New York State Property Tax Cap: Some Answers, Many Questions for Garden City

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New York State Property Tax Cap: Some Answers, Many Questions

for Garden City

Board of EducationWork Session

October 12, 2011

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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.

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Tax Cap:General Information

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• 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.

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• 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 2012

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• 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

Exclusions

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• 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 )

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• 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.

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How is the tax cap computed?

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• 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 cap.– 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.

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• Will the community still vote on the school budget?– 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.

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• 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 body”

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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

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• 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 million)

– All previously enforced contingent budget rules would still apply.

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The Tax Levy Cap and

Garden City Public Schools

Hypothetical ‘Capped’ Garden City Public Schools Budget

(in millions)

• Year 06-07 07-08 08-09 09-10 10-11 11-12

• Budget $85.37 90.44 94.51 95.22 97.99 101.12 • Tax Levy $76.67 79.81 83.71 85.02 88.38 90.65 • 2% Cap 78.21 79.77 81.37 82.99 84.65

• Reduction: • 1 Year $(1.60) (3.93) (3.66) ( 5.38) ( 6.00)

Cumulative $(1.60) (5.54) (9.19) (14.58) (20.58)

• 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!

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Examples of Program Costs

• Primary Schools $ 6,900,000 (approx.)• Transportation $ 5,560,000 (approx.)• Special Education $12,300,000 (approx.)

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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

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(Preliminary) Budget Estimates

Revenue• Dollar value of maximum

allowable tax levy increase:$3,800,000

Projected Expenditure Increases• Employee Retirement System

(ERS)$470,000

• Teachers Retirement System (TRS)

$1,560,000• Health insurance premiums

$1,120,000

Total: $3,150,000

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Misconceptions Concerning the Tax Cap

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• “The school district is not allowed to collect more than a 2% increase in total property taxes in any year.”– School tax increases can exceed 2% because of the

exclusions for extraordinarily high pension mandated contribution increases, capital projects, and tort payments.

– 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.

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• “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.


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• “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.


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• “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.”


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• “Massachusetts (the “model” for NY) and California have tax caps, so why shouldn’t New York?”– New York’s tax cap does not allow for enrollment

increases– 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 district).


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• “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.


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• “Increased state aid is on the way for 2012-13.”– Approximately 4% increase in overall state aid may be available– 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.


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• “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.


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• “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.


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• “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.


Q & A31

New York State Property Tax Cap: Some Answers, Many Questions for Garden City

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