Originally published in Issue 16 - December 1, 1997

STaR Revisited

In August, New York State enacted a version of the School Tax Relief (STaR) program to reduce local taxes that support schools and increase state school aid to localities. When fully implemented, STaR will pump an additional $800 million into New York City schools and provide $620 million in property and personal income tax relief per year to city homeowners and residents. As enacted, the city will receive $118 million more in school aid and $464 million more in tax cuts than under the Governor's original STaR proposal (analyzed by IBO in April).

Educational Aid
By altering the school aid formula and increasing state categorical education grants, the enacted STaR program will increase statewide school aid to localities by $679 million in the 1997-98 state budget. New York City will receive 39 percent ($267 million) of this statewide increase. If the city continues to receive this share and the funding commitment to this program continues, it would realize an additional $800 million in school aid in budget year 2001-02.

Still, the city's share of nearly $11 billion in total state school aid in 2001-02 would be 35 percent, well below the 37 percent share of the state's students enrolled in city schools-one guide in considering state aid equity.

Tax Relief
Under STaR, New York City homeowners would receive $156 million in property tax relief annually, the same amount as contained in the original proposal. (All of the new property tax relief funds added to the original proposal are directed to upstate and suburban communities.) In recognition that New York City residents, unlike most other New Yorkers, also fund education in part through the city's personal income tax (PIT), STaR includes a $464 million annual PIT relief program that combines a 10 percent rate reduction with a flat, $125 per household ($62.50 for single filers) refundable tax credit.

City taxpayers are expected to receive 23 percent of the statewide tax relief program, a 14 point increase from the original proposal. This proportion is closer to the city's 29 percent share of statewide education funds raised and spent locally, but falls well short of the 40 percent city share anticipated in the Mayor's executive budget.

The city's wealthiest taxpayers disproportionately benefit from STaR's tax cuts. Over a third of PIT relief goes to the wealthiest 10 percent of City residents. Because no attempt was made to target PIT benefits to renters, relatively well-off owners of City homes, co-ops, and condos, whose average incomes are well above renters, get two bites of the STaR tax relief apple. As a result, most of the $620 million annual total PIT and property tax savings benefits only those in the top fifth of the city's income distribution.