Just the facts: 5 myths dispelled about the new tax cap legislation

The new tax cap legislation signed into law on June 24 has scrambled many school and business leaders in an attempt to fully understand the law’s impact. Several misapprehensions have emerged about how the law will affect school districts. This five-point clarification may help dispel misunderstanding.

#1. Districts must submit their proposed budget to New York State Education Department by March 1. - NOT TRUE

The March 1 reporting deadline does not involve the district’s proposed spending plan or the tax levy at all.

School districts are required to submit a calculation that establishes the “tax cap limit” for that year. That figure determines the district’s threshold for needing a 60 percent approval vote. The figure is calculated using information related to current-year revenues and data from ORPS (Office of Real Property Services).

#2. The portion of the pension increase that is over the tax cap can be added to the tax levy. - NOT TRUE

The law states that districts can exempt the tax levy necessary to fund pension increases that are in excess of a 2-percentage point increase in the contribution rate.

Notice that the two-percentage point figure is a fixed amount that does not relate to the supposed tax cap amount. For example:

• Increase of 2.49 percentage points (not percent) in the district's contribution rate

In this example, the tax levy amount needed to fund the increase up to 2 percentage points must be included within the tax levy cap.
However, the tax levy amount needed to fund the additional 0.49 percentage point increase can be exempt.

This does not mean that districts may increase their tax levy by an additional 0.49 percent. It means that the actual dollar amount equivalent to a 0.49% employer pension contribution can be added to the tax levy amount (not percent) as an exemption.

District's total salaries =	$10,000,000
Current pension contribution amount ($10,000,000 x 8.62%) =	$862,000
Next year's contribution amount ($10,000,000 x 11.11%) =	$1,111,000
Increase in contribution amount =	$249,000
Dollar amount of contribution increase that district must fund WITHIN their cap ($10,000,000 x 2%) =	$200,000
Amount of contribution increase that doesn't factor into the cap ($10,000,000 x 0.49%) =	$49,000

#3. Voters will now be voting on the tax levy increase and not a spending plan. - NOT TRUE

Voters will still vote yes/no on a proposed spending plan. The only change will be for those districts who decide to exceed their cap. In such a case, those districts will have to include a statement on the ballot explaining that the proposed budget, if approved, would exceed the cap.

#4. If two budget proposals were defeated, a district would be required to spend the same amount as in the previous year. - NOT TRUE

Remember, the tax cap has to do with REVENUES – in fact, one specific revenue source (property taxes) – and not with expenditures. In the event of two budget proposals being defeated, all the same contingency rules still apply regarding non-contingent expenses, administrative cap, and spending cap. In addition, the district is prohibited from raising the tax levy amount above the previous year.

#5. Under the new tax cap legislation, school districts are able to borrow money to help pay for pension increases. -NOT TRUE

While this provision was passed by the Legislature, Gov. Cuomo vetoed it on July 13.