Written by Deborah Cunningham
The Bureau of Labor Statistics reported on December 15 that the Consumer Price Index (CPI) for all items was unchanged in November as costs for energy and food declined. Based on eleven months of the year, inflation was running on par with last year at a 0.0006 percent increase. With only one month left to determine the Tax Cap for 2015, it appears to be close to or equal to zero. (The law does not allow the allowable levy growth factor to be less than zero.)
This poses a serious problem for districts in that costs will be increasing despite the low inflation, but districts will not be able to increase their tax levy for the 2016-17 school year one dollar if they stay within the tax cap.
Two other factors make this low tax cap particularly concerning: First, the Division of Budget predicts that inflation will rise by two percent next year, but tax cap growth is determined by looking at inflation in the prior year. In other words, while inflation is rising, districts will be budgeting within a Tax Cap that assumes no inflation.
Second, the CPI measure used is based on household costs for all urban consumers, whereas school districts costs are based on a different set of expenses, heavily influenced by the cost of paying teacher salaries. That means that the Tax Cap is based on a measure that might not accurately reflect school districts’ economic conditions.
A third factor will provide an incentive for school districts to stay within the Tax Cap: a STAR tax rebate, established with the laws of 2015, will be provided to eligible taxpayers who earn less than $275,000 a year in taxing jurisdictions that stay within the Tax Cap. This rebate will be provided in a check to eligible taxpayers in October of each year for the duration of the Tax Cap, through 2019. This puts board members and administrators in a tough spot, particularly as a tax cap override could mean that taxpayers would lose out on a new STAR tax credit.
I’ve spoken to a number of people who hadn’t heard about this tax credit, so I did some research that I’d like to share. According to Tax Law 606, the amount of the credit varies by year and ranges from $185 to a percent of the STAR tax savings for taxpayers at various income levels. Most importantly, the tax credit wouldn’t be allowed if the district adopts a budget in excess of the tax levy limit. Similar requirements are in place for the fiscally dependent city school districts (Rochester, Buffalo, Yonkers, and Syracuse).
Education stakeholders should be wary about this tax credit issue, as it poses a bit of a gamble. It seems that if your district does get an override, you can increase your tax levy but your taxpayers can’t get the new tax credit. If you don’t get an override, you can’t increase your tax levy but your taxpayers would still be eligible for the tax credit.
It’s also important that we continue advocating for a solution to this low tax cap. NYSASBO, the Education Conference Board and the Regents are all requesting funds to offset the losses incurred by this low cap. Our schools need adequate, predictable funding that provides opportunities for all children to receive a meaningful education and be prepared for college and careers. More than ever, our state needs an educated workforce that contributes to a strong economy in an uncertain world. NYSASBO and ECB have also recommended adjustments to the Tax Cap law to allow the state to pursue tax relief and state aid at the same time. For a paper with recommendations, see http://www.nysasbo.org/uploads/files/1424813093_NEW_ECB-taxcap-Feb2015%20(1).pdf.
NYSASBO will feature an online conversation with practitioners webinar on the Tax Cap on January 27, 2016. Practitioners will discuss the issues they see with this year’s tax levy limit, the STAR rebate, state aid proposed in the Governor’s budget recommendations and how to sustain quality education programs in the face of these circumstances. Stay tuned to find out more information.