Although New York State now has what is commonly called a “2 percent property tax cap,” the law does not necessarily restrict proposed tax levy increases to 2 percent. Rather, its main purpose is to determine the level of voter support that is needed for a school budget to pass.
The 2 percent figure is just one part of a complex formula that school districts must use to calculate two of their tax levy numbers, the tax levy limit and the maximum allowable tax levy. These numbers, which establish more of a threshold than a cap, help a district determine its proposed tax levy.
Tax levy limits, explained
The tax levy limit is the highest allowable tax levy (before exemptions) that a school district can propose as part of its annual budget for which a simple majority of voters (50 percent + 1) would be required for authorization.
Any proposed tax levy amount above this limit would require budget approval by a super-majority (60 percent or more) of voters. The tax levy limit sets a threshold requiring districts to obtain a higher level of community support for a proposed tax levy above a certain amount.
Tax Levy Calculation
The tax levy affects more than just one year’s budget. Part of the calculation of the tax levy limit is based upon the prior year’s levy times the Consumer Price Index up to 2% (if the CPI is under 2%, the lesser number must be used, if over, no more than 2% can be used).
If the allowable tax levy is not sought, the district forfeits part of the revenue for that year and the years to come since one year’s tax levy is built on the prior year’s tax levy.
Tax Levy vs. Tax Rate: What’s the difference?
The District adds up estimates of all revenue sources and the difference between that amount and the TOTAL BUDGET AMOUNT (total expenditures) becomes the TAX LEVY. In other words, whatever cannot be funded from other sources MUST be funded through the collection of local property taxes. The TAX LEVY refers to this aggregate amount of revenues from property taxes and includes all taxes collected from properties across all towns within the school district.
The TAX LEVY INCREASE is the difference between the tax levies (total amount of taxes to be collected) from one year to another.
A district like ours, which is composed of seven towns, needs equalization rates to be factored in order to spread the tax burden appropriately across the towns.
The TAX RATE INCREASE is the difference between the tax rates (amount per $1000) from one year to the next.
Any tax rates used by the District during the budget session is an estimate. Final tax rates are usually set by August after receiving finalized assessment rolls from each town and final equalization rates from the state’s Office of Real Property Services (ORPS).