By ADAM SICHKO
asichko@bizjournals.com | 518-640-6818

Pensions for government workers will pry the lid off a new cap on property taxes as municipalities begin preparing budgets for next year.

Pension rates for counties, cities and towns have risen to their highest mark in at least three decades, according to state Comptroller Thomas DiNapoli.

As a result, municipal budgets will surpass limits on property taxes put in place this year by Gov. Andrew Cuomo and the state Legislature.

Businesses paid $21 billion in property taxes in 2010, an increase of 6 percent. The cost underscores the reality that property taxes are often the largest tax a business pays, whether by owning its site or leasing office space.

"One single cost-driver - pensions - single-handedly consumes the entire tax cap, not to mention soaring health insurance costs, contractual pay raises and rising energy costs," said Peter Baynes, executive director of the New York Conference of Mayors and Municipal Officials.

"Taxpayers will pay for it. The only unknown is how much," Baynes said. "It is a grim reality."

The state's $146.5 billion pension fund is the third-largest public system in the nation based on its asset value.

Today, the assets are almost $10 billion shy of their pre-recession levels, which were a record high. Localities have had to contribute more as investment income slid.

Pension rates take into account the previous five years - meaning that the rocky stock market from the recession continues to drive rates higher.

"I remain confident that our long-term investment strategy will help us to weather this volatile economic environment," said DiNapoli, the fund's trustee.

The tax cap limits annual increases in local property tax levies to 2 percent or inflation, whichever is lower. Business lobbies heralded the cap as a way to start blunting the state's bad reputation for having high business costs.

Any pension expenses beyond the 2 percent mark are exempt from the tax cap's restraints. This means localities can raise taxes beyond 2 percent so they can cover those additional costs.

This story originally appeared in The Business Review of Albany.