In June 2011, the New York State Legislature passed a property tax levy cap. A major factor with the tax levy cap is that although the law is constantly referred to as a “2 percent tax cap,” it does not in fact 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, called the “tax levy limit,” will be based on a formula outlined in the law and will vary by district.
“Tax levy limit” and “maximum allowable levy:” a complicated formula
The following formula demonstrates how a school district would calculate its “tax levy limit,” as well as the “maximum allowable levy:”
Prior year tax levy X Tax base growth factor, if any
Payments in lieu of taxes (PILOTS) receivable during prior year
Taxes levied for exemptions during prior year (applicable portion of capital levy and court orders)
Adjusted Prior Year Tax Levy
Allowable levy growth factor (lesser of 2 percent or CPI)
Payments in lieu of taxes (PILOTS) receivable in the coming year
Available carryover, if any
“TAX LEVY LIMIT”
Coming school year exemptions (applicable portion of capital levy and court orders, ERS and TRS)
“MAXIMUM ALLOWABLE LEVY”
What’s the difference between the “tax levy limit” and the “maximum allowable levy?”
To understand the “tax levy limit,” you 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 – 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 amount proposed above this limit will require budget approval by a super majority (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.
So what is the “maximum allowable levy?” 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.
Simply put, the “tax levy limit” + coming school year exemptions = “maximum allowable levy.”
Here’s another way to look at it:
Tax Levy Limit – A calculated tax levy amount (according to a state formula) that sets the threshold needed for 60 percent voter approval. Despite its name, it does not set a limit on the tax levy that a school district can propose.
Maximum Allowable Levy – The final dollar figure created by adding a district’s applicable exemptions to its “tax levy limit” is known as the “maximum allowable tax levy.” As a result, a district may actually propose a budget with a tax levy that is higher than its “tax levy limit” and still be within its “cap” under the law.
The Tax Cap – An Eight-Part Formula
As seen in the formula above, though much-publicized, the “lesser of 2 percent or the rate of inflation (CPI)” is only one factor in a school district’s “tax levy limit” and “maximum allowable limit.” In fact, there are eight different steps to the calculation as dictated by the legislation. Those steps take into account payments in lieu of taxes (PILOTS), the tax levy and 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 of each year.
As previously stated, some expenses, such as certain pension costs, court judgments and local capital expenses are exempt from the “tax levy limit.” These exemption items are then added to the “tax levy limit” to arrive at the “maximum allowable levy.” Because of the addition of these exemptions, school districts may actually propose a budget with a tax levy that is higher than its “tax levy limit” – but still be within its “cap” under the law.
Simply put: “Tax levy limit” determines voting threshold.
“The new law is not so much a tax cap, but a voter authorization level,” said Robert Miller, assistant superintendent for business. “The law does not cap the tax increase; rather, it sets a new threshold for voter approval based upon a determined tax levy increase.”
What are the Board of Education’s options?
The Board of Education has two options for the budget vote. The first option 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 of 50 percent + 1 voter approval.
Option 2 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 school district can legally exceed its “tax levy limit” does not mean that it will, though. Several factors must first be considered, including whether students’ educational needs can be met within the “tax levy limit” and the likelihood of voter support for a budget that exceeds the “tax levy limit.”
That potential support, or lack thereof, is important because the new legislation has changed what happens if a budget proposal is defeated twice in a single year. As of next year, a district that adopts a contingency budget can levy a tax no greater than that of the prior budget year – a 0 percent increase.
Breaking down the tax cap law: key points
The tax cap law does NOT cap an individual’s school tax bill. The law applies solely to the school tax levy. 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.
The new law has been referred to as a “2 percent tax cap,” but the law itself does not limit how much the tax levy can actually increase under a proposed budget. The law does, however, require at least 60 percent voter approval for a school budget if the proposed levy increase exceeds a certain amount.
That amount, called the “tax levy limit,” will be calculated by each district according to a formula outlined in the law. However, by law, the “tax levy limit” does not include any taxes we would levy to pay for expenditures related to certain “exempt” items, including some court orders, some pension costs and local capital expenditures. When you add the exemptions back in, the maximum allowable levy could be greater than the “tax levy limit.”
There will still be a community vote on the budget. Our goal will be to find the right balance between what our community can support and the cost of providing every student with the highest quality education.
A proposed budget that carries a tax levy (before exemptions) at or below the levy “limit” will require approval by a simple majority. If the tax levy (before exemptions) is above the levy “limit,” a supermajority (60 percent or more of voters) is what is needed for approval.
Although we have the option to exceed the “tax levy limit,” we are well aware that any proposed school tax levy increase will be benchmarked against our levy “limit,” adding to the pressures we are under to control taxes even in the face of escalating costs and expectations for teaching and learning.
Obtaining our community’s support for our budget proposal—whatever level of voter approval is required—is more critical than ever, given the law’s new contingent budget restrictions. If a district fails to gain voter approval and must adopt a contingent budget, then the levy increase is truly “capped.” Under a contingent budget, there can be NO increase in the tax levy.