NY “Tax Cap” – Chapter Two

There are numerous facets to the Tax Cap legislation. These are mostly exclusions and exceptions, which are code words for “Not-a-Tax-Cap”. 

Among the exceptions are some pension payments, some time, and, "mistakes". 

Background: New York State requires School Districts to participate in two multi-employer, defined-benefit pension systems: Teachers Retirement System (TRS) and the Employee Retirement System (ERS) for most other regular school employees who are not in the TRS. 

All school districts share the responsibility for funding the TRS & ERS, and not just for their own district employees.  That is the multi-employer part of pension systems definition. The defined-benefit part of the pension systems definition means that participating school employees receive pensions based on their earnings, and not based on the financial performance of the pension funds assets which are typically invested in stocks, bonds, mutual funds, certificates of deposit and more sophisticated debt instruments. 

But, unlike your own 401(k) plan which goes up or down in value depending on Wall Street and the economy, the TRS & ERS pensions retain their value for retired and retiring school employees, and, when the economy or Wall Street investments fail to deliver the money necessary to pay pension benefits, we, the taxpayers of the school districts across the state must make up the difference through increases in our property taxes.

As you may expect, taxpayer exposure to increasing TRS & ERS school pension costs, to be made up with higher school taxes due to falling stock prices, is huge!  The state created this pension monster, not the school districts.

There is no separate tax for school pension payments. Pension costs are all rolled-up into the total school district spending budget, and passed along through the tax levy to your school tax bill, after district revenue and fund balance appropriations are deducted from the total spending.

How does the tax cap treat school pension costs? It attempts to treat them as a separate tax item (which they are NOT), and says to the school district, “Look, if your pension costs go up by MORE THAN 2%, then you can simply substract the pension costs in excess of 2 percent when you compute your district’s tax cap, pass all of the excess pension costs on as an un-capped tax increase, and forget about it!”   

By “forget about it”, I mean the school district does not have to attempt to recover the excess pension payments for their taxpayers in future years by lowering their tax cap ceiling, when pension costs go up less than 2 percent. Worse, and a long standing gripe of mine, when pension costs go down, as they occasionally will, there is no provision for the TRS or ERS to give back any money to the state’s school districts or tax payers whose property taxes carried them all through the tough economy and down market.

You should expect the pension exclusion to act as a pump to drive your property taxes up above the stated cap” of 2 percent or the CPI, whichever is lower.

The second part of today’s exposé on the bogus “tax cap” is the exclusion for errors. In recent years, both Seaford and Wantagh have made mistakes in calculating their fund balances in a timely manner. I expect that, with all the “new math” involved in computing the tax cap with various exclusions and exceptions, there will be more frequent and probably larger errors made. Although this is and should be unacceptable performance, it has been tolerated in the past. 

But now the new Tax Cap has a real easy provision to cover sloppy bookkeeping in our school districts:

If the school district makes a “”MISTAKE”” and collects too much school tax money (over and above what should have been the "Tax Cap" limit) then they DO NOT have to refund it to the tax payers or even take it off next year’s tax levy. 

They simply get to KEEP IT IN RESERVE! 

That is code meaning, they get to use it to cover HIGHER SPENDING NEXT
YEAR (such as for granting administrative raises) without violating next year’s tax cap! 

This provision for tolerating errors without any consequence, in my opinion, makes a complete joke of the ersatz “tax cap”.