Tax Levy Enhanced

HALF HOLLOW HILLS SCHOOL DISTRICT of Huntington and Babylon

Understanding the Property Tax Levy “Cap” Community Budget Forum December 6, 2011

HHH’s Revenue Picture OTHER* (6.3%)

Figures shown represent the percent of the District’s budget which comes from the noted revenue source

STATE AID (11.2%)

PROPERTY TAXES (82.5%)

* Includes use of fund balance and reserves, charges for services, PILOTs, and interest income

Understanding the Property Tax Levy “Cap”

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The Tax “Cap” • Enacted June 24, 2011  Chapter 97 of the Laws of 2011  Program bill originated with Governor Cuomo

• Establishes a cap on the growth of local property taxes • Tax levy limit placed on all local governments and school districts (excluding NYC) • Starts with fiscal years beginning in 2012 • Expires June 15, 2016 unless rent control laws are extended • School district votes must still occur Understanding the Property Tax Levy “Cap”

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The Tax “Cap” • Not really a “cap” • The law simply sets a higher threshold for voter approval of budgets IF the proposed tax levy increase exceeds the calculated “tax levy limit”

Understanding the Property Tax Levy “Cap”

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The Real Impact of the Tax Levy • Mass confusion by residents of what the property tax levy “cap” is and, more importantly, is NOT  Sound‐bites from the State further complicate the situation  An informed resident will be every district’s biggest ally!

• Further dividing Long Island communities    

The impact of the “cap” is so much bigger than “just” HHH The “haves” versus the “have‐nots” will be further separated We need to fight for high quality education for ALL of Long Island If there is an “US” versus “THEM” it should be “US” Long Islanders concerned about quality education for our children; the “THEM” should be the State which imposes rules which hinder us from reaching this goal  Consider the real‐life example on the following slides

Understanding the Property Tax Levy “Cap”

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Further Dividing Long Island Communities • Districts A & B have the same exact budget • School District A = “poorer” as indicated by their heavier reliance on State Aid as a source of revenue • School District B = “richer” as indicated by their lower reliance on State Aid as a source of revenue • Assume “other revenues” are the same in both districts • Therefore leaving revenue from Property Taxes as that which the districts have control over…at least to this point!

YEAR 1 Total Budget

State Aid $

%

REVENUES "Other" Revenues

Property Tax Levy

School District A

$215,000,000

$118,250,000

55%

$5,000,000

$91,750,000

School District B

$215,000,000

$32,250,000

15%

$5,000,000

$177,750,000

Understanding the Property Tax Levy “Cap”

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Further Dividing Long Island Communities • Assume for both districts the “cap” formula results in an allowable 2.20% tax levy increase from prior year and both districts choose to go for a “simple majority” at budget vote time • That will calculate to the noted property tax levy • Assuming no change to State Aid and Other Revenue, each district will then have the noted budgets for the following year • But, because School District B is less reliant on State Aid (i.e. “richer”) than School District A (who is “poorer”), their budget increase will be double that of School District B…all while following the SAME EXACT FORMULAS!

"Cap" %

Following Year's Prop Tax Levy

School District A

2.20%

$93,768,500

$217,018,500

$2,018,500

0.94%

School District B

2.20%

$181,660,500

$218,910,500

$3,910,500

1.82%

difference:

$1,892,000

Understanding the Property Tax Levy “Cap”

YEAR 2 Total Budget*

YOY Budget Increases

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Budget Growth

When is 2% NOT 2%?

• When it’s the Property Tax Levy “Cap” Prior year tax levy x Tax base growth factor, if any + Prior year PILOTs ‐ Taxes levied for exemptions during prior year = “Adjusted prior year tax levy” x Allowable levy growth factor ‐ Coming year PILOTs + Available carryover, if any = “Tax Levy Limit” Understanding the Property Tax Levy “Cap”

This is the only part that will be 2% for 2012/13

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Levy to Support Proposed Budget “Tax Levy Limit” (prior slide) + Coming year exemptions = “Maximum allowable tax levy” (requiring a simple majority)

Understanding the Property Tax Levy “Cap”

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Misconception #1 • My taxes will increase only 2%  NO!  Property tax levy “cap” sets a voter threshold for the district’s tax levy, NOT the individual tax bill of resident taxpayers

Understanding the Property Tax Levy “Cap”

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Misconception #1 (cont’d) • Tax Levy ≠ Tax Rate ≠ Tax Bill  An individual’s tax bill will increase or decrease depending on his/her home’s assessed value – something the District has NO control over  Property Tax Rates are calculated as follows: (Tax Levy ÷ Assessed Value) x 100 = Tax Rate per $100 of AV

 How assessed values impact individual homeowners:  If assessed values decrease, property tax bills will rise faster than the tax levy increase  If assessed values remain exactly flat, property tax bills will equal the tax levy increase  If assessed values increase, property tax bills will rise slower than the tax levy increase

 And don’t forget about equalization rates between the Towns of Babylon and Huntington Understanding the Property Tax Levy “Cap”

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The State Keeping it Simple (NOT!) HALF HOLLOW HILLS SCHOOL DISTRICT CALCULATING WHAT THE PROPERTY TAX LEVY CAP MEANS TO US

A

Prior year tax levy

B

Excess tax levy in reserve

C

Tax levy subtotal (A ‐ B)

$178,147,658 $0

D Tax base growth factor E

Adjusted tax levy subtotal (C x D)

F

Prior year (base year) PILOTs

G Prior year (base year) tax levy + PILOTs

not applicable in 2012/13

$178,147,658 1.0

actual # TBD; refer to presentation for description

$178,147,658 $2,540,000 $180,687,658

H Prior year (base year) exemptions I

capital expenditures

J

court orders

$4,569,677 $0

H Prior year (base year) exemptions (I + J) K

Adjusted prior year levy (G ‐ H)

L

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

M Tax levy including growth factor (K x L)

$4,569,677 $176,117,981 1.02

P

$2,540,000

R

assumes no growth or reduction in PILOTs

$177,100,341

Available carryover from prior year (base year)

Q Tax Levy Limit before exemptions (O + P)

lesser of CPI or 2%; CPI to be released 1/14/2012

$179,640,341

N PILOTs for coming year O Tax levy minus PILOTs for coming year

will vary based on finalized rules from State not applicable for HHH

LY; ES ON S O P R E PU RATIV THE STATE T S U L R IL OM SED FO ICATIONS FR U

E R RIF ES A FIGUR AITING CLA AW

$0 $177,100,341

refer to presentation for description this is a ‐0.59% tax levy increase from prior year

Coming school year exemptions

S

capital expenditures

T

pension expenditures

U

court orders/judgments

R

Coming school year exemptions

V

Maximum allowable tax levy including exemptions

$5,031,292 $613,621 $0

will vary based on finalized rules from State not applicable for HHH

$5,644,913 $182,745,254

this is a 2.58% tax levy increase from prior year

(Q + R)

This is the # which gets reported to the Comptroller BUT, this is the number that voters vote on ‐ our "real" tax levy

Understanding the Property Tax Levy “Cap”

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Tax Base Growth Factor • Actual growth in assessments from “bricks and mortar” increases • Not changes in market values of homes • 1 + quantity change factor  Only calculated if quantity change factor is a positive number (i.e. cannot “hurt” us)

• Source of data: NYS Tax and Finance Department (ORPS) – Districts to get this info from towns • Factor to be made available by February 15th Understanding the Property Tax Levy “Cap”

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Prior Year Exemptions • Capital local expenditures    

Debt service LESS State aid Energy performance contracts permissible?

“Transfer to capital” budget line permissible?

Equipment purchases permissible?

Tax levy “cap” did not exist in prior year, so technically no prior year tax levy “cap” exemptions exist.

The impact of the State’s decision would be significant as districts could see a dramatic increase to the allowable tax levy that falls within the “cap” if these expenditures are to be ignored for year one of the tax levy “cap”.

• Court orders/judgments  Arising out of tort actions (personal injury lawsuits claiming negligence) for any amount that exceeds 5% of total tax levied in prior school year (i.e. $9 million for HHH)  Excludes tax certioraris Understanding the Property Tax Levy “Cap”

Still unknown whether the State will require Districts to include this exemption.

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Allowable Levy Growth Factor • Law defines the “inflation factor” as:  Change in “the average of the national consumer price indexes determined by the US DOL for the 12‐month period ending six months prior to the start of the coming fiscal year” CPI‐U (all urban consumers) Comptroller will calculate this figure as DOL releases numbers

 Inflation factor is never a reduction, even if there is deflation (minimum will be 1.0) Understanding the Property Tax Levy “Cap”

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Available Carryover • Districts may use taxing authority from prior school year to increase the subsequent year’s tax levy if taxes were increased in the prior year by less than the amount allowed by the “cap” • Not applicable for districts for 2012/13

Understanding the Property Tax Levy “Cap”

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Coming Year Exemptions • Capital local expenditures    

Debt service LESS aid (what will 2012‐13 aid be?)

Energy performance contracts permissible?

“Transfer to capital” budget line permissible?

Equipment purchases permissible?

• Court orders/judgments  Arising out of tort actions (personal injury lawsuits claiming negligence) for any amount that exceeds 5% of total tax levied in prior school year (i.e. $9 million for HHH)  Excludes tax certioraris

• Limited growth in pension costs  Only applicable when ERS and/or TRS employer contribution rates increase by more than two percentage points over prior year  NOT based on actual pension bill Understanding the Property Tax Levy “Cap”

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ERS Pension Exemption Calculation 18.9% 2012/13 ERS Average

‐

16.3% 2011/12 ERS Average

=

2.6 percentage points

= =

0.6 percentage points

(difference)

This difference is actually a 16% increase!

2.6 percentage points (difference)

0.6 percentage points (excludable portion)

‐ X

2.0 local responsibility not excludable

Salary Base

Understanding the Property Tax Levy “Cap”

(excludable portion)

Exempt Amount

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This amount gets added to the tax levy limit

TRS Pension Exemption Calculation 12.5% 2012/13 TRS Employer Contribution Rate ESTIMATE

‐

11.11% 2011/12 TRS Employer Contribution Rate

=

?

1.39 percentage points

Which rates will the State require us to use

(difference)

This difference is actually a 13% increase!

(difference)

‐

0 percentage points

X

1.39 percentage points

(excludable portion)

2.0 local responsibility not excludable

Salary Base

Understanding the Property Tax Levy “Cap”

= =

NO EXCLUDABLE PORTION!

2010/11 & 2011/12 OR 2011/12 & 2012/13

Exempt Amount

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Misconception #2 • Will be caused by the difference in “tax levy limit” (which must be submitted to Comptroller’s Office and will likely become a Newsday story) and “maximum allowable tax levy” which is what residents will vote on • Residents may think: “My district is not being truthful because what I’m voting on is different than what they reported to the State.”

• All districts will be in this same predicament

Understanding the Property Tax Levy “Cap”

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Misconception #2 (cont’d) Prior year tax levy x Tax base growth factor, if any + Prior year PILOTs ‐ Taxes levied for exemptions during prior year “Tax Levy Limit” = + “Adjusted prior year tax levy” Coming year exemptions x = Allowable levy growth factor Maximum allowable tax levy ‐ (requiring a simple majority) Coming year PILOTs + This is what residents Available carryover, if any will vote on in May = This is what’s reported “Tax Levy Limit” to the Comptroller

Understanding the Property Tax Levy “Cap”

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What Options Do BOE’s Have?

• Option 1: Propose a budget requiring a tax levy before exemptions at or below the Tax Levy Limit prescribed by law (i.e. at maximum allowable tax levy including exemptions)  Requires a simple majority (50% + 1 voter) approval

• Option 2: Propose a budget requiring a tax levy before exemptions above the Tax Levy Limit (i.e. above maximum allowable tax levy including exemptions)  Requires a “super majority” (at least 60% voter approval)  Requires a statement on ballot indicating the required tax levy before exemptions exceeds the Tax Levy Limit  Language such as: “Adoption of this budget in the amount of ________ exceeds the tax cap and must be approved by at least 60% of the qualified voters.”

 Override is good for that fiscal year only – Districts cannot “opt out” of the tax cap permanently Understanding the Property Tax Levy “Cap”

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Misconception #3 • My BOE must hold a public vote on whether or not the residents want to go for a “simple majority” versus a “super majority” vote  Not true!  The BOE makes the decision on whether the budget put before voters is at (requiring a “simple majority”) or above (requiring a “super majority”) the property tax cap threshold

Understanding the Property Tax Levy “Cap”

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Overriding the Tax “Cap” • Successful override of tax levy limit means the base for the following year’s tax levy limit calculation is the amount that was levied in the prior year inclusive of the override amount (less exclusions as set forth in statute)  If levy is above the calculated threshold, then that new levy amount becomes the starting point for the following year Understanding the Property Tax Levy “Cap”

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Budget Failure • If budget is defeated after two presentations to the voters, or after one defeat where the District decides not to resubmit a budget to voters, then District required to:  Adopt a budget with a tax levy less than or equal to the prior year (i.e. 0% growth)  Maintain the administrative cap  Eliminate all non‐contingent expenses

• Overall contingency budget spending restriction (lesser of 120% of CPI or 4%) stricken from law • Contingent budget rules BUT worse since school property taxes would be frozen at prior year level with NO exceptions or allowances!

Understanding the Property Tax Levy “Cap”

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The Comptroller’s Role • Districts must submit by March 1st their calculation of the tax levy cap (Commissioner of Education and Commissioner of Taxation and Finance also need this information) • Comptroller will collect information only, they will NOT certify • Comptroller will NOT correct inaccurate data or calculations • Comptroller has the authority to audit districts for compliance with tax levy “cap” – after the fact!

Understanding the Property Tax Levy “Cap”

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Oops…

• If district enacts a levy in excess of tax “cap” (without a super majority) the excess must be placed in a reserve  Good faith mistake in tax levy  All “excess” money, including compounding up to the point when the issue is found, must go back to taxpayers

Understanding the Property Tax Levy “Cap”

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Summarizing the Property Tax Levy Cap

Electronic copy available on the District’s website: Home > Discover HHH > Budget Information > 2012‐13 Budget Development

Understanding the Property Tax Levy “Cap”

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HHH’s Revenue Picture OTHER* (6.3%)

Figures shown represent the percent of the District’s budget which comes from the noted revenue source

STATE AID (11.2%)

PROPERTY TAXES (82.5%)

* Includes use of fund balance and reserves, charges for services, PILOTs, and interest income

Understanding the Property Tax Levy “Cap”

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State Aid…the promise • The State committed additional funds to education last budget year, even while they were projecting a four‐year budget deficit of $9.8 billion!    

2011/12: $0 2012/13: $2.4 billion 2013/14: $2.8 billion 2014/15: $4.6 billion

• But, even with projected deficits, an $805 million increase in State aid was written in law  Low wealth districts will “benefit”  Higher wealth districts will likely see aid reductions continue  Unlikely that any district will be at the State aid levels they were at many years ago before State support began to decline Understanding the Property Tax Levy “Cap”

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State Aid…the reality • Federal funding, which put a “Band‐Aid” on the State’s budget issues, is now gone!  End of American Reinvestment and Recovery Act (ARRA)  End of Education Jobs Fund (EJF)

• No real mandate relief

Understanding the Property Tax Levy “Cap”

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State Aid…the reality • In mid‐November, the State updated their forecasts and acknowledged “a $350 million deficit in the current state budget” on top of a newly projected “$3.5 billion projected deficit in the 2012‐13 State budget” • Without a “revenue enhancement”, State budget makers will have a difficult time following through on the 4% ($805 million) increase in school aid scheduled for inclusion in the 2012‐13 State budget.

Understanding the Property Tax Levy “Cap”

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Thank You for Participating

An informed resident will be every district’s biggest ally.

Thank you for taking the time to become informed!

Understanding the Property Tax Levy “Cap”