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Tax Cap Year 2: A Retrospective

Tax Cap Year 2: A Retrospective. Deborah H. Cunningham Director of Education and Research New York Association of School Business Officials Michele Levings Director, State Aid and Financial Planning Service Questar III BOCES Mark Sansouci Assistant Superintendent for Business

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Tax Cap Year 2: A Retrospective

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  1. Tax Cap Year 2:A Retrospective Deborah H. Cunningham Director of Education and Research New York Association of School Business Officials Michele Levings Director, State Aid and Financial Planning Service Questar III BOCES Mark Sansouci Assistant Superintendent for Business Penfield Central School District October 26, 2013

  2. Agenda • Introduction • Vote Result after 2 years • How it Works • PILOT Considerations • Exemptions • Long Term Consequence of the Cap – Planning Considerations • Impact of STAR Cap • Conclusion

  3. Property Tax CapChapter 97 of the Laws of 2011 • June 2011 – Chapter 97 passed and signed by Governor Cuomo, Began with the 2012-13 school year budget • In effect through at least 2016-17. It remains in effect only so long as regulation and control of residential rents and evictions (i.e., rent control) laws are in place. • (The current rent control system began in 1943) Its Here to Stay!

  4. It’s Complex….. • Incorrectly referred to as “2% cap” • New terminology • New voter thresholds • New consequences for contingent budgets • New considerations for planning • New confusion

  5. The Tax Cap is Complex...

  6. The Tax Cap is Complex…

  7. Property Tax CapChapter 97 of the Laws of 2011 • Not really a “cap” • Sets a higher threshold for voter approval of budgets IF proposed tax levy increase exceeds the “tax levy limit” • 60% or more vs. simple majority (more than 50%) • “Tax levy limit” calculated by each district and varies by district • “Tax levy limit” is also NOT technically a limit— its a threshold for what level of voter support is needed

  8. Tax Levy Limit Prior year tax levy x Tax base growth factor, if any + Payments in lieu of taxes receivable during prior year – Taxes levied for exemptions during prior year (not ERS & TRS) = Adjusted Prior Year Tax Levyx Allowable levy growth factor (lesser of 2% or CPI) – Payments in lieu of taxes receivable in the coming year + Available carryover, if any = “Tax Levy Limit”

  9. Total Levy to support proposed budget Tax Levy Limit + Coming school year exemptions = Maximum Allowable Tax Levy (requiring simple majority)

  10. The 2% Myth…Year 1 – 2012-13 • 574 districts calculate a Maximum Allowable levy GREATER than 2% • 12 districts calculate a Maximum Allowable levy LESS than the 11-12 tax levy • 5 of those districts proposed a tax levy DECREASE for 12-13 • 8 of the 12 proposed to override

  11. The 2% Myth…Maximum Allowable Levy

  12. What Was Proposed in the First Year? • 92% of districts proposed budgets with tax levies at or below their maximum allowable levy (cap) • 476 proposed budgets with levies below their cap • 144 proposed budgets with levies at the cap • 48 districts asked the voters to override the cap • 22 districts proposed budgets with no tax increase • 10 districts proposed budgets with a tax levy decrease • The average tax levy % change is + 2.27% • The average budget % change is +1.47% • Total taxes levied increased 2.24% statewide

  13. First Year Extremes…. • Highest proposed tax levy change: Pocantico Hills = 12.52% (Maximum Allowable = 2.51%) • Lowest proposed tax levy change: Oswego = - 52.25% (Maximum Allowable = -34.82%) • Highest maximum allowable levy % change Barker = 31.84% (Proposed = 2.90%) • Lowest maximum allowable levy % change Oswego = -34.82 (Proposed = -52.25%)

  14. What Was Proposed in the Second Year? • 96%of districts proposed budgets with tax levies at or below their maximum allowable levy (cap) • 549 proposed budgets with levies below their cap • 92 proposed budgets with levies at the cap • 28 districts asked the voters to override the cap • 16 districts proposed budgets with no tax increase • 14 districts proposed budgets with a tax levy decrease • The average tax levy % change is + 2.83% • The average budget % change is + 2.88% • Total taxes levied increased 3.05% statewide

  15. Second Year Extremes…. • Highest proposed tax levy change: Newcomb CSD = 24.78% (Maximum Allowable = 6.94%) • Lowest proposed tax levy change: Mexico = -40.48% (Maximum Allowable = -40.48%) • Highest maximum allowable levy % change Barker = 92.66% (Proposed = 3.50%) • Lowest maximum allowable levy % change Mexico = -40.48 (Proposed = -40.48%)

  16. The 2% Myth…Proposed Levies

  17. Year 1 Results PassFail 654 24 96.5% 3.5% 2nd Highest Rate Ever!

  18. Year 1 Results 98% of budgets which were within the levy limit passed

  19. Year 1 Results 49 districts sought an override, 30 were successful 61% But Of the 24 districts that were defeated 19 were seeking an override

  20. Year 2 Results PassFail 644 32 95.3% 4.7%

  21. Year 2 Results 28 districts sought an override, 7 were successful 25% And Of the 32 districts that were defeated 21 were seeking an override

  22. Vote Result Takeaways • While not technically a cap, overrides are extremely difficult • Taxpayer tolerance for increases • Real consequences of contingent budget

  23. Calculation Challenges

  24. Sample Tax Levy Limit Calculation Prior year tax levy 5,000,000 Tax base growth factor x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exemptions (capital levy, court orders) - 200,000 Adjusted Prior Year Levy 4,950,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,049,000 PILOTs for coming year - 100,000 = 4,949,000 Available Carryover + 0 TAX LEVY LIMIT = 4,949,000

  25. Tax Base Growth Factor • Quantity Change Factor = The percentage by which the full value of the taxable real property in the school district increases due to physical or quantity change, compared with the prior year tax roll (growth in full value due to new construction, additions and improvements to real property, etc.). • Tax Base Growth Factor = 1 + Quantity Change Factor; only calculated if quantity change factor is a positive number. • Source: New York State Tax and Finance Department (ORPS) • Factor made available by February 15th

  26. Sample Tax Levy Limit Calculation Prior year tax levy 5,000,000 Tax base growth factor x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exemptions (capital levy, court orders) - 200,000 Adjusted Prior Year Levy 4,950,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,049,000 PILOTs for coming year - 100,000 = 4,949,000 Available Carryover + 0 TAX LEVY LIMIT = 4,949,000

  27. PILOTS Prior Year PILOTS • Not all districts will have PILOT payments • Payments in lieu of taxes (PILOT) owed to the district in the prior school year • For 2013-14 school year, 2012-13 PILOT Payments PILOTS for the Coming Year • Payments in lieu of taxes (PILOT) to be paid to the district in the upcoming school year • For 2013-14 school year, 2013-14 Estimated PILOT Payments

  28. Maximum Allowable Levy Example(Substantial DECREASE to PILOTS) Prior year tax levy 5,000,000 Tax base growth factor (district specific) x 1.01 5,050,000 Prior year PILOT +500,000 5,550,000 Prior year exclusions (capital levy, court orders) - 225,000 Adjusted Prior Year Levy 5,325,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,431,500 PILOTs for coming year - 100,000 5,331,500 Available Carryover + 0 TAX LEVY LIMIT 5,331,500 Coming School Year Exclusions + 225,000 Maximum Allowable Levy 5,556,500 +11.13%

  29. Maximum Allowable Levy Example(Substantial INCREASE to PILOTS) Prior year tax levy 5,000,000 Tax base growth factor (district specific) x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exclusions (capital levy, court orders) - 225,000 Adjusted Prior Year Levy 4,925,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,023,500 PILOTs for coming year - 500,000 4,523,500 Available Carryover + 0 TAX LEVY LIMIT 4,523,500 Coming School Year Exclusions + 225,000 Maximum Allowable Levy 4,748,500 -5.03%

  30. Summary Impact of PILOTS • PILOT growth is not included in “Growth Factor” • Permanent loss of growth factor multiplier – PILOTs are excluded

  31. PILOT Impact on Tax Cap

  32. What happens when expiring PILOTS are not included in Growth Factor ? Year 10

  33. PILOT Impact • Difference is Forever – not just a one year impact • Starts at beginning of PILOT, adverse impact is permanent • No growth allowance when PILOT exemption expires

  34. Sample Tax Levy Limit Calculation Prior year tax levy 5,000,000 Tax base growth factor x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exemptions (capital levy, court orders) - 200,000 Adjusted Prior Year Levy 4,950,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,049,000 PILOTs for coming year - 100,000 = 4,949,000 Available Carryover + 0 TAX LEVY LIMIT = 4,949,000

  35. Prior Year Exemptions • Capital Tax Levy = Tax levy necessary to support capital local expenditures • Capital Local Expenditures = The tax levy associated with budgeted expenditures resulting from the construction, acquisition, reconstruction, rehabilitation or improvement of school district capital facilities or capital equipment, including debt service and lease expenditures, and transportation capital debt service. • Court Orders/Judgments = Tax levy necessary for expenditures resulting from court orders or judgments arising out of tort actions for any amount that exceeds 5% of total tax levied in prior school year. (excludes tax certioraris) • Excludes prior year pension exemption

  36. Maximum Allowable Levy Example: Impact of Changing Exclusions Prior year tax levy 5,000,000 Tax base growth factor (district specific) x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exclusions (capital levy, court orders) - 0 Adjusted Prior Year Levy 5,150,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,253,000 PILOTs for coming year - 100,000 5,153,000 Available Carryover + 0 TAX LEVY LIMIT 5,153,000 Coming School Year Exclusions + 225,000 Maximum Allowable Levy 5,378,000 +7.56%

  37. Maximum Allowable Levy Example: Impact of Changing Exclusions Prior year tax levy 5,000,000 Tax base growth factor (district specific) x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exclusions (capital levy, court orders) - 225,000 Adjusted Prior Year Levy 4,925,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,023,500 PILOTs for coming year - 100,000 4,923,500 Available Carryover + 0 TAX LEVY LIMIT 4,923,500 Coming School Year Exclusions + 0 Maximum Allowable Levy 4,923,500 -1.53%

  38. Sample Tax Levy Limit Calculation Prior year tax levy 5,000,000 Tax base growth factor x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exemptions (capital levy, court orders) - 200,000 Adjusted Prior Year Levy 4,950,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,049,000 PILOTs for coming year - 100,000 = 4,949,000 Available Carryover + 0 TAX LEVY LIMIT = 4,949,000

  39. Allowable Growth Factor • Allowable Levy Growth Factor = Lesser of: 1.02 OR (1 + Inflation Factor); Minimum of 1.0. • Inflation Factor = CPI change, carried out four decimal places. • 2014-15 Budget= ??? • Source: US Department of Labor

  40. Growth Factor Impact At 2%At 1.66% Prior year tax levy 5,100,000 5,100,000 Tax base growth factor x 1.015 x 1.015 5,176,500 5,176,500 Prior year PILOT +100,000+100,000 5,276,500 5,276,500 Prior year exemptions (capital levy, court orders) - 220,000 -220,000 Adjusted Prior Year Levy 5,056,500 5,056,500 Allowable Growth Factor (lesser of CPI or 2%) x 1.02x 1.0166 5,157,630 5,140,438 PILOTs for coming year - 100,000 - 100,000 = 5,057,630 = 5,040,438 Available Carryover + 74,000+ 74,000 TAX LEVY LIMIT = 5,131,630 5,114,438 Coming School Year Exemptions + 125,000 +125,000 Maximum Allowable Levy 5,256,630 3.07% 5,239,438 2.73%

  41. Sample Tax Levy Limit Calculation Prior year tax levy 5,000,000 Tax base growth factor x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exemptions (capital levy, court orders) - 200,000 Adjusted Prior Year Levy 4,950,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,049,000 PILOTs for coming year - 100,000 = 4,949,000 Available Carryover + 0 TAX LEVY LIMIT = 4,949,000

  42. Available Carryover • Available Carryover: Districts may use taxing authority from the prior school year to increase the subsequent year’s tax levy limit if taxes were increased in the prior school year by less than the amount allowed by the tax levy limit. If a negative number, no carryover is available (use $0). Calculation:Calculated 2012-13 Tax Levy Limit – Actual 2012-13 Total Tax Levy (No Greater Than 1.5% x Prior Year Tax Levy Limit) • Things to remember: • Available carryover is NOT an exclusion from the tax levy limit • It is a dollar amount not a percentage • It must be included in the calculation for the 2013-14 tax levy limit • Does it really matter? Reality check • Roughly 106 schools have carryover

  43. Carryover Example Assume a district levies at an increase of 2.2% as opposed to their allowed 3.48%: Tax Levy Limit: $4,949,000 District’s Calculated Maximum Allowable: $5,174,000 2012-13 Levy: $5,000,000 x 1.022 = $5,110,000 Now assume the district levies $4,850,000: Calculation:

  44. Comparing Year 1 to Year 2 with Carryover

  45. Sample Tax Levy Limit Calculation Prior year tax levy 5,000,000 Tax base growth factor x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exemptions (capital levy, court orders) - 200,000 Adjusted Prior Year Levy 4,950,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,049,000 PILOTs for coming year - 100,000 = 4,949,000 Available Carryover + 0 TAX LEVY LIMIT = 4,949,000

  46. Total Levy to support proposed budget Tax Levy Limit + Coming school year exemptions = Maximum Allowable Tax Levy (requiring simple majority)

  47. Coming School Year Exclusions • Capital Tax Levy = Tax levy necessary to support capital local expenditures • Capital Local Expenditures = The tax levy associated with budgeted expenditures resulting from the construction, acquisition, reconstruction, rehabilitation or improvement of school district capital facilities or capital equipment, including debt service and lease expenditures, and transportation capital debt service. • Court Orders/Judgments = Tax levy necessary for expenditures resulting from court orders or judgments arising out of tort actions for any amount that exceeds 5% of total tax levied in prior school year. (excludes tax certioraris)

  48. Coming School Year Exclusions • The pension cost exclusion applies only when ERS and/or TRS employer contribution rates increase by more than 2 percentage points over the prior year. • ERS Costs = Tax levy necessary for expenditures for coming school year for employer contributions caused by growth in the system average actuarial contribution rate, minus two percentage points. • TRS Costs = Tax levy necessary for expenditures for coming school year for employer contributions caused by growth in the normal contribution rate, minus two percentage points • For example, if an employer contribution rate for ERS and/or TRS increased by 2.2 percentage points, only an amount equal to applicable salary expenditures times .002 would be excluded from the tax levy cap. If an employer contribution rate increased by 1.98 percentage points over the prior year, no exclusion would be allowed from the cap on the tax levy for pension cost increases.

  49. Calculating Exclusions PENSION EXCLUSION for 13-14PENSION EXCLUSION for 14-15 ERSRate 2013-14: 20.9% ERSRate 2014-15: 20.1% - 2012-13: 18.9%- 2013-14: 20.9% 2.0% -0.8% - 2.0% - 2.0% ERS Exclusion = 0.0% ERS Exclusion = 0.0% TRS Rate 2013-14: 16.25% TRS Rate 2014-15: ??????% - 2012-13: 11.84%- 2013-14: 16.25% 4.41% ????? - 2.0% TRS Exclusion = 2.41%

  50. Maximum Allowable Levy Example Prior year tax levy 5,000,000 Tax base growth factor x 1.01 5,050,000 Prior year PILOT +100,000 5,150,000 Prior year exemptions (capital levy, court orders) - 200,000 Adjusted Prior Year Levy 4,950,000 Allowable Growth Factor (lesser of CPI or 2%) x 1.02 5,049,000 PILOTs for coming year - 100,000 = 4,949,000 Available Carryover + 0 TAX LEVY LIMIT = 4,949,000 Coming School Year Exemptions + 225,000 Maximum Allowable Levy 5,174,000 +3.48%

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