Explaining the tax cap

PINE PLAINS — To help the public better understand the new regulations put on the education system’s finances, the Pine Plains Board of Education (BOE) presented an overview of the new rules.Michael Goldbeck, assistant superintendent of business and finance, gave the presentation during the BOE meeting on Wednesday, Nov. 16.Since the most important of the new regulations deals with the limits placed on school district tax levies, Goldbeck began by defining a tax levy. He called it “the total amount of property taxes a school district must collect to balance its budget after accounting for all other revenue sources, including state aid.”He said the tax levy is just one of the factors, some of which are outside the district’s control, that is used to determine the tax rate for each town and village in the school district.He explained that Chapter 97 of the Law of 2011 “establishes a ‘property tax cap’ on the amount that the property tax levy of a school district can increase each year.”The tax cap will go into effect for the 2012-13 school year and will remain in effect until at least the 2016-17 school year, but it will continue as long as New York state maintains its rent control laws.“Under this law, the growth in the property tax levy ... will be capped at what is referred to as a ‘Tax Levy Limit,’ determined by each district according to a formula outlined in the law. The ‘Tax Levy Limit,’ which will vary from district to district, is the highest allowable tax levy ... that a school district can propose as part of its annual budget.”The “Tax Levy Limit,” which is recalculated each year, is determined by a complicated formula that takes several factors into account, including the prior year’s tax levy, the tax base growth factor and PILOTS (Payments In Lieu Of Taxes) receivable.That “Tax Levy Limit” is then plugged into an additional formula to calculate the “Allowable Tax Levy Limit,” which, when broken down into its simplest components, is equal to the “Tax Levy Limit” for the year plus or minus the “Adjustment for Transfer of Function” plus the “Fiscal Year’s Exemptions.”Goldbeck noted that “current guidance indicates [Transfer of Functions] will have limited application to school districts.”The tax levy, which is directly tied to the district’s budget, is passed when the proposed budget is passed.A budget with a tax levy under the “Allowable Tax Levy Limit” needs only a simple majority — 50 percent plus one vote — to pass.The district is allowed to override the tax cap and propose a budget with a tax levy higher than the allowable limit, but it can only be passed with a super majority — 60 percent plus one vote. If only a simple majority is achieved, it is still considered a defeat of the budget. If that happens during the first time the budget is put to vote, the district can review and alter the budget before putting it to a second vote. If the defeat happens during the second public vote, the district would go straight to contingency.If the district proposes a budget that would exceed the Tax Levy Limit, the district is required to include an explanatory statement on the ballot.All budgets, both those under and over the tax cap, can go before the voters a maximum of two times, as was allowed before the new limits were put into place. Also as before, districts that fail to pass a budget during those two votes are required to adopt a contingency budget.Chapter 97 keeps the current requirements and restrictions on contingency budgets, but it also adds a tax levy increase of 0 percent.“While the law has been referred to as a ‘2 percent tax cap,’ it does not restrict any proposed tax levy increase to 2 percent,” explained Goldbeck. “The lesser of 2 percent or the rate of inflation is just one of several factors in the calculation of a district’s tax levy limit.... The tax levy limit is therefore not truly a limit but a threshold to establish the level of voter support that will be required for approval.”Goldbeck emphasized that the cap does not apply to individual property taxes, individual tax bills or tax rates; it only applies to the tax levy.Chapter 97 also requires districts to create a special reserve if the actual levy ends up exceeding the Allowable Tax Levy because of a technical or clerical error or because of an audit conducted by the Office of the New York State Comptroller. In the case of an overage, “the excess amount must be placed in a reserve [and] that amount, plus any interest, must be used to offset the levy in the following fiscal year,” said Goldbeck.During the discussion that followed the presentation, Goldbeck explained that one of the difficulties related to the tax cap limit is the recent steady decrease in state aid.State aid lost by each district must be recovered by some other means in order to maintain the same level of funding. Goldbeck said that the lost state aid will generally be made up through an increase in the tax levy.Because of the limit on the tax levy increase, there is the potential that the overall budget will have to decrease from year to year in order to stay under the tax levy limit.