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The Times
  • Five things to know: Two percent property tax cap

  • School district officials and school finance experts are saying the state’s two percent property tax cap is not the silver bullet many New Yorkers believe it is. Although the law is referred to as a two percent tax cap, it does not restrict any proposed tax levy increase to two percent. The law does, howeve...
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  • School district officials and school finance experts are saying the state’s two percent property tax cap is not the silver bullet many New Yorkers believe it is.
    Although the law is referred to as a two percent tax cap, it does not restrict any proposed tax levy increase to two percent. The law does, however, require at least 60 percent voter approval for a school budget if a portion of the proposed levy increase exceeds a certain amount. That amount — the tax levy limit — is based on the formula outlined in the law and varies by district.
    With area school districts at work formulating their budgets for 2012-2013, here are five things to know about the two percent property tax cap legislation passed in June 2011.
    1. To understand the tax levy limit, one must first understand a tax levy. A tax levy is the total amount of property taxes a school must collect to balance its budget, after accounting for all other revenue sources including state aid. The tax levy limit is an important part of the property tax cap legislation. The tax levy limit is the highest allowable tax levy — before exemptions — a school district can propose as part of its annual budget for which only the approval of a simple majority of voters (more than 50 percent) is required. Any amount proposed above this limit will require budget approval by a super majority (more than 60 percent) of voters.
    2. Essentially, the tax levy limit sets a threshold requiring districts to obtain a higher level of community support for a proposed tax levy above a certain amount. The legislation does not place a limit on any taxes a school district would levy to pay for expenditures related to specific exempt items, including some court orders, some pension costs and local capital expenditures. These items are then added to the tax levy limit to arrive at the maximum allowable levy.
    3. The lesser of two percent or the rate of inflation is only one factor in a school districts’ tax levy limit and maximum allowable limit. There are eight different steps to the calculation as dictated by the legislation. Those steps take into account payments in lieu of taxes, the tax levy, approved exemptions for the current school year and growth in the tax base. Individual school districts will each have a unique tax levy limit, which must be submitted to the state by March 1 each year.
    Some expenses, such as certain pension costs, court judgments and local capital expenses, are exempt from the tax levy limit. These exempt items are added to the tax levy limit to arrive at the maximum allowable levy. Because of the addition of these exemptions, districts may actually propose a budget with a tax levy higher than its tax levy limit — but still be within its cap under the law.
    Page 2 of 2 - 4. A board of education has two options for a budget vote. The first is to propose a budget requiring a tax levy before exemptions at or below the tax levy limit prescribed by law. This requires a simple majority vote of 50 percent plus one voter approval. Option two is to propose a budget requiring a tax levy before exemptions above the tax levy limit. This requires a super majority of 60 percent voter approval. This requires a statement on the ballot indicating the required tax levy before exemptions exceeds the tax levy limit. Just because a district can legally exceed its tax levy limit does not mean it will. Several factors must be considered, including whether students’ needs can be met within the limit and the likelihood of voter support for a budget that exceeds the tax levy limit.
    5. The potential support, or lack thereof, is important because the legislation has changed what happens if a budget proposal is defeated twice in a single year. A district that adopts a contingency budget can levy a tax no greater than that of the prior budget year — a zero percent increase.
    Source: New York State Department of Taxation and Finance
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