Tax Cap Year 2: A Retrospective

Tax Cap Year 2:A Retrospective

Deborah H. CunninghamDirector of Education and Research

New York Association of School Business Officials

Michele LevingsDirector, State Aid and Financial Planning Service

Questar III BOCES

Mark SansouciAssistant Superintendent for Business

Penfield Central School District

October 26, 2013

Agenda Introduction Vote Result after 2 years How it Works

PILOT Considerations Exemptions

Long Term Consequence of the Cap – Planning Considerations

Impact of STAR Cap Conclusion

2

• June 2011 – Chapter 97 passed and signed by Governor Cuomo, Began with the 2012-13 school year budget

• In effect through at least 2016-17. It remains in effect only so long as regulation and control of residential rents and evictions (i.e., rent control) laws are in place.(The current rent control system began in 1943)

Property Tax CapChapter 97 of the Laws of 2011

Its Here to Stay!

It’s Complex…..

Incorrectly referred to as “2% cap” New terminology New voter thresholds New consequences for contingent

budgets New considerations for planning New confusion

4

The Tax Cap is Complex...

5

The Tax Cap is Complex…

6

Property Tax CapChapter 97 of the Laws of 2011• Not really a “cap”• Sets a higher threshold for voter approval

of budgets IF proposed tax levy increase exceeds the “tax levy limit” 60% or more vs. simple majority (more than

50%)• “Tax levy limit” calculated by each district and

varies by district• “Tax levy limit” is also NOT technically a limit—

its a threshold for what level of voter support is needed

7

Prior year tax levy x

Tax base growth factor, if any+

Payments in lieu of taxes receivable during prior year –

Taxes levied for exemptions during prior year (not ERS & TRS)=

Adjusted Prior Year Tax Levyx

Allowable levy growth factor (lesser of 2% or CPI) –

Payments in lieu of taxes receivable in the coming year +

Available carryover, if any=

“Tax Levy Limit”

Tax Levy Limit

8

Total Levy to support proposed budget

Tax Levy Limit+

Coming school year exemptions=

Maximum Allowable Tax Levy(requiring simple majority)

9

The 2% Myth…Year 1 – 2012-13 574 districts calculate a Maximum

Allowable levy GREATER than 2% 12 districts calculate a Maximum

Allowable levy LESS than the 11-12 tax levy 5 of those districts proposed a tax

levy DECREASE for 12-13 8 of the 12 proposed to override

10

The 2% Myth…Maximum Allowable Levy

Year 12012-13

Year 22013-14

# Districts

% of Total

# Districts

% of Total

Over 6% 60 8.9% 134 20.0%4% to 6% 74 11.0% 259 38.7%2% to 4% 445 66.3% 259 38.7%0% to 2% 80 11.9% 14 2.1%Below 0% 12 1.8% 3 0.4%

Total 671 100% 669 100%

11

What Was Proposed in the First Year? 92% of districts proposed budgets with tax levies at or below

their maximum allowable levy (cap)

476 proposed budgets with levies below their cap 144 proposed budgets with levies at the cap 48 districts asked the voters to override the cap 22 districts proposed budgets with no tax increase 10 districts proposed budgets with a tax levy decrease The average tax levy % change is + 2.27% The average budget % change is +1.47%

Total taxes levied increased 2.24% statewide

12

First Year Extremes…. Highest proposed tax levy change:

Pocantico Hills = 12.52%(Maximum Allowable = 2.51%)

Lowest proposed tax levy change:Oswego = - 52.25%(Maximum Allowable = -34.82%)

Highest maximum allowable levy % changeBarker = 31.84%(Proposed = 2.90%)

Lowest maximum allowable levy % change Oswego = -34.82(Proposed = -52.25%)

13

What Was Proposed in the Second Year? 96% of districts proposed budgets with tax levies at or

below their maximum allowable levy (cap)

549 proposed budgets with levies below their cap 92 proposed budgets with levies at the cap 28 districts asked the voters to override the cap 16 districts proposed budgets with no tax increase 14 districts proposed budgets with a tax levy decrease The average tax levy % change is + 2.83% The average budget % change is + 2.88%

Total taxes levied increased 3.05% statewide

14

Second Year Extremes…. Highest proposed tax levy change:

Newcomb CSD = 24.78%(Maximum Allowable = 6.94%)

Lowest proposed tax levy change:Mexico = -40.48%(Maximum Allowable = -40.48%)

Highest maximum allowable levy % changeBarker = 92.66%(Proposed = 3.50%)

Lowest maximum allowable levy % change Mexico = -40.48(Proposed = -40.48%)

15

The 2% Myth…Proposed Levies

Year 12012-13

Year 22013-14

# Districts

% of Total

# Districts

% of Total

Over 6% 11 1.6% 16 2.4%4% to 6% 33 4.9% 83 12.4%2% to 4% 403 60.1% 437 65.3%0% to 2% 214 31.9% 119 17.8%Below 0% 10 1.5% 14 2.1%

Total 671 100% 669 100%

16

Year 1 Results

Pass Fail 654 2496.5% 3.5%

2nd Highest Rate Ever!

17

Year 1 Results

98% of budgets which were within the levy

limit passed

18

Year 1 Results

49 districts sought an override,30 were successful

61%But

Of the 24 districts that were defeated

19 were seeking an override

19

Year 2 Results

Pass Fail 644 3295.3% 4.7%

20

Year 2 Results

28 districts sought an override,7 were successful

25%And

Of the 32 districts that were defeated

21 were seeking an override

21

Vote Result Takeaways

While not technically a cap, overrides are extremely difficult

Taxpayer tolerance for increases

Real consequences of contingent budget

22

Calculation Challenges

23

Sample Tax Levy Limit CalculationPrior year tax levy 5,000,000Tax base growth factor x 1.01

5,050,000Prior year PILOT +100,000

5,150,000Prior year exemptions (capital levy, court orders) - 200,000

Adjusted Prior Year Levy 4,950,000

Allowable Growth Factor (lesser of CPI or 2%) x 1.025,049,000

PILOTs for coming year - 100,000 = 4,949,000

Available Carryover + 0

TAX LEVY LIMIT = 4,949,000

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Tax Base Growth Factor Quantity Change Factor = The percentage by which the full

value of the taxable real property in the school district increases due to physical or quantity change, compared with the prior year tax roll (growth in full value due to new construction, additions and improvements to real property, etc.).

Tax Base Growth Factor = 1 + Quantity Change Factor; only calculated if quantity change factor is a positive number.

Source: New York State Tax and Finance Department (ORPS)

Factor made available by February 15th

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Sample Tax Levy Limit Calculation

Prior year tax levy 5,000,000Tax base growth factor x 1.01




Allowable Growth Factor (lesser of CPI or 2%) x 1.02

5,049,000PILOTs for coming year - 100,000

= 4,949,000Available Carryover + 0TAX LEVY LIMIT = 4,949,000

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PILOTS

Prior Year PILOTS Not all districts will have PILOT payments Payments in lieu of taxes (PILOT) owed to the district

in the prior school year For 2013-14 school year, 2012-13 PILOT Payments

PILOTS for the Coming Year Payments in lieu of taxes (PILOT) to be paid to the

district in the upcoming school year For 2013-14 school year, 2013-14 Estimated PILOT

Payments

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Maximum Allowable Levy Example(Substantial DECREASE to PILOTS) Prior year tax levy 5,000,000Tax base growth factor (district specific) x 1.01


5,550,000Prior year exclusions (capital levy, court orders) - 225,000 Adjusted Prior Year Levy 5,325,000Allowable Growth Factor (lesser of CPI or 2%) x 1.02


5,331,500Available Carryover + 0

TAX LEVY LIMIT 5,331,500

Coming School Year Exclusions + 225,000Maximum Allowable Levy 5,556,500 +11.13%

Maximum Allowable Levy Example(Substantial INCREASE to PILOTS) Prior year tax levy 5,000,000Tax base growth factor (district specific) x 1.01




4,523,500



Coming School Year Exclusions + 225,000Maximum Allowable Levy 4,748,500 -5.03%

Summary Impact of PILOTS PILOT growth is not included in

“Growth Factor” Permanent loss of growth factor

multiplier – PILOTs are excluded

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PILOT Impact on Tax CapAssume $40,000,000 (1.2% of assessed value) is given a ten year sliding PILOT - what is impact with no Growth Factor Annual PILOT Payment 76,000 152,000 684,000 0

Line # Tax Factor 2013-14 2014-15 2021-22 2022-231. Prior Year Levy 65,647,810 66,957,577 76,933,813 78,481,4612. Tax Base Growth Factor 1.0000 1.0000 1.0000 1.00003. Sub - Total 65,647,810 66,957,577 76,933,813 78,481,4614. Prior Year PILOTs (actual) 3,640,587 3,716,587 4,248,587 4,324,5875. Adjusted Prior Year Levy 69,288,397 70,674,165 81,182,400 82,806,0486. Allowable Growth Factor (2% or CPI) 2% 2% 2% 2%7. Sub - Total 70,674,165 72,087,648 82,806,048 84,462,1698. PILOTs for upcoming year (3,716,587) (3,792,587) (4,324,587) (3,640,587)9. Tax Levy Limit (Reported to State) 66,957,577 68,295,061 78,481,461 80,821,58210. % Change in Levy 1.995% 1.998% 2.012% 2.982%11. Total Levy plus PILOT Payments 70,674,165 72,087,648 82,806,048 84,462,16912. Annual % increase in Levy & PILOTS 2.000% 2.000% 2.000% 2.000%

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What happens when expiring PILOTS are not included in Growth Factor ?

Assume $40,000,000 (1.2% of assessed value) is given a ten year sl iding PILOT - what is impact with Growth Factor if al lowed Annual PILOT Payment 76,000 152,000 684,000 -

Tax Factor 2013-14 2014-15 2021-22 2022-231. Prior Year Levy 65,647,810 67,761,107 77,856,844 79,422,9612. Tax Base Growth Factor 1.012 1.0 1.0 1.03. Sub - Total 66,435,583 67,761,107 77,856,844 79,422,9614. Prior Year PILOTs (actual) 3,640,587 3,716,587 4,248,587 4,324,5875. Adjusted Prior Year Levy 70,076,170 71,477,694 82,105,432 83,747,5486. Allowable Growth Factor (2% or CPI) 2.0% 2.0% 2.0% 2.0%7. Sub - Total 71,477,694 72,907,248 83,747,540 85,422,5088. PILOTs for upcoming year (3,716,587) (3,792,587) (4,324,587) (3,640,587)9. Tax Levy Limit (Reported to State) 67,761,107 69,114,662 79,422,961 81,781,921

10. % Change in Levy 3.2% 2.0% 2.0% 3.0%11. Total Levy plus PILOT Payments 71,477,694 72,907,249 83,747,548 85,422,50812. Annual % increase in Levy & PILOTS 3.2% 2.0% 2.0% 2.0%

$ Increase Revenue from Tax Base Growth 803,529 819,600 941,463 960,339% Increase Revenue from Tax Base Growth 1.1% 1.1% 1.1% 1.1%

Year 10

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PILOT Impact

Expiration of PILOTCurrent

LawAllow in

Growth FactorGrowth Factor

H / (L)

Tax Levy 80,821,582$ 81,781,921$ 960,339$

$ Increase Revenue from Tax Base Growth 960,339% Increase Revenue from Tax Base Growth 1.1%

• Difference is Forever – not just a one year impact• Starts at beginning of PILOT, adverse impact is permanent• No growth allowance when PILOT exemption expires

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Prior Year Exemptions Capital Tax Levy = Tax levy necessary to support capital local

expenditures

Capital Local Expenditures = The tax levy associated with budgeted expenditures resulting from the construction, acquisition, reconstruction, rehabilitation or improvement of school district capital facilities or capital equipment, including debt service and lease expenditures, and transportation capital debt service.

Court Orders/Judgments = Tax levy necessary for expenditures resulting from court orders or judgments arising out of tort actions for any amount that exceeds 5% of total tax levied in prior school year.

(excludes tax certioraris)

Excludes prior year pension exemption

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Maximum Allowable Levy Example: Impact of Changing Exclusions Prior year tax levy 5,000,000Tax base growth factor (district specific) x 1.01


5,150,000Prior year exclusions (capital levy, court orders) - 0 Adjusted Prior Year Levy 5,150,000Allowable Growth Factor (lesser of CPI or 2%) x 1.02


5,153,000Available Carryover + 0TAX LEVY LIMIT 5,153,000

Coming School Year Exclusions + 225,000Maximum Allowable Levy 5,378,000 +7.56%

Maximum Allowable Levy Example: Impact of Changing Exclusions Prior year tax levy 5,000,000Tax base growth factor (district specific) x 1.01




4,923,500Available Carryover + 0


Coming School Year Exclusions + 0Maximum Allowable Levy 4,923,500 -1.53%








Available Carryover + 0TAX LEVY LIMIT = 4,949,000 38

Allowable Growth Factor

Allowable Levy Growth Factor = Lesser of: 1.02 OR (1 + Inflation Factor); Minimum of 1.0.

Inflation Factor = CPI change, carried out four decimal places.

2014-15 Budget= ???

Source: US Department of Labor

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Growth Factor Impact At 2% At 1.66%

Prior year tax levy 5,100,000 5,100,000Tax base growth factor x 1.015 x 1.015

5,176,500 5,176,500Prior year PILOT +100,000 +100,000

5,276,500 5,276,500Prior year exemptions (capital levy, court orders) - 220,000 -220,000

Adjusted Prior Year Levy 5,056,500 5,056,500

Allowable Growth Factor (lesser of CPI or 2%) x 1.02 x 1.0166 5,157,630 5,140,438

PILOTs for coming year - 100,000 - 100,000 = 5,057,630 = 5,040,438

Available Carryover + 74,000 + 74,000

TAX LEVY LIMIT = 5,131,630 5,114,438Coming School Year Exemptions + 125,000 +125,000 Maximum Allowable Levy 5,256,630 3.07% 5,239,438 2.73%

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Available Carryover: Districts may use taxing authority from the prior school year to increase the subsequent year’s tax levy limit if taxes were increased in the prior school year by less than the amount allowed by the tax levy limit. If a negative number, no carryover is available (use $0).

Calculation:Calculated 2012-13 Tax Levy Limit – Actual 2012-13 Total Tax Levy

(No Greater Than 1.5% x Prior Year Tax Levy Limit)

Things to remember: Available carryover is NOT an exclusion from the tax levy limit It is a dollar amount not a percentage It must be included in the calculation for the 2013-14 tax levy limit Does it really matter? Reality check Roughly 106 schools have carryover

Available Carryover

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Carryover ExampleAssume a district levies at an increase of 2.2% as opposed to their allowed 3.48%:

Tax Levy Limit: $4,949,000District’s Calculated Maximum Allowable: $5,174,0002012-13 Levy: $5,000,000 x 1.022 = $5,110,000

Now assume the district levies $4,850,000: Calculation:

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Comparing Year 1 to Year 2 with Carryover

Year 1 Year 2

Prior year tax levy 5,000,000$ 4,850,000$ Tax base growth factor x 1.01 x 1.01

5,050,000 4,898,500 Prior year PILOT + 100,000 + 100,000

5,150,000 4,998,500 Prior year exclusions - 200,000 - 200,000 Adjusted Prior Year Levy 4,950,000 4,798,500 Allowable Growth Factor x 1.02 x 1.02

5,049,000 4,894,470 PILOTs for coming year - 100,000 - 150,000

4,949,000 4,744,470 Available Carryover + - + 74,235 TAX LEVY LIMIT 4,949,000 4,818,705 Coming School Year Exclusions + 225,000 + 300,000 MAXIMUM ALLOWABLE LEVY 5,174,000$ 3.48% 5,118,705$ 5.54%

2012 ACTUALY AMOUNT LEVIED 4,850,000$

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Allowable Growth Factor (lesser of CPI or 2%) x 1.02


= 4,949,000Available Carryover + 0TAX LEVY LIMIT = 4,949,000

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Total Levy to support proposed budget

Tax Levy Limit+

Coming school year exemptions=

Maximum Allowable Tax Levy(requiring simple majority)

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• Capital Tax Levy = Tax levy necessary to support capital local expenditures

• Capital Local Expenditures = The tax levy associated with budgeted expenditures resulting from the construction, acquisition, reconstruction, rehabilitation or improvement of school district capital facilities or capital equipment, including debt service and lease expenditures, and transportation capital debt service.

• Court Orders/Judgments = Tax levy necessary for expenditures resulting from court orders or judgments arising out of tort actions for any amount that exceeds 5% of total tax levied in prior school year. (excludes tax certioraris)

Coming School Year Exclusions

• The pension cost exclusion applies only when ERS and/or TRS employer contribution rates increase by more than 2 percentage points over the prior year.

• ERS Costs = Tax levy necessary for expenditures for coming school year for employer contributions caused by growth in the system average actuarial contribution rate, minus two percentage points.

• TRS Costs = Tax levy necessary for expenditures for coming school year for employer contributions caused by growth in the normal contribution rate, minus two percentage points

• For example, if an employer contribution rate for ERS and/or TRS increased by 2.2 percentage points, only an amount equal to applicable salary expenditures times .002 would be excluded from the tax levy cap. If an employer contribution rate increased by 1.98 percentage points over the prior year, no exclusion would be allowed from the cap on the tax levy for pension cost increases.

Coming School Year Exclusions

PENSION EXCLUSION for 13-14 PENSION EXCLUSION for 14-15

ERS Rate 2013-14: 20.9% ERS Rate 2014-15: 20.1% - 2012-13: 18.9% - 2013-14: 20.9% 2.0% -0.8%

- 2.0% - 2.0% ERS Exclusion = 0.0% ERS Exclusion = 0.0%

TRS Rate 2013-14: 16.25% TRS Rate 2014-15: ??????% - 2012-13: 11.84% - 2013-14: 16.25%

4.41% ????? - 2.0%

TRS Exclusion = 2.41%

Calculating Exclusions

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Maximum Allowable Levy Example Prior year tax levy 5,000,000Tax base growth factor x 1.01








Coming School Year Exemptions + 225,000Maximum Allowable Levy 5,174,000 +3.48%

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Tax Levy, “Decisions”

Seemingly insignificant decisions today may result in significant adverse impacts tomorrow

Levies below the Maximum Allowable Levy: Result in the municipality self-funding

exclusion items such as pension costs Have long term ramifications that

should be reviewed carefully51

Long Term Impact of Levying below the Tax CapImpact of first year decision to be BELOW Tax Levy Limit

Tax Cap

Levy Limit

Proposed Levy

Levy at Limit

Proposed Levy

Levy Annual

Difference

Accumulated

Revenue Loss

12-13 3.00% 3.14% 1.63% 5,074,289

5,000,000 (74,289) (74,289)

13-14 3.98% 5.39% 5.39% 5,347,793

5,269,500 (78,293) (152,582)

14-15 2.00% 2.00% 2.00% 5,454,749

5,374,890 (79,859) (232,441)

15-16 2.00% 2.00% 2.00% 5,563,844

5,482,388 (81,456) (313,898)

16-17 2.00% 2.00% 2.00% 5,675,121

5,592,035 (83,085) (396,983)

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Long Term Impact of Levying below the Tax CapImpact of a Second Year BELOW Tax Levy Limit

Tax Cap

Levy Limit

Proposed

LevyLevy at Limit

Proposed Levy

Levy Annual

Difference

Accumulated

Revenue Loss

12-13 3.00% 3.14% 1.63% 5,074,289

5,000,000 (74,289) (74,289)

13-14 3.98% 5.39% 4.00% 5,347,793

5,200,000 (147,793) (222,082)

14-15 2.00% 2.00% 2.00% 5,454,749

5,304,000 (150,749) (372,831)

15-16 2.00% 2.00% 2.00% 5,563,844

5,410,080 (153,764) (526,596)

16-17 2.00% 2.00% 2.00% 5,675,121

5,518,281 (156,839) (683,435)

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Multi-Year Fiscal Health Projections

Central School District Board of Education

January 10, 2012

Estimates Are Subject to Change

54


Expenses Salary and Benefits (ERS/TRS, Health) Debt Service BOCES Utilities, Supplies, Transfers, etc.Revenues Levy (Tax Cap) State Aid Use of Reserves

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2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

-$5,000,000

-$4,000,000

-$3,000,000

-$2,000,000

-$1,000,000

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000Surplus (Deficit)

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In Brief… NYS’s tax levy cap is NOT a “2% cap” The law applies to the school district levy, NOT the

individual tax bill of resident taxpayers The “tax levy limit” (actual allowable tax levy increase

requiring only a simple majority) will vary by district The formula allows for certain expenses to be exempt from

the cap, therefore allowing the total tax levy increase to be greater than “perceived” limit

BOEs can present a budget that has a tax levy above the “limit,” but will need 60% voter approval

57

Tax Cap vs. Tax Bills Difference between tax levy and tax

rates Impact of equalization rates and

assessments Remember they have been

bombarded with 2%!!! For STAR, it REALLY IS A CAP!

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For STAR– It is a 2% CAP!

Increases in the value of the STAR exemption are capped at 2%

Cap applies to both basic and enhanced STAR

Cap is independent of the STAR exemption amount

59

STAR Cap Impact

Year Exemption $ Value

%

Inc.Tax

Rate%

Inc.

Exemption

Calculated Value

%Inc.

2% Cap Exemption

Value

% Inc.

Bill(100K AV)

Bill % Increas

e

Taxpayer Share of Total

Bill

2011-12 60,100 0% 24.48 2% 1,471 2% 1,471 2% 977 2% 39.9%

2012-13 62,200 4% 25.21 3% 1,568 7% 1,500 2% 1,021 5% 40.5%

2013-14 63,300 2% 25.97 3% 1,644 5% 1,530 2% 1,067 5% 41.1%

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All budget deadlines/ requirements remain in place• Legal notices

• Property tax report card is still required and will now include:

• district tax levy limit• proposed tax levy before exemptions

• Public hearings and disclosure• Budget notice will now include:

• district tax levy limit• proposed tax levy before exemptions

• Budget statement

What options does the BOE have?Option 1: Propose a budget requiring a total tax levy at or below the calculated Maximum Allowable Tax Levy prescribed by law:

Requires a simple majority (50% + 1 voter approval)

Option 2: Propose a budget requiring a total tax levy above the Maximum Allowable Tax Levy prescribed by law:

Requires a “super majority” (60% voter approval) Requires a statement on ballot indicating the required

tax levy before exemptions exceeds the Tax Levy Limit

Maximum Allowable Tax Levy = tax levy limit + exemptions

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What happens if the budget is not approved by the public? If the proposed budget is not approved by the required margin:

the district may resubmit the original budget or submit a revised budget to the voters on the third Tuesday in June OR

adopt a contingency budget that levies a tax no greater than that of the prior year (0% increase in tax levy).

If the resubmitted/revised budget proposal is not approved by the required margin: the Board of Education must adopt a budget that levies a

tax no greater than that of the prior year (0% increase tax levy) and the budget would be subject to contingent budget requirements.

Districts will not be allowed to increase the tax levy to the extent necessary to fund items of expenditure excluded from the tax cap No growth factor No capital, court order/judgments or pension exemptions

63

Are contingent budget laws still in effect? Administrative cap is in effect

Non-contingent expenses removed

Expenditures are no longer subject to overall contingent budget spending cap(4% or 120% of CPI)

64

What happens if there is an error in the calculation of the cap? If, due to clerical or technical errors, the actual

levy exceeds the maximum allowable tax levy:

The excess amount collected is placed in reserve

Excess amount and any interest earned will be used to offset the tax levy in the following year

65

Questions????

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Documents

Tax Cap Year 2: A Retrospective