On June 24, 2011, Governor Andrew M. Cuomo signed into law Chapter 97 of the Laws of 2011 (the "Act"), which includes significant limitations upon school district real property tax levies, delays the date of commencement of building aid, provides limited mandate relief and creates a Mandate Relief Council to identify and repeal unsound and unduly burdensome laws and regulations.
School District Tax Cap
Overview
- The Act imposes a limit on all school districts (other than the "Big 5" city school districts: New York City, Yonkers, Syracuse, Rochester and Buffalo) by limiting annual property tax increases to the lesser of 2% or the rate of inflation (the "School District Tax Cap").
- School districts must implement the School District Tax Cap commencing with the 2012 - 2013 fiscal year. The School District Tax Cap will remain in effect through June 15, 2016, unless otherwise extended.
- The School District Tax Cap may be exceeded by a 60% vote of school district voters.
- Certain costs are excluded from the calculation of the School District Tax Cap (see "Exclusions from the School District Tax Cap" below).
- School districts are required to calculate their School District Tax Cap and submit the information no later than March 1 of each year to the Commissioner of Education, the State Comptroller, and the Commissioner of Taxation and Finance and are required to include information about their School District Tax Cap on their property tax report cards.
- School districts are required to submit their budgets for approval by the voters at the school district's annual meeting on the third Tuesday in May. If the proposed budget requires a tax levy that is within the School District Tax Cap, then a majority vote is required for approval. If the proposed budget requires a tax levy that exceeds the School District Tax Cap, a 60% vote is required for approval.
- If the proposed budget requires a tax levy that exceeds the School District Tax Cap, the budget proposition must include the following:
- "Adoption of this budget requires a tax levy increase of _____ which exceeds the statutory tax levy increase limit of _____ for this school fiscal year and therefore exceeds the state tax cap and must be approved by sixty percent of the qualified voters present and voting."
- Any separate proposition that would cause the School District Tax Cap to be exceeded also must receive at least 60% voter approval.
- If the proposed budget is not approved by the required margin, a school district may resubmit the original budget or a revised budget to the voters on the third Tuesday in June, or adopt a contingency budget that levies a tax levy no greater than that of the prior fiscal year.
- If the resubmitted and/or revised budget is not approved by the required margin, the Board of Education must adopt a budget that requires a tax levy no greater than that of the prior fiscal year (i.e., a 0% increase in the tax levy). Clarification may be needed to determine whether a Board of Education must adopt a budget that requires the same tax levy amount as used in the prior fiscal year, or whether changes to the levy are permitted for such purposes as the School District Tax Cap Exclusions or Tax Base Growth Factor (as defined below).
- The Act permits a carryover of up to 1.5% from one year to the next of any amount in which the previous year's tax levy was below that year's School District Tax Cap (the "Carryover Amount").
- The School District Tax Cap includes a base growth factor (the "Tax Base Growth Factor") calculated by the Commissioner of Taxation and Finance to account for any increase in the full value of taxable property.
- Any excess levy funds that are erroneously collected due to clerical or technical errors are required to be placed in reserve as
prescribed by the State Comptroller, and those funds (including interest earned) are required to be used to offset the tax levy for the following fiscal year.
Exclusions to the School District Tax Cap
The Act permits a school district to exclude certain items in calculating their School District Tax Cap ("School District Tax Cap Exclusions"):
1. Court Orders and Judgments – a tax levy necessary to support expenditures resulting from court orders or judgments against the school district arising out of tort actions for any amount that exceeds 5% of the total tax levied in the prior school year.
2. ERS Costs – in years in which the average actuarial contribution rate of the New York State and Local Employees' Retirement System ("ERS") increases by more than 2% from the previous year, a school district may exclude from its calculations the tax levy necessary to fund the school district's employer contributions to the ERS minus 2%.
3. TRS Costs – in years in which the normal contribution rate of the New York State Teachers' Retirement System ("TRS") increases by more than 2% from the previous year, a school district may exclude from its calculations the tax levy necessary to fund the school district's employer contributions to the TRS minus 2%.
4. Capital Tax Levy – a school district may exclude from its calculations the tax levy necessary to fund capital local expenditures ("Capital Local Expenditures"). Capital Local Expenditures are the amount of taxes associated with budgeted expenditures resulting from the financing, refinancing, acquisition, design, construction, reconstruction, rehabilitation, improvement, furnishing and equipping of, or otherwise providing for school district capital facilities or school district capital equipment, including
debt service and lease expenditures, and transportation capital debt service, subject to approval of qualified voters where required by law.
Computation of the School District Tax Cap
The School District Tax Cap is calculated as follows:
1. Determine the total amount of taxes levied for the prior fiscal year.
2. Multiply the result in step #1 by the Tax Base Growth Factor, if any.
The Tax Base Growth Factor is 1 + the Quantity Change Factor determined by the Commissioner of Taxation and Finance no later than February 15 of each year (but only calculated if the Commissioner determines that the Quantity Change Factor is a positive number).
The Quantity Change Factor is the percentage by which the full value of the taxable real property in the school district has changed due to physical or quantity change (e.g., growth due to new construction, additions and improvements to real property, etc.) between (i) the 2nd final assessment roll (or rolls) preceding the final assessment roll (or rolls) upon which taxes are to be levied, and (ii) the final assessment roll (or rolls) immediately preceding the final assessment roll (or rolls) upon which taxes are to be levied.
3. Add any payments in lieu of taxes that were receivable in the prior fiscal year.
4. Subtract the tax levy necessary to support the expenditures for the School District Tax Cap Exclusions, if any.
5. Multiply the result in steps #1-4 by the Allowable Levy Growth Factor. The Allowable Levy Growth Factor will never be less than 1.
6. Subtract any payments in lieu of taxes receivable in the coming fiscal year.
7. Add the Available Carryover, if any.
Delay in the Date of Commencement of Building Aid
For school districts eligible for apportionment of state building aid pursuant to subdivision six of Section 3602 of the New York State Education Law, and whose projects were approved by the Commissioner of Education on or after July 1, 2011, assumed amortization will commence: (i) 18 months after such approval, or (ii) on the date of receipt by the Commissioner of both (a) the final certificate of substantial completion of the project issued by the architect or engineer and (b) the final cost report for such project, whichever is later, or (iii) upon the date of finding by the Commissioner that the certificate of substantial completion of the project has been issued by the architect or engineer, but the school district is unable to complete the final cost report because of
circumstances beyond the control of the district.
Mandate Relief
The mandate relief component of the Act applicable to school districts and local governments is estimated to provide $127 million in overall savings. The Act provides the following mandate relief:
- Affords school districts and local governments the option to directly purchase information technology and telecommunications hardware, software and professional services through Federal General Services Administration Information Technology Schedule 70 contracts.
- Relieves school districts from conducting a census of pre-school students on an annual basis by requiring review and filing every two years, on or before the fifteenth day of October.
- Authorizes boards of educations in certain school districts to enact a policy to provide student transportation based upon patterns of actual ridership.
- Authorizes school districts to provide regional transportation services jointly with other school districts or boards of cooperative educational services for children receiving special education services.
- Increases flexibility in claims auditing by, among other things, (i) allowing school districts to establish by resolution the position of "deputy claims auditor" to act in the absence of the appointed claims auditor, and (ii) permits school districts with an enrollment of 10,000 or more students to audit samples of claims using a risk-based or sampling methodology instead of every claim, so long as the Board of Education determines that all the claims in the sample represent proper charges against the school district.
- Allows up to three school districts each with an enrollment of less than 1,000 students in the previous year to share one school superintendent.
Mandate Relief Council
The Act establishes a Mandate Relief Council comprised of 11 members nominated by the Governor and Legislature: the Secretary to the Governor who will serve as chair, the Governor's Counsel, the Director of the Division of Budget, the Secretary of State, 3 additional members from the Governor's executive chamber staff, 2 members to be appointed by the temporary president of the Senate, and 2 members to be appointed by the Speaker of the Assembly.
The Mandate Relief Council will, among other things: (i) identify and review statutory and regulatory unfunded mandates that can be eliminated or reformed (i.e., statutes, regulations or procedures determined to be unsound, unduly burdensome or costly); (ii) establish procedures for repealing unfunded mandates in both statute and regulation; (iii) provide a mechanism and grant relief for direct appeals from the State Administrative Procedures Act petition; and (iv) issue a detailed annual report by December 15 of each year to the Governor and the Legislature regarding its activities, and the issues, statutes, regulations or procedures which it reviewed, examined and/or considered.
Additional Guidance
It is anticipated that the Office of the State Comptroller will release additional guidance on implementing the School District Tax Cap by the end of August, 2011. We will continue to monitor developments relating to the Act, and will issue further legal alerts as significant developments occur.
If you would like further information on Chapter 97 of the Laws of 2011 and its impact on your School District, please feel free to contact Connie Cahill (518-429-4296; mcahill@hblaw.com) or Katherine M. Davis (315-425-2873; kdavis@hblaw.com).