LONG ISLANDERS SOCKED WITH ‘DINAPOLI TAX’ $1,300 Property Tax Hike Per Family Coming
New York, Aug. 5…New York State homeowners living outside of New York City can expect their property taxes to rise an extra $1,300 on average over the next six years because of a secretive pension borrowing scheme passed by the New York State Legislature Tuesday night, state comptroller candidate Harry J. Wilson (R-C-I) today said. Mr. Wilson has been warning about this tax hike, aka ‘The DiNapoli Tax’, for weeks.
The secretive borrowing scheme, the brainchild of unelected state comptroller Thomas P. DiNapoli (D-WFP), authorizes the state to borrow money from the state pension fund to make constitutionally required payments to that very same fund, with interest. The plan, which was devised to hide the massive under-performance of the pension fund relative to its 8% target return, will lead to higher property taxes everywhere in the state, except New York City, which maintains its own public employee retirement fund, Mr. Wilson said. Under New York State law, state and local governments are required to make up any shortfalls in the state pension fund, and that money is typically raised at the local level through property taxes, or other tax hikes.
Mr. Wilson made his remarks at a news conference in Suffolk County, where he was joined by State Senator John Flanagan, Assemblymen Phil Boyle, Jim Conte, Mike Fitzpatrick and Dean Murry. Mr. Wilson was also joined by Suffolk Legislators Tom Cilmi and Dan Losquadro.
“New Yorkers are reeling from some of the highest property taxes in America, and thanks to Mr. DiNapoli, their taxes will be climbing even higher,” Mr. Wilson said. “Mr. DiNapoli was supposed to be looking out for taxpayers, but his irresponsible pension borrowing scheme puts the screws to them instead. It is Albany fiscal gimmickry at its worst, and, as usual, the people of New York State are now stuck paying for it.”
Mr. Wilson said that, based on the best available information, he estimates that under the DiNapoli scheme:
1. In just the first six years, the State will borrow over $4.5 billion, and local governments will be able to borrow in excess of $6 billion, totaling roughly $11 billion in actual or potential borrowing. Because the most recent version of the plan is an indefinite program, this massive borrowing will only grow in later years;
2. The associated interest expense, assuming the midpoint of the publicly stated range, or 5%, will be in excess of $3 billion for the state and local municipalities combined;
3. Over the next six years, the pension contributions of state and local governments will roughly triple —- even assuming heroic but unlikely performance in the markets. For the average New York household, their share of these pension contribution costs will increase from just over $500 per household to over $1,800 per household - a $1,300 ‘DiNapoli Tax’ for every household outside New York City.
4. It has been reported that these scenarios are based on the State Comptroller’s expectation that pension returns going forward will mirror returns from the period after the 1987 market crash. If those reports are correct, based on the current portfolio mix of the pension fund, the Dow Jones Industrial Average would have to hit 80,000 by 2022. If, instead, the Fund is basing its projections on its current, but also overly aggressive, 8% return assumption, then the Dow would have to hit nearly 30,000 by 2022. Both of these return scenarios dramatically exceed recent history and the expectations of professional investors. This enormous disparity highlights how important the Comptroller’s assumptions are to the policy debate, and he should provide transparency so that voters can evaluate exactly what he is proposing.
5. Mr. DiNapoli’s sole defense is that his plan is a “smoothing” plan that creates reserve accounts in good times. Yet two facts underscore why this defense is misleading:
a) Under Mr. DiNapoli’s own projections, these reserve accounts don’t come into being for at least 15 years, and possibly much longer;
b) In the only other time in New York State history that such a plan was tried, Alan Hevesi’s “one-time-only” plan also created reserve accounts but borrowed a tiny fraction of the amount available here. Those planned reserve accounts never came into use, yet New Yorkers still owe 60% of the original borrowing and pay nearly $100 million per year to pay off that borrowing. As unsuccessful as the Hevesi plan was, Mr. DiNapoli incredibly is seeking to expand it by 20 times or more - creating the largest Ponzi scheme in New York State history.
Mr. Wilson further said that, “given the lack of transparency provided by the comptroller on key assumptions surrounding this pension borrowing plan, we are limited in our ability to exhaustively analyze it, but based on our best estimates and the best available information, we believe the Comptroller is walking New York State into a fiscal disaster. We first raised this issue well over a month ago, and the Comptroller has yet to come clean with New Yorkers on his assumptions. We await him living up to his responsibilities to taxpayers.
Mr. Wilson again challenged Mr. DiNapoli today to show us other scenarios his office has run so we can see what happens to the Pension Fund if returns don’t mirror the best span the Fund has had. Mr. Wilson said the unelected incumbent state comptroller, who first proposed the controversial Pension borrowing scheme in May 2009, needs to explain this borrowing plan to the public. Mr. Wilson specifically urged him to make clear exactly:
—How much will be borrowed over the next 6 years, both by the state government and by local governments?;
—How much interest expense will that borrowing cost NY taxpayers?;
—How large will the contribution levels be in future years?, and
—How much worse will these problems be under more realistic market scenarios?