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Department of Taxation and Finance

Compensating Local Governments for Loss of Tax Base Due to State Ownership of Land

September 1996

I. BACKGROUND

In August 1995, Governor George E. Pataki directed that the New York State Office of Real Property Services (ORPS) study methods of compensating local governments for any burden imposed by the presence of state-owned land within their boundaries. Expressing concern that State ownership of land can negatively impact local property tax bases, and that the State's policy of compensating local governments for such losses needs to be "uniform, equitable, and comprehensive," the Governor asked ORPS to review the compensation system currently used in New York and any feasible alternatives to this system.

This report presents ORPS' findings and recommendations. It summarizes the results of a comprehensive study which: (1) reviewed the many compensation arrangements now used in New York; (2) compared the methods used by other states to New York's; (3) determined the levels of compensation prevailing in New York under the current system, and (4) analyzed the distribution of these compensation payments in relation to the distribution of state-owned acreage. The study concludes with recommendations for a revised approach, to be implemented on a statewide basis.

The remainder of the report is organized as follows. Part II discusses the legal and fiscal issues associated with government ownership of real property and reviews New York's compensation programs in relation to alternative arrangements. Part III describes the current distribution of state payments among taxing jurisdictions (counties, cities, towns, villages, and school districts) in relation to the prevalence of state-owned land in those same localities. Part IV presents specific recommendations for creating a uniform. statewide policy for compensating local governments and Part V summarizes the cost of such compensation to the state, to the extent that it can be estimated. Appendix A discusses the data used and the correction procedures that were required in enumerating the state's land holdings and identifying those land uses considered eligible for the recommended reimbursement program. Appendix B presents detailed acreage estimates -- counties, towns/cities, villages, and school districts -- of state lands that would be eligible for compensation under the proposed program. Appendix C describes the experience of the City of Rochester in implementation of a program under which tax-exempt property -- both government owned and privately owned -- is charged a fee for certain local government services.

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