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Decision No. 12,707

Appeal of HAROLD MARKERT, JR. and RUSSELL BERTRAND, from action of the Board of Education of the Charlotte Valley Central School District regarding the retention of unexpended surplus funds.

Decision No. 12,707

(May 27, 1992)

Hogan & Sarzynski, Esqs., attorneys for respondent, John Hogan, Esq., of counsel

SOBOL, Commissioner.—Petitioners, residents of the Charlotte Valley Central School District, seek to prohibit respondent from retaining an excessive amount of unexpended surplus funds and require respondent to apply such funds to reduce the school tax levy. Petitioners allege that respondent maintained excessive undesignated fund balances in fiscal years 1989-1990 and 1990-1991 in violation of Real Property Tax Law "1318(1) and that respondent should have applied such balances to reduce school taxes. The appeal must be sustained in part.

Before reaching the merits, I must determine whether this appeal should be dismissed as untimely. Section 275.16 of the Commissioner's Regulations requires an appeal to be commenced within thirty days from the making of the decision or the performance of the act complained of. This appeal was instituted on April 2, 1991, more than nine months after the close of respondent's 1989-90 fiscal year, June 30, 1990. Therefore, this appeal could not have been instituted, within 30 days of the action complained of in that fiscal year – the retention of an excessive undesignated fund balance in fiscal year 1989-90. Consequently, that portion of the application that concerns the retention of an excessive undesignated fund balance in the 1989-90 fiscal year is dismissed as untimely. Petitioners' claims with respect to the 1990-91 fiscal year, however, are timely because petitioner commenced this appeal within the 1990-91 fiscal year.

Real Property Tax Law "1318(1) prohibits school districts from retaining year-end surpluses in unlimited amounts (Matter of Terpenning, 21 Ed Dept Rep 666). Section "1318(1) states in pertinent part:

The warrant of the collecting officer shall be signed by the trustee, or the trustees, or a majority of them, or the board of education or a majority thereof. Such warrant shall state the amount of unexpended surplus funds in the custody of the board and shall further state that except as authorized or required by law, such unexpended surplus funds have been applied in determining the amount of the school tax levy. Surplus funds as used in this subdivision shall mean any operating funds in excess of two percent of the current school year budget, and shall not include funds properly retained under other sections of the law….

Therefore, school districts must apply all unexpended surplus funds from a previous year in an amount over two percent of the current year's budget to the determination of the district's tax levy. In Section 71 of Chapter 53 of the Laws of 1990, the Legislature increased that percentage, permitting school districts to retain unexpended surplus funds in an amount not to exceed five percent of its 1990-91 budget.

At the beginning of the 1990-91 fiscal year, respondent had a surplus from the previous year of $644,485. Respondent used $151,832 of the total surplus to reduce school taxes in 1990-91. The remaining $492,653, retained by respondent as an undesignated fund balance, constituted 17 percent of the school district's initial 1990-91 budget of $2,887,905 – well over the five percent limitation placed on such an undesignated fund balance by Chapter 53 of the Laws of 1990. Respondent also improperly prepared the tax warrant for 1990-91. The tax warrant, certified by respondent on September 1, 1990, did not state the total amount of surplus funds in the custody of the board at the beginning of the fiscal year, as required by Real Property Tax Law "1318(1).

Respondent contends that it was unaware of the requirements of Real Property Tax Law "1318(1) until notified by the State Education Department of a violation on January 4, 1991. Respondent advised the Department that it would take steps to come into compliance, and respondent attempted to come into compliance thereafter, reducing its undesignated fund balance from 17 percent of the school district's budget in 1990-91 to less than five percent in 1991-92. However, a two percent limitation applied in 1991-92; therefore, a violation of Real Property Tax Law "1318(1) continued in 1991-92. Respondent contends that this violation was unintended because it expected that the five percent limitation in existence in 1990-91 would continue in 1991-92.

I do not find that respondent intentionally violated the law. I accept respondent's explanation that the violations were caused by lack of knowledge and because it assumed that the five percent limitation would apply in 1991-92. However, lack of knowledge concerning the law is not an acceptable excuse. I admonish respondent and its officers to keep informed of the law as it relates to school budgets and to abide by the requirements of Real Property Tax Law "1318(1) hereafter. Accordingly, I direct respondent to apply unexpended surplus funds which exist at the end of the 1991-92 school year to the reduction of the school tax levy in 1992-93, as required by Real Property Tax Law "1318(1), and to prepare its tax warrants in strict adherence to that provision. The State Education Department will closely monitor respondent's compliance.