Tax Levy Limit legislation information

At the end of June 2011, the New York State Legislature enacted a property tax “cap” that seeks to limit the annual increase in the tax levies of local governments and school districts. The new legislation will affect district planning starting with the 2012-13 school budget.

Although the new law has been referred to as a “2 percent tax cap,” it does not, in fact, restrict any proposed tax levy increase to 2 percent. What it does is establish a tax levy limit (which will be determined by each district according to an eight-step, complex formula dictated by the law, and will vary by district) that determines the number of votes needed to pass a school budget.

Keep in Mind

The tax levy is the total dollars that a school district collects from property owners within the district in order to balance its budget. The levy is determined after accounting for all other sources of income, including state aid.

The tax rate is used to calculate what each property owner will pay in school taxes. The district tax levy rate is just one factor, along with assessment rates and equalization rates, that figure into determining the tax rate. The district does not set individual tax rates.

10 Fast Facts about New York's Property Tax Levy Cap

View these 10 Fast Facts to learn about the new tax levy cap law, which will affect budget planning for the 2012-13 school year, here.

Fact or Fiction?

There's a lot to know about the new tax levy cap law. View the Fact or Fiction article to learn about important key points and help clear up misinformation, here.

Questions & Answers

Below are some common questions about the new property tax legislation. We will continue to post more information about the legislation as it is made available by the state.

Does the new cap 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.

The law has been misconstrued and misrepresented in media sound bites as a “2 percent tax cap.” Instead of imposing a true cap, the law establishes a threshold — or tax levy limit — that determines what level of support is needed for a school budget to pass. Each district is required to calculate its own tax levy limit by following a complicated, eight-step formula established by the state.

If the proposed tax levy increase is above the tax levy limit — after accounting for exemptions — the support of a supermajority (60 percent) of voters would be required for budget passage. If the levy is within the limit, a simple majority is needed for budget approval.

What is a "tax levy limit?”

For school districts, 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 a simple majority of voters (more than 50 percent) is required for budget passage. Any proposed tax levy amount above that limit requires budget approval by a supermajority (60 percent or more) of voters.

Essentially, the “tax levy limit” sets a threshold that requires districts to obtain a higher level of community support for a proposed tax levy above the “tax levy limit.”

However, the new legislation does not place a limit on any taxes a school district would levy to pay for expenses related to specific “exempt” items, including some court orders, some pension costs and local capital expenditures. The costs of these exempt items are added to the “tax levy limit” to come up with the “allowable tax levy” limit.

It is important to note that:

(1) Tax levy limits will vary by school district;
(2) The new law does not limit an individual’s tax bill.

How is the district’s tax levy limit determined?

By law, each school district’s tax levy is determined by a complex, eight-step formula that was developed by the state. The formula takes into consideration a number of variables, including growth in the local tax base (if any), exemptions, the previous year’s tax levy, as well as the current and coming years’ PILOTs (Payment In Lieu Of Taxes). The rate of inflation or 2 percent (whichever is lower) is also part of the equation. Consideration is also made for any allowable “carryover” funds from previous years, as districts are allowed to “bank” some unused portions of their tax levy limits to use in future years (details on this are still emerging from the state).

Individual school districts will each have a unique tax levy limit, which must be submitted to the state by March 1 each year. Once the tax levy limit is determined, the district will then add coming school year’s exemptions to the tax levy limit, creating a “maximum allowable levy.” As a result, a district may actually propose a budget with a tax levy that is higher than its lax levy limit and still be within its “cap” under the law.

How does the new law take into account the fact that some expenses are currently beyond a school district’s control?

By allowing for exemptions. After a school district calculates its “tax levy limit,” it then adds exemptions into that amount, allowing a 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 exemptions 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 in any amount that exceeds 5 percent of a district’s current levy. However, tax certioraris are not exempt.

As a result of these exemptions, a district's final tax levy after exemptions are added could be greater than this published tax levy limit and still be considered within that limit under the law.

What will the new property tax levy law mean for MY tax bill?

That remains to be seen. First, the new law applies to the tax levy, not to tax rates or to individual tax bills. Second, it does not impose a universal 2 percent cap on taxes, or any other specific amount. The law does require a greater number of voters to approve a proposed budget that exceeds a school district’s individual “tax levy limit,” as calculated by a complex state formula. And third, there are several factors (assessments, STAR, equalization rates, etc.) that dictate how your school tax bill is calculated after the district sets the final tax levy; these factors are beyond the district’s control.

Do residents still vote on school district budgets?

Yes. Residents will still be voting on the district’s proposed spending plan on the third Tuesday in May. This year, the date is Tuesday, May 15, 2012. Under the new law, the level of voter approval needed to pass a budget will now depend on the amount of tax levy required under the school budget proposal.

If the district meets or stays below the “tax levy limit” threshold (before exemptions), it only needs a simple majority (more than 50 percent) of "yes" votes for budget passage/approval.

If the district goes beyond the “tax levy limit” threshold (before exemptions), it must secure support from 60 percent or more (a supermajority) of voters for budget passage.

How will I know if VCSD is proposing a tax levy above its maximum allowable tax levy limit, requiring 60 percent voter approval?

By law, any school district that proposes a budget that requires a tax levy (before exemptions) above its “tax levy limit” must include a statement on the ballot indicating this to voters. Information will also be available on the district website and district budget newsletter.

Are all the details of the new law finalized?

No. In this first year of the property tax levy cap, information about its provisions and implementation continues to evolve. We’re providing the information as it becomes available. VCSD and other school districts across the state are now awaiting further clarification from the New York State Office of the Comptroller, the Department of Taxation and Finance, the New York State Education Department, the Division of the Budget and the governor’s office.

What happens if the district budget is not approved by voters?

If a proposed budget is defeated by voters, the 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, the district must adopt a contingent budget. Certain existing contingent budget requirements remain in effect that prohibit spending in specific areas including community use of buildings, certain salary increases and new equipment purchases. More significantly, under the new law, a district that adopts a contingent budget may not increase its current tax levy by any amount—which would impose, in effect, a zero percent cap. As of this writing, it is unclear if exemptions will apply.

Will the tax cap legislation affect all school districts equally?

No. The tax cap legislation will affect all districts to varying degrees, but it is clear that some will be 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.