New York Tax Cap Challengers Lose First Round

in New York, New York Litigation, NEWS FROM THE ACCESS NETWORK

The state teachers union and other plaintiffs challenging a state property tax cap enacted in 2011 by Governor Cuomo and  the New York state  legislature suffered a set-back in September when a state supreme court judge granted the state’s motion to dismiss the claim. The trial court Judge Patrick McGrath , did, however, leave the door wide open for plaintiffs to continue their war on the tax cap.  Plaintiffs were granted leave to amend their complaint to include additional claims against the recently enacted “tax freeze,” which provides tax credit incentives to taxpayers in districts that do not approve budgets in excess of the statutory cap. Plaintiffs have indicated that they intend to continue the fight.

New York State United Teachers (NYSUT), along with eight individual plaintiffs, sought to have the New York state tax cap declared unconstitutional as applied to school districts.  The so-called tax cap, formally Education Law §2023(a), was enacted in 2011 to, in the words of Governor Cuomo’s spokesperson, “restore fiscal sanity to the state.” Accordingly, the tax cap requires localities seeking to raise real property taxes in excess of 2% or the increase in inflation in the base year, whichever is lower, to first obtain a 60% supermajority approval of voters or elected board members.  Plaintiffs attacked the tax cap on numerous constitutional grounds, including violation of the state constitution’s Education Article and Equal Protection Clause, among other claims.

Before dismissing each of plaintiffs’ claims, the trial court ruled that the plaintiffs had standing to pursue their action. This ruling was important because of its implications on future challenges brought by these or other plaintiffs.  As plaintiffs argued, dismissal on such grounds would have “effectively insulated” an important constitutional issue from judicial review.  On the merits, the court emphasized that legislative enactments in New York “enjoy a strong presumption of constitutionality,” and that facial challenges may only succeed by establishing “that the law is unconstitutional in all of its applications.”

The court interpreted both Board of Education Levittown Union Free School District v. Nyquist, 57 NY2d 27 (1982), and Campaign for Fiscal Equity v. State, 87 NY2d 307 (1995), to allow “disparities in educational funding among school districts arising from the State’s financing scheme [which are] rationally based upon and reasonably related to a legitimate State interest, the preservation and promotion of local control of education.”

It was within this framework that the court characterized plaintiffs’ claims as a recasting of the rejected arguments in Levittown by “property-poor” districts that were unable to raise as much local tax revenue as “property-rich” districts, resulting in funding inequities.  The court also found that plaintiffs’ claim was “one-step removed from a true Education Article claim” since it was the voters in the contested elections who elected not to raise additional funds and withhold resources from students – not the state.  The court then admonished plaintiffs for conflating the effective exercise of local control with budget approval.  According to the court, “local control is still served if a ‘cap’ exceeding budget is disapproved by a district’s voters.”

Judge McGrath also rejected plaintiffs’ pleas for the court to declare education a fundamental right under New York state law. Because the court declined to reconsider whether education is a fundamental right in the state, the rational basis test applied to the legislature’s decision to enact the tax cap. The court found that the state had a rational basis in retaining jobs and businesses in the state, which might otherwise flee to less taxing jurisdictions given the prospect of increasing real property taxes, and accordingly dismissed plaintiffs’ equal protection claims. The court also rejected the plaintiffs’ claim that the supermajority requirement violated the “one-person, one-vote” principle, as well their freedom of expression and substantive due process claims.

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