New York State Property Tax Cap: Some Answers

New York State Property Tax Cap:
Some Answers, Many Questions
for Garden City
Board of Education
Work Session
October 12, 2011
The Board of Education supports tax relief.
The Board has consistently sought to develop
prudent budgets that reflect an appreciation of
the need to limit increases in property taxes.
The tax levy cap does not offer meaningful
solutions to address the biggest cost drivers in
school district budgets.
Tax Cap:
General Information
• What does the tax cap legislation say?
– Chapter 97 of the Laws of 2011 (Part A-Property
Tax Cap) establishes a tax levy limit that affects
almost all levels of local government and school
districts, including Garden City.
– The law is effective for the 2012-13 school year.
– Under this law, the growth in the property tax
levy, that is, the total amount to be raised
through property taxes charged on the school
district’s taxable assessed value of property, will
be capped at 2 percent or the rate of inflation,
whichever is less, with very few exceptions.
• How will the inflation rate be calculated?
– The Office of the State Comptroller (OSC) will
calculate the inflation rate based on U.S. Bureau
of Labor Statistics data
– It appears that inflation rate information for
school districts will be available in mid-January
• Are there exceptions that can cause the tax
levy limit to go above “2 percent or the rate of
inflation, whichever is less”?
– There are two ways: Adjustments and
• Adjustments:
1. Tax base growth factor: adjusts for
increases in “brick and mortar”
development -- actual growth in the
number of properties in the school district,
not increases in property value
2. Costs and/or savings from the transfer of
function(s) from one local government to
another, to be determined by the Office of
the State Comptroller (OSC )
• Exclusions:
– There are 3 very narrowly defined types of
expenditures that are excluded:
• School districts can increase the property tax levy
above the levy limit (the base year levy as adjusted for
growth and inflation) for extraordinarily high costs
resulting from court orders or judgments arising out of
tort actions that must be paid in the coming fiscal year.
(The judgment must exceed 5 percent of the total prior
year’s tax levy.)
• The tax levy limit can be adjusted to some extent for
extraordinarily high growth in pension costs. No
exclusion is made for pension costs increases of 2% or
less. However, the school district can exclude the
portion of costs that go beyond 2%. Thus, if the
pension contribution rate increases from 10% to 12.2%,
only .2% may be excluded from the cap.
• Cost of capital projects (bonds, transfers to capital
fund)can be excluded.
How is the tax cap computed?
• School districts may soon be responsible for
tax certiorari payments, even though the
County establishes the assessments. Will tax
certiorari payments be excluded from the cap?
– The Comptroller’s Office has expressly stated that
tax certiorari actions are not excluded from the
– Unless the County’s decision is overturned, it is
likely that the school district will need to start to
accumulate funds in a tax certiorari reserve,
placing another burden on the budget.
• Will the community still vote on the school
– There will still be a vote on May 15th (and every
year thereafter in May)
– The voters will still be voting on the expenditure
budget, but the budget design will have been
profoundly shaped by the tax levy cap law
– The Board of Education can still decide to have a
second vote in June if the first proposal is
defeated. This is not mandatory.
– A contingency budget will be required if the
budget does not pass.
• Is the Board of Education allowed to propose a
budget that would require a tax levy increase
that exceeds the rate of inflation or 2%?
– Yes, the Board of Education can propose a budget
with a greater increase, but for such a budget to
pass, a simple majority (more than 50% of votes
cast) would not be sufficient
– Instead, the budget would have to pass by a
“supermajority” of 60% or more of votes cast
– Other levels of government need to pass the
override by a 60% majority of the “governing
Budget Vote Options Summary
• What options does the Board of Education have
regarding the budget vote?
– Option 1: Propose a budget requiring a tax levy
before exemptions at or below the tax levy cap (2% or
less). The actual tax levy increase could be higher than
2%. Majority vote required for passage
– Options 2: Propose a budget requiring a tax levy
before exemptions that exceeds the tax cap:
• Requires a “supermajority” of 60% for passage
• Requires a statement on the ballot indicating that
the tax levy -- before exemptions -- exceeds the cap
• What will happen if the budget is not approved?
– If the budget proposal is not approved, a contingency
budget must be put into place. It does not matter if the
original budget proposal was “over” or “under” the cap.
– The contingency budget may not include a tax levy higher
than the prior year’s levy. The cap would be 0%.
– The property growth factor and the pension, bond interest
and tort exemptions would not apply in a contingency
budget, resulting in even steeper reductions.
– In Garden City’s case, this would mean that the district
could raise through property taxes no more revenue than
raised for the current school year (approximately $87.3
– All previously enforced contingent budget rules would still
The Tax Levy Cap
Garden City Public Schools
‘Capped’ Garden City Public Schools Budget
(in millions)
• Budget
• Tax Levy
• 2% Cap
• Reduction:
• 1 Year
(3.66) ( 5.38)
(9.19) (14.58)
( 6.00)
• Had the tax levy cap been in effect over the last five years, $20,000,000
less in available resources would have been available to be used for school
district programs!
Examples of Program Costs
• Primary Schools
• Transportation
• Special Education
$ 6,900,000 (approx.)
$ 5,560,000 (approx.)
$12,300,000 (approx.)
Cost Center Impact on Property Tax Bill
• Average homeowner tax
$ 9,533.36
• Pension component of tax
$ 914.57
• Health care component of tax $ 1,347.91
(Preliminary) Budget Estimates
Projected Expenditure Increases
• Dollar value of maximum
allowable tax levy increase:
• Employee Retirement System
• Teachers Retirement System
• Health insurance premiums
Total: $3,150,000
Misconceptions Concerning
the Tax Cap
Misconceptions Concerning
the Tax Cap
• “The school district is not allowed to collect more
than a 2% increase in total property taxes in any
– School tax increases can exceed 2% because of the
exclusions for extraordinarily high pension mandated
contribution increases, capital projects, and tort
– This may be very confusing to voters, who will be
hearing about tax levy cap legislation that publicizes a
figure that may be lower than the actual levy
projected in the budget.
Misconceptions Concerning
the Tax Cap
• “The cap is 2%.”
– If the budget fails, the tax levy cap is 0% -- The
school district could not raise more in taxes than
the year before
– Cost of living increases and adjustments could be
under 2%, so the cap could be less that 2%
– District expenditures may not require raising more
than an additional 2% in the tax levy.
Misconceptions Concerning
the Tax Cap
• “My property tax bill will not increase more
than 2%.”
– No, the tax cap law does not cap an individual’s
school tax bill.
– The tax cap limits total levy set by local
governments, not assessed value or tax rate.
– Increases in individual tax bills are often different
from increases in the tax levy due to a variety of
factors outside a school district’s control, and this
will continue to be true.
Misconceptions Concerning
the Tax Cap
• “Massachusetts (the “model” for NY) and California
have tax caps, so why shouldn’t New York?”
– The damage to California’s public education has been well
documented (See “From First to Worst,” a documentary
about the decline of education in California)
– Massachusetts has a 2.5% cap
– Massachusetts offset the negative impact of the tax cap by
increasing aid to schools. There are more liberal carry-over
provisions as well.
– Massachusetts experienced a significant enrollment decline
after it implemented its cap
– New York’s cap is more restrictive than Massachusetts or
any other state
– A 50% majority in Massachusetts can override the tax cap;
New York requires a 60% percent “supermajority.”
Misconceptions Concerning
the Tax Cap
• “Massachusetts (the “model” for NY) and
California have tax caps, so why shouldn’t New
– New York’s tax cap does not allow for enrollment
– New York’s cap is being implemented at a time of
sustained, significant increases in mandated
pension and health care costs, the phase-in of new
assessments (costs assumed by district) and new
personnel evaluation mandates (costs assumed by
Misconceptions Concerning
the Tax Cap
• “New York State included significant mandate
relief for school districts when it passed the
tax cap.”
– The most costly mandates were not addressed
– Examples of mandates removed or suspended are
annual school facility report cards, elimination of
farsightedness screenings for new students,
reducing compliance reporting for school bus
driver training, and relaxing student-to-seat ratios
for school busing.
Misconceptions Concerning
the Tax Cap
• “Increased state aid is on the way for 2012-13.”
– Approximately 4% increase in overall state aid may be
– NYS budget language requires that any increase first goes
toward funding expense-based aids and expenditures for
two new competitive grant programs sponsored by Governor
Cuomo– one to encourage management efficiency, the other
to reward student performance gains.
– Garden City does not receive much reimbursement for its
expenses by New York State.
– While some of any remaining aid could be used to fund
increases in Foundation Aid (the least restricted form of aid),
that use would have to be approved and allocated by law,
requiring approval by the Assembly, Senate, and Governor.
That means the provisions of the law can be changed.
Misconceptions Concerning
the Tax Cap
• “Increased state aid is on the way for 2012-13.”
– Garden City cannot predict how much total aid it will
get in 2012-13. Given the State’s history, and the
continuation of national and regional economic
woes, the final state aid figure may not be known
until the district’s budget process is concluded.
– Under the best case scenario, state aid to Garden
City would still not increase more than $200,000;
the likelihood is that the total would be less.
– State aid is the only other significant source of
revenue for Garden City besides the property tax.
Misconceptions Concerning
the Tax Cap
• “The school district can make up for shortfalls
by charging parents for participation in
programs like band and orchestra or athletics.”
– The school district is not allowed to charge
for participation in such programs.
Misconceptions Concerning
the Tax Cap
• “The tax cap is short-lived. It has a built-in
expiration date.”
– The tax cap does not automatically sunset. It will
remain in effect unless rent control laws in New
York City are allowed to expire—something that
has never happened.
– The tax cap for Garden City is not a “get by for one
year” concern.

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