Money Talks - Understanding the Tax Levy Cap

November 30, 2023

Many thanks to John Brucato, Asst. Supt. for Finance and Operations in Briarcliff Manor and Ron Clamser, Asst. Supt. for Finance, Facilities, and Operations in Dobbs Ferry for bringing clarity to the many different components of the tax levy limit formula. Their explanations of the history of the tax levy cap and how districts calculate their own individual levy limit was enlightening and focused on what school board members should look for as districts compile a budget based on expected revenues from state aid and property taxes. Below is a summary of their presentation.

Yesterday’s budget is tomorrow’s tax levy

• The complicated calculation of the maximum allowable tax levy leads with the total taxes levied for the prior fiscal year. So, financially it makes sense to always levy the maximum amount available under the cap to avoid the “use it or lose it” scenario of tax levy dollars.  Politically, that may not be feasible.
• When inflation is high (measured by CPI, the Consumer Price Index), the allowable levy growth factor, a multiplier in the formula, is capped at 2%, yet bargaining units expect increases in excess of inflation.
• Unfortunately, communities believe in the misnomer of the “2% tax cap”, so it can be difficult to convince your community to vote for a levy in excess of 2%, even if it does not require an override.

Managing the tax levy limit is only part of good financial planning in school districts

• It is important to keep the capital exclusion (dollars spent on capital debt service and annual capital projects minus building aid) as consistent as possible, as changes in debt service expense can drastically affect the levy calculation.
• A long-range financial plan is the best tool to look at the financial needs of the district over time and communicate those needs to your community. Plans should include estimates of state aid and tax levy limits, negotiated staffing costs, projected retirements and fund balance estimates.
• Managing tax levy receipts includes ensuring that the district has reserved money for tax certioraris that take a long time to settle.

Waiting for the other shoe to drop

• A school district financial workshop would not be complete without discussing state aid, which is the other major funding source for school districts. As the current Foundation Aid formula is now fully funded, the large increases in state aid over the past three years are not expected to continue.
• If you would like to get involved in advocacy around tax cap changes, NYSSBA has set up an easy to send e-letter to encourage an adjustment to the formula that will include PILOTs in the tax base growth factor, ensuring they are properly accounted for as part of the property tax base. The Lower Hudson Education Coalition has prepared a memo in support that will be sent to the Governor along with the bill for her signature or veto.