding any resources that deprive students of a sound basic education.”

Second, NYSUT challenged the supermajority requirement of the Real Property Tax Cap on equal protection grounds. NYSUT asserted that the votes of those who favor exceeding the tax cap are given 2/3 the weight of those who oppose exceeding the cap, which violates the equal protection clause of the New York and United States Constitutions. This argument failed, as the United States Supreme Court has routinely approved supermajority requirements in the past despite equal protection objections.

Third, NYSUT argued that the Real Property Tax Cap violated the vested liberty interest in the right to provide and direct children’s education by increasing the difficulty to raise education funds. The Court also rejected this argument reasoning that a statute that merely places the ability to control a school budget in the hands of voters, albeit by a supermajority margin, does not interfere with the liberty of parents and guardians to direct children’s education.

Albany County Supreme Court Upholds New York’s Real Property Tax Freeze Credit

NYSUT raised two arguments in attacking the constitutionality of the Real Property Tax Freeze Credit. First, NYSUT contended that the Real Property Tax Freeze Credit violates substantive due process rights in a “wholly irrational way.” The crux of its argument was that the income taxes of residents of poor districts who exceed the cap are subsidizing wealthy district residents that stay within the cap, and that this “reverse Robinhood” scheme is simply irrational. The Court, however, was unconvinced. Rather, according to the Court, the Real Property Tax Freeze Credit was a rational reaction to increasing property taxes in New York State.

Second, NYSUT argued that the Real Property Tax Freeze Credit abridged district residents’ freedom of speech by coercing them to vote against raising property taxes to exceed the soft limit.

The Court rejected this argument, and reasoned that the receipt of the credit is not dependent on voting to stay within the cap; one who votes against the cap can receive the tax credit. Therefore, the Real Property Tax Freeze Credit does not burden a resident because of the content of his or her speech.

The Future of New York’s Real Property Tax Cap and Real Property Tax Freeze Credit

NYSUT has already announced its intentions to appeal the decisions. The Real Property Tax Cap and Real Property Tax Freeze Credit, however, will remain in effect during the appeals process.

New York’s Real Property Tax Cap is officially set to expire June 15, 2016. However, due to political bargaining in its enactment, the Real Property Tax Cap will remain in effect only as long as New York City’s rent-control laws, which are due to expire in June 2015. Those whose interests are affected by the Real Property Tax Cap and Real Property Tax Freeze Credit should monitor NYSUT’s appeal and the political process surrounding the rent-control extension.

Additional Assistance

For more information regarding New York’s Real Property Tax Cap and Real Property Tax Freeze Credit, please contact any of the attorneys on our Government Operations Practice Team.