Upstate New York Taxpayers Pay up to $6 Billion in Extra Taxes, Study Finds

Published November 1, 2004

Upstate New York taxpayers paid as much as $6 billion more in state and local taxes than they would in an average state, mostly because of the state’s far-above-average levels of spending on Medicaid and local government payrolls, a new report from the Public Policy Institute of New York State shows.

Only aggressive actions to trim local government payrolls and reduce–not merely shift–the state’s Medicaid spending will ease the burden and reduce its drag on the upstate economy, the report found. The report, “How High Is the Upstate Tax Burden–and Why?” was released on August 16.

“Upstate’s businesses and taxpayers are paying state and local taxes that are about $5 billion to $6 billion a year higher than they would be if they were living in, say, Ohio,” the report said. “And that’s more than enough to impose a significant drag on the region’s economy–one reason Upstate’s job growth has lagged behind competing states’ for so long.”

Local Taxes a Key Factor

State income taxes per capita upstate are about 22 percent above the national average, which means upstaters pay about $800 million a year above the norm. But the disparity in local taxes is even higher: about 55 percent above the national average. That costs upstate taxpayers about $4.2 billion a year more than they would pay if they paid local taxes at the national average per capita, the report noted.

The difference includes higher property taxes (more than $3 billion extra per year) and higher local sales taxes (more than $1.3 billion extra per year.)

“In Monroe County, for example, property taxes collected by all units of local government (the county, school districts, Rochester, towns, etc.) in 2001 added up to almost $1,400 per capita–about 70 percent above the national average,” the report found. “Property taxes in Albany County appear to have been about 75 percent above the national average per capita. In Broome County the gap was about 46 percent; in Erie County, about 42 percent; in Onondaga County, about 48 percent; in Oneida County, about 25 percent.”

Local sales taxes upstate are even farther above the national norm in percentage terms, the report noted. “Local sales taxes per capita upstate were $369 in 2001, or about 110 percent above the national average–some $1.3 billion higher than they would have been if they had matched the national average. In Ohio, by contrast, local sales tax collections per capita were less than half the national average.”

Payroll, Medicaid Costs Drive Taxes Up

Upstate’s taxes are so far above average because spending is higher, especially in two key areas: government payroll and Medicaid, according to the report.

Upstate local governments have some 93,500 more employees than they would have if they merely matched the national average ratio of local government workers to population, the report noted. This excess of more than 25 percent costs upstate taxpayers more than $4 billion extra a year.

New York’s Medicaid program costs upstate taxpayers about $1 billion more a year in state and local taxes than it would if it matched the national average per recipient.

As of 2001, total Medicaid spending upstate was about $2 billion more than the program would spend there if New York reduced its cost per recipient to the national average. In other words, if New York held its Medicaid spending to the national average, upstate taxpayers would save about $1 billion in their state and local taxes. (The other $1 billion in savings would go to the federal government).

State and Local Action Essential

Cutting high local spending and taxes will require action both in Albany and locally, the report noted. Locally, “serious and difficult initiatives”–such as consolidation of governments or government services–will be required. And “Albany, meanwhile, must reform its ‘mandates’–the state rules that help drive up so many costs at the local level–from Medicaid to collective bargaining to the restraints on governmental consolidation, downsizing and/or privatization,” the report concluded.

The report highlighted an irony in the debate about managing the state’s burden of Medicaid spending: the fact that a state takeover of Medicaid spending would actually cost upstaters even more money.

“The most often-recommended ‘cure’ for the Medicaid burden on upstate taxpayers is for the state government to take over the local share of the cost, thus easing the burden on the property tax,” the report said. “Ironically, however, this would backfire on upstate taxpayers as a whole. Unless the program were drastically reformed first, upstate taxpayers would end up paying at least $250 million more in state taxes than they would gain in local tax relief.”

A state takeover of the local share would tend to shift money to New York City and, based on 2001 spending and tax patterns, increase upstate taxpayers’ state taxes by about $1.08 billion while decreasing their local taxes about $815 million, for a net loss of more than $250 million, the report noted.

“Solving upstate’s high tax problem requires two key things: downsizing local governments and cutting, rather than just shifting, the cost of Medicaid,” the report concluded. “Neither step will be easy. But both are essential.”

David F. Schaffer ([email protected]) is president of the Public Policy Institute of New York State.

For more information …

The Public Policy Institute of New York State’s August 16 report, “How High Is the Upstate Tax Burden–and Why?” is available on the group’s Web site at