A Tax Levy is:
The total amount of property taxes a school district must collect to balance its budget, after accounting for all other revenue sources including state aid.
The tax levy is the basis for determining the tax rate for each of the cities, towns or villages that make up a school district.
The Tax Levy Limit is:
A calculated tax levy amount (according to a state formula) that is the highest allowable amount (before exclusions) that a school district can propose for which only the approval of a simple majority of voters (50 percent plus one) is required.
Despite its name, it does not set a limit on the tax levy that a school district (or municipality) can propose.
Does the tax cap law mean school tax levies can’t increase by more than 2 percent?
No, the law does not prohibit tax levy increases greater than 2 percent.
Despite how it’s been described by some politicians and the media, the legislation signed into law in June 2011 requires each district to calculate its own tax levy limit. Two percent (or the rate of inflation, if less) is just one of eight factors in this calculation. The law also establishes a higher threshold of voter approval for a budget to pass if a district’s proposed tax levy increase (before exclusions outlined in the law) exceeds its individual tax levy limit.
What is a tax levy limit?
For school districts, the tax levy limit is the highest allowable tax levy (before exclusions) that 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 proposed tax levy amount above this limit will require budget approval by a supermajority (60 percent or more) of voters.
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.
However, the 2011 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” tax levy limit.
How is the tax levy limit determined for school districts?
The law dictates an eight-step formula that each school district must use to calculate its individual tax levy limit.
In particular, the calculation adjusts a district’s tax levy to reflect growth in the local tax base (if any) and the rate of inflation or 2 percent (whichever is lower).
Does the law take into account that some expenses are currently outside a district’s control?
Taxes that school districts levy to pay for certain expenses are “exempt” from the tax levy limit calculation.
In other words, after a school district calculates its tax levy limit, it then adds these exclusions to that amount, allowing the district to propose a tax levy greater than the amount set by the “limit” without triggering the need for approval by 60 percent of voters. These exclusions include:
- Voter-approved local capital expenditures.
- Increases in the state-mandated employer contribution rates for teacher and employee pensions that exceed two percentage points.
- Court orders/judgments resulting from tort actions of any amount that exceeds 5 percent of a district’s current levy. Tax certioraris, however, are not exempt.
Far from being “loopholes,” these exclusions are an acknowledgment among lawmakers that schools have no ability to simply limit cost increases in these areas to the rate of inflation. As a result, a district’s final tax levy (after the levies for these exclusions are added in) could be greater than its published tax levy limit and yet still be considered, under the law, within that limit.
What will the property tax cap law mean for MY tax bill?
It’s important to remember that the tax cap law only determines how much voter support is needed to pass a budget. It does not impose a universal 2 percent cap—or any other specific amount—on taxes.
It applies to the tax levy, not to tax rates or individual bills. Keep in mind, there are several factors that dictate how an individual’s school tax bill is calculated after a school district sets the final tax levy—including changes in property values and equalization rates—none of which are within the district’s control. This calculation process did not change under New York’s property tax cap law.
Tax bills continue to be calculated by using a property’s assessed value (as determined by the local town assessor) and the tax rate—or the amount paid in taxes per $1,000 of assessed value. Tax rates are not solely determined by the tax levy approved by voters; they are often adjusted by the state using equalization rates, designed to equally distribute the tax burden across municipalities within a district.
Tax bills can also be affected by STAR or other exclusions for which individual taxpayers may qualify.
Does the public still vote on school district budgets?
Yes, school district residents will still vote on a proposed budget on the third Tuesday in May.
Under the law, the level of voter approval needed to pass a budget depends upon the amount of the tax levy required by the proposed budget. If the tax levy (before exclusions) is at or below the tax levy limit, a simple majority (50 percent plus one) is needed for budget approval. If the tax levy (before exclusions) exceeds a district’s tax levy limit, the support of a supermajority (60 percent or more) of voters is required for budget approval.
How will I know if my district is proposing a tax levy above its tax levy limit, requiring 60 percent voter approval?
By law, any school district that proposes a budget that requires a tax levy (before exclusions) above its tax levy limit must include a statement on the ballot indicating this to voters.
What happens if the budget is not approved by voters?
If a proposed budget is defeated by voters, a school district—as in the past— has the option of putting the same or a revised budget up for a revote, or adopting a contingent budget. If a proposed budget is defeated twice by voters, a district must adopt a contingent budget.
Adopting a contingent budget prohibits a district from spending any money in certain areas, including community use of school facilities (unless all costs are reimbursed to the district); new equipment purchases; non-essential maintenance; capital expenditures (except in emergencies); salary increases for non-instructional, nonunionized employees; and certain field trips and student supplies. Contingency rules also cap the growth of the administrative component of the budget. These requirements existed prior to the tax levy cap and remain in effect.
More significantly, under the law, a district that adopts a contingent budget must kept its 2013-14 tax levy the same as or less than its 2012-13 tax levy —which in effect is a zero percent cap. In other words, a district that adopts a contingent budget would have to levy the same amount of taxes as in the current year—or less—without any adjustments for state pension rate increases, contractual obligations or any other costs, whether or not they are mandated.
Does the tax cap legislation affect all school districts equally?
The tax cap legislation affects all districts to varying degrees, but some are affected much more than others.
In particular, for poor and/or rural school districts with low property wealth and declining tax bases, staying within their “tax levy limits” will severely restrict their ability to generate the revenues needed to sustain core educational programs.
This discrepancy is largely rooted in what an increasing number of school leaders say is an unfair formula for distributing state aid to districts around the state. In addition, school districts with a relatively small tax levy will generate much less revenue for every 1 percent tax levy increase, compared to school districts that have larger tax levies as their base.
This difference will only get exacerbated over time.
What can I do?
The property tax cap law poses an enormous challenge for public schools, and school leaders need to hear from their communities to help guide them through the difficult decisions that will need to be made.
It is more important than ever to become informed about the complex issues shaping school district budgets and educational programs.
Please attend a budget meeting this spring or contact your district with questions about its budget development.