The 2016 Tax Cap Is Going to Be Less Than 1%

The New York State 2016 allowable tax levy increase (the "2%" tax cap) looks like it will be less than 1% next year. As we've previously discussed, the New York State tax levy limit is 2% or the rate of inflation, whichever is lower.

Based on a moving average of CPI-U (consumer price index for urban customers), it appears as if the maximum growth factor will be about 0.7%.

Here's some context:

The reason is primarily a reduction in energy costs. I don't think that anyone could foresee the price of oil literally getting cut in half as it did at the end of 2014.

The CPI-U includes food and energy, but many other measures of inflation, including metrics that are used by the Federal Reserve, are showing inflation to be between 1-2%:

Regardless of which metric measures the "true" rate of inflation, New York is using the CPI-U, which includes energy.

This creates a very strong political incentive to keep municipal budgets relatively flat.

I was an initial critic of the tax cap, since any municipal board could easily override it (school districts must bring the vote to the public). Yet in practice, the perception of the voter to expect a 2% tax increase or lower has proven to be a very powerful concept.

We'll see how it plays out.