PROPERTY TAX LEVY LIMIT
What's the backstory?

New York State legislators passed the tax levy limit into law in 2011, affecting school district budgeting for the 2012-13 school year and beyond. The “tax cap” specifies the maximum increase in the total property tax levy that a school district can collect with the approval of a simple majority of voters in the school budget vote. School districts are permitted to tax beyond the level of the cap, however, to do so, 60% of voters must approve the budget. If the budget is not approved by the necessary threshold, school districts can take the same or a revised budget to the voters for a revote or accept a contingency budget with a zero increase. 

The tax levy limit is thought of as a “2% tax cap”, which is a misnomer.  This characterization originated from the fact that the maximum allowable growth factor that is part of each tax limit calculation is either 2% or the Consumer Price Index (CPI), whichever is lower. This growth factor is only one part of an eight-step calculation that determines the specific levy limit for each local government. The technicalities of the eight-step formula for determining tax levy limits for school districts have been the focus of public education advocacy for years. 

The Educational Conference Board (ECB) laid out the deficiencies in the formula in their 2015 report that recommended several adjustments to the tax cap calculation. The ECB analysis lists seven recommended technical adjustments to the tax cap formula, of which only the BOCES capital cost exclusion has been remedied by the state legislature. WPSBA and other public education groups continue to advocate for outstanding issues highlighted in the five-year-old report, including tax cap adjustments to better reflect the realities of school district budgeting and expenditures, especially in the areas of enrollment growth, PILOTs, capital transfers, levy carryover, tax certioraris and excess pension expenses. 

Larger issues with the overall framework of the tax levy limit legislation also remain outstanding. Briefly, some of these issues include: 
  • The supermajority (60%) requirement of the voting public to approve an override is both undemocratic and creates a hurdle for school districts that local municipal governments are not required to overcome (60% vote of governing body). 
  • The zero percent increase contingency budget adopted in 2011 legislation is much more restrictive than earlier contingency budget requirements which limited increases to up to 4% and restricted certain types of spending.  
  • The calculation can result in negative tax cap limits for districts – mostly notably in the 2016-17 school budget year when a low inflationary factor (0.12%) resulted in 88 districts statewide having a negative tax levy limit. 
  • The inflationary growth number is capped at 2% but can be lower depending on CPI in the prior calendar year. The lack of predictability, potential for greater numbers of negative tax levy limits, and the inability of districts to change their cost structure quickly in response to CPI, make this restriction inappropriate for school budgeting.
What's the latest?  

The property tax cap is very popular in NYS. Quinnipiac polling results in January 2019 found 59% of voters supported making the tax cap permanent, which in fact became the reality as part of the state budget that year. Also notable is that school budget votes have been more successful since the cap’s inception. In the 10 years prior to the tax cap, 91% of school budget votes statewide were successful on the first vote, which has increased to 98% first-vote adoption since 2012.  

On the other hand, the mandate relief that was promised to school districts and local governments has largely not materialized. School districts also have few opportunities to raise revenue outside of state aid and property taxes. Of WPSBA districts who go to the voters directly for budget approval (excludes Special Acts, BOCES, and Yonkers), 94% of proposed spending in the 2020-21SY is expected to be funded by property taxes and school aid (including CARES Act funding). Property taxes alone fund approximately 80% of school spending in our region. The latest report of the NYS Comptroller on fiscal stress in school districts (2018-19), indicates that while the vast majority of districts are not in a fiscal stress designation, the number of districts exhibiting fiscal stress symptoms is increasing. 
What's next?

As the tax cap has been made permanent in New York State, and remains popular with voters, significant changes to the tax levy limit legislation appears unlikely. WPSBA and the Lower Hudson Education Coalition (LHEC) continue to call for amendments to the tax cap formula on a permanent basis.  

School districts face a significant budgeting challenge in the next school year with fears of reduced state school aid, giving rise to tax cap advocacy based on the potential for adjustments related to COVID-19. WPSBA and LHEC are proposing a one-year base inflationary number of 2% for the 2021-22 school year tax levy limit calculations. The allowable levy inflation factor for 2021-22 school budgets will come out later in January, but the 12-month average leading into December was reported as 1.31%. While we do not agree that CPI is an appropriate baseline for school budgeting in any year, the additional costs associated with COVID-19 and hybrid model learning make CPI particularly irrelevant for pandemic-era budgeting. 

While adjustments to the tax cap calculation would be helpful to school districts, in a time of tight state budgets, the focus of advocacy is also shifting to increased flexibility and reduced mandated requirements for school districts.