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TAX LAW NEEDS FINE-TUNING

MAYOR GRIFFIN'S proposed 1989-90 budget carries a tiny decrease in the property tax rate for homes, but an increase of more substance in the rate for apartments and commercial property.

Voters in the Kenmore-Town of Tonawanda School District last week approved a budget in which the tax rate for apartments and commercial property is 83 percent higher than the tax rate for homes.

What's going on here?

It's the working of a 1981 state law that allows local taxing jurisdictions undergoing a revaluation to split their taxable real estate into two classes, each with its own tax base and tax rate. One-, two- and three-family homes constitute the homestead class and all others the non-homestead class. The percentage of the total tax levy paid by each class is frozen at its level in the year before revaluation. The idea is to prevent a major shift in the tax burden from commercial to residential owners whenever revaluation at full value occurs.

That was a proper goal in 1981, and it still is. But the 1981 law needs some fine-tuning, possibly some additions to the formula to keep the difference in taxes paid by the two classes within certain bounds.

Buffalo's city government and the Ken-Ton schools provide differing examples of why the State Legislature should re-examine the 1981 law. In each case, the 1981 formula is producing a result increasingly weighted against the non-homestead property owners.

Griffin's recommended budget keeps unchanged the total amount being levied against all properties. But his budget calls attention to the issue because the workings of the 1981 law oddly translate into a tax rate decrease of 10 cents for each $1,000 of assessed valuation for homestead properties and a 62-cent increase for non-homestead properties. The more significant point is that over two years the city's tax rate for homestead properties will show a five percent increase and the rate for non-homestead properties will go up 10.3 percent.

The disparity results because the homestead tax base is growing, meaning that there is greater assessed valuation to pay the fixed percentage of the tax levy charged to that class. On the other hand, the non-homestead tax base has been dropping, meaning that the fixed share of the tax burden has to be paid by fewer taxpayers.

Over the past two years, Buffalo has gained more than $22 million in valuation on the homestead side and lost about $83 million on the non-homestead side. Non-homestead declines may well continue. The state has ordered the phased removal of telecommunications equipment from the tax rolls, one important reason for the most recent decline.

In addition, every time a business development is aided by industrial revenue bonds, the accompanying tax break means that the new development offers no immediate help in picking up part of the tax burden from other non-homestead owners.

When Buffalo started using the 1981 law two years ago, the tax rate for non-homestead owners was 26.7 percent higher than the rate for homestead owners. The difference between the two tax rates is up to 33.2 percent in Griffin's budget for 1989-90.

Ken-Ton schools started the two-tier system in 1986-87 with a much greater difference in the rates, and the difference is increasing. For that first year, the tax rates were $12.80 for each $1,000 of assessed valuation for homestead properties and $22.79 for non-homestead, a disparity of 78 percent. The gap has gradually increased in the three years since to the 83 percent level in the 1989-90 budget.

The present system may appear to benefit homeowners, but too large a tax disparity can be dangerous to all. If the tax burden on commercial property becomes too great, it can act as a deterrent to business growth and a threat to business stability to the detriment of everyone.

Erosion of a community's non-homestead tax base could snowball. Tax-base decline leads to higher non-homestead tax rates for the remaining taxpayers. If those higher rates cause further tax-base decline, the skid is on.

Consequently, it makes sense that there should be a limit of some sort to the disparity between the tax rates of the two classes.

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