Understanding the Property Tax Levy Cap
With the 2012-13 school budget development process underway, Watervliet City School District officials want to make sure taxpayers are aware of a significant change in the budget development process: the state’s tax levy cap legislation enacted June 2011.
The tax levy cap legislation, which has been in the news for several months, is often called a “2 percent tax cap” — a phrase that is misleading and easily misunderstood. That is because the law does not restrict any proposed tax levy increase to 2 percent, nor does it prohibit individuals’ property taxes from increasing more than 2 percent.
The law applies to the school district tax levy, not tax rates or individual homeowners’ tax bills. It does not place any restrictions on how tax bills are calculated. The phrase “2 percent tax cap” has been misrepresented, causing many property owners to believe that their individual tax bill cannot increase by more than 2 percent.
What the property tax cap legislation in fact does, is limit the amount the school district can increase its tax levy and still need only a simple majority vote to adopt. The “cap” actually provides a threshold number—the tax levy limit—that dictates the level of community support needed to pass the proposed budget.
If the tax levy increase is above the "tax levy limit"—after 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 (50 percent) is needed for budget approval.
Essentially, the "tax levy limit" sets a threshold that requires districts to obtain a higher level of community support for a proposed tax levy that is 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.
As a result, a district’s final tax levy after exemptions are factored in could be greater than its published “tax levy limit” and yet, under the law, still be considered within that limit.
Where does the 2 percent come from?
The 2 percent refers only to a small part of the so-called “Tax Cap Law.” In reality, it’s just one part of an eight-step formula, dictated by the law, that determines the maximum allowable tax levy the school district can pass with a simple majority.
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.
For a thorough explanation of the new tax levy cap law, download Understanding New York's Property Tax Levy Cap as it relates to public schools—a 6-page overview of the NYS tax levy cap.
Something to 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 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.
Determining each district’s tax levy limit
By law, each school district’s tax levy is determined by a complex, eight-step formula that was developed by the state. [View the formula] 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—that’s where the label “2 percent tax cap” comes from. 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 about 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 tax levy limit and still be within its “cap” under the law.
“Based on the figures we currently have, our tax levy limit is 2.69 percent,” says Watervliet Business Administrator Diane Malecki.
Officials estimated that with a 2.69 percent tax levy increase next year, the district would have to make approximately $1.4 million in spending reductions to present a balanced budget.
For more information, download the presentation shared at the February 28 budget forum.
Frequently Asked Questions
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.
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.
Yes. Residents will still vote
on the district’s proposed spending plan on the third Tuesday in
May. This year, the date for the school budget
vote is May 15. Polls will be open from
noon to 9 p.m. at four locations throughout the city: the Elks Club
(4th Ave. and 5th St.); Watervliet City Hall (Broadway and 15th
St.); Watervliet Elementary School (10th Ave. and 25th St.);
Hanratta Apartments (500 16th St.).
Under the new law, the level of voter approval needed to pass a budget will 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.
Watervliet has no plans to override the tax
levy limit. 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.