New York State s Property Tax Cap Chapter 97 of the Laws of 2011 Presentation to the Board of Education January 9, 2012
Overview Signed into law on June 24, 2011. The law covers cities (except NYC), counties (except in NYC), towns, villages, fire districts, special districts, and school districts (except the Big 5 city school districts). The law impacts school districts beginning with 2012/13 budget. Remains in effect at least through 2016/17 and is tied to rent control laws thereafter.
Overview Not really a 2% tax cap as it is being described by politicians and the media. The law sets a tax levy limit, which will be calculated by each district and vary from district to district based on a variety of factors. The tax levy limit applies to the district s tax levy, not the individual tax bills of its residents.
Overview The cap is not absolute. School districts can present a budget that exceeds the tax levy limit or threshold. In order to override the cap, however, the budget would require the approval of at least 60% of voters participating in the budget vote. The budget proposition would need to include the following language: "Adoption of this budget requires a tax levy increase of [X percent] which exceeds the statutory tax levy increase limit of [Y percent] 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."
Calculating the Tax Levy Limit Prior Year Tax Levy x Tax Base Growth Factor * + PILOTs receivable during prior year ** = Adjusted Prior Year Tax Levy * The Tax Base Growth Factor is the percentage by which the full value of the taxable real property in the school district increases due to new construction, additions, or improvements to real property. ** PILOTs are Payments in Lieu of Taxes. PILOTs are generally used to compensate a local government or school district for some or all of the tax revenue it loses because of the nature of the ownership or use of a particular piece of real property.
Calculating the Tax Levy Limit Adjusted Prior Year Tax Levy x Allowable Tax Levy Growth Factor * - PILOTs receivable in coming year + Allowable exemptions in coming year = Tax Levy Limit * The Allowable Tax Levy Growth Factor is the lesser of CPI-U or 2%. The CPI-U is the unadjusted All Items Consumer Price Index for All Urban Consumers for the period ending December 31.
Allowable Exemptions Capital Expenditures: The tax levy associated with budgeted expenditures resulting from the construction, acquisition, reconstruction, rehabilitation, or improvement of school district capital facilities or capital equipment, including debt service and lease expenditures, and transportation capital debt service.
Allowable Exemptions Court Orders / Judgments: Tax levy necessary for expenditures arising from court orders or judgments on tort actions for any amount that exceeds 5% of the total tax levied in the prior school year. This excludes tax certioraris. This exemption will impact few, if any, school districts in NYS.
Allowable Exemptions Pension Costs: Tax levy necessary for employer contributions to TRS* and/or ERS* caused by growth in the contribution rates by more than two percentage points over the prior year. * TRS is the New York State Teachers Retirement System, which includes the pensions of teachers and school administrators. ERS is the New York State Employees Retirement System, which includes the pensions of support staff (custodial and maintenance workers, clerical, monitors, security, nurses, and teacher aides).
Calculating the Pension Exemption The pension cost exemption only applies when the employer contribution rate increases by more than two percentage points. ERS Example for 2012/13: 2012/13 rate 18.9% (0.189) - 2011/12 rate 16.3% (0.163) = 2.6 percentage point difference (0.026) 2.6 percentage point difference 2.0 - percentage points = not excludable 0.6% excludable portion (0.006)
Calculating the Pension Exemption It is important to note that the exemption is based on percentage point increases - not the actual percent increase. 16.3% to 18.9% is 2.6 percentage points, but the increase in employer contributions is nearly 16% year over year in real dollars. Pension costs have risen significantly over the past several years. Despite how this exemption has been portrayed, it provides little relief from these mandated costs. The Westhampton Beach School District s pension costs will increase by an estimated $577,959 in 2012/13 and just $27,707 of that increase will be excluded from the cap.
Budget Voting Procedures The annual budget vote and election will take place on the third Tuesday in May. (May 15, 2012) Voters will vote on the proposed budget (spending plan) as they have in the past. A simple majority will be required for spending plans that call for a tax levy within the tax levy limit. Proposed budgets that call for a tax levy above the tax levy limit will require a supermajority of 60% of participating eligible voters.
Consequences of Budget Defeat If the budget is not approved by the required margin, the district has three options: Resubmit the budget to the voters in its original form. Propose a revised budget. Adopt a contingency budget with a tax levy no higher than the previous year s tax levy (0% tax levy increase). If the district resubmits the original or a revised budget and that budget is not approved by the voters, the Board of Education must adopt a budget with a 0% tax levy increase from the previous year.
Challenges There is a lot of misinformation about the tax cap legislation. Much of this is being fueled by political rhetoric. There are many unanswered questions and ambiguous provisions of the legislation that will present challenges for school districts as budgets are developed for the 2012/13 school year. This legislation will likely result in long-term negative consequences for public education in New York State.
Westhampton Beach School District 2012/13 Budget New Challenges in the Tax Cap Era
Budget Challenges Pension costs continue to rise at unprecedented rates. In the 2012/13 school year the District will spend an estimated $3,891,446 on mandated employer contributions to TRS and ERS. The District has no control over these contribution rates. To illustrate the challenges, in 2002/03 the District s employer contribution to TRS totaled $43,338. In 2012/13, just ten years later, that cost is projected at $2,953,828.
Budget Challenges School districts continue to be faced with unfunded mandates from the state and federal government. State and federal education aid continues to decrease. In 2007/08 the Westhampton Beach School District received state and federal aid totaling $3,151,566. In 2011/12 the total is $2,242,269 - a decrease of approximately 25% ($809,297).
Budget Challenges Remaining under the tax levy limit will almost certainly result in cuts to existing programs. Difficult decisions will have to be made. The Board of Education and administration welcome community input in the budget development process. Parents and community members are encouraged to attend Board of Education meetings to remain informed and provide input as we develop the 2012/13 school budget.
Proposed Budget Calendar February 27: High School, Transportation, BOCES Programs, Continuing Education, and Personnel. March 5: Buildings & Grounds, Athletics, and Special Education. March 12: Technology, Guidance, Elementary School, and Middle School March 19: We Care, Winter & Summer Recreation, Curriculum Development, and Personnel. March 26: Final Budget Deliberations April 2: Budget Adoption
For Updated Information and to View Questions and Answers About the Tax Cap and the Budget Development Process, visit: www.whbschools.org