Decision No. 13,776

(June 10, 1997)

Ferrara, Fiorenza, Larrison, Barrett & Reitz, P.C., attorneys for respondents, Craig M. Atlas, Esq., of counsel

MILLS, Commissioner.--Petitioner, a member of respondent board, claims respondents improperly retained unexpended surplus funds from the 1995-96 school year. The appeal must be sustained in part.

Petitioner, on behalf of the taxpayers of the Frankfort-Schuyler Central School District ("district"), alleges that respondent board, its superintendent of schools, Dr. Daniel MacGregor, and its business manager, Bruce Martin, intentionally violated Real Property Tax Law ("RPTL") '1318 and Commissioner's rule '19.40 by retaining unexpended surplus funds from the 1995-96 school year. Petitioner argues that the 1995-96 fund balance of $380,309 exceeds the maximum amount allowable, which is 2 percent of the district's 1996-97 budget of $9,467,307, or $189,346. He requests that I order an immediate refund in the amount of $190,963 to district taxpayers and that I order respondents to discontinue this practice in future years. Petitioner's request for interim relief pending a determination on the merits was denied on October 7, 1996.

As a preliminary matter, an appeal may only be maintained on behalf of a class "where the class is so numerous that joinder of all members is impracticable and where all questions of fact and law are common to all members of the class" (8 NYCRR 275.2; Appeal of Czerepak, 31 Ed Dept Rep 448). Petitioner must set forth the number of individuals he seeks to represent (Appeal of Sperl, 33 Ed Dept Rep 388) and must show that all questions of law and fact would be common to all members of the class (Appeal of Donnelly, 33 Ed Dept Rep 362). Petitioner has failed to do either. Therefore, class status is denied.

Respondents raise a number of procedural defenses including failure to state a claim, untimeliness, mootness, and lack of jurisdiction. First, I must dismiss petitioner's claims with respect to Dr. MacGregor and Mr. Martin for lack of jurisdiction. Section 275.8 of the Commissioner's regulations requires that each respondent be personally served and provides alternatives in the event that personal service is not possible. In this case, petitioner only served the district clerk, which effects service on the board of education (8 NYCRR 275.8). Since petitioner did not serve Dr. MacGregor or Mr. Martin, I have no jurisdiction over them.

Respondents contend that petitioner fails to state a claim upon which relief can be granted. Commissioner's regulation '275.10 requires a petition to contain a claim showing that the petitioner is entitled to relief and a demand for the relief, and must be sufficiently clear to advise respondent of the nature of petitioner's claim and the act(s) complained of. Petitioner's claims against respondents and the relief requested are apparent and respondents have addressed those claims in their answer. Therefore, I will not dismiss this appeal for failure to state a claim.

Respondents also contend that the appeal is untimely. Section 275.16 of the Commissioner's regulations requires that an appeal to the Commissioner of Education be commenced within 30 days from the making of the decision or the performance of the act complained of. Petitioner commenced this appeal on September 24, 1996, concerning the application of the district's unexpended surplus to the 1996-97 fiscal year. Since the appeal was commenced within the fiscal year in question, petitioner's claim is timely (Appeal of Moro, 35 Ed Dept Rep 474; Application of Morris, et al., 35 id. 193).

Respondents ask that I dismiss the appeal as moot because 1996-97 taxes have been collected. Indeed, the Commissioner only decides matters in actual controversy and will not render a decision on a state of facts which no longer exist or which subsequent events have laid to rest (Appeal of Nash, 35 Ed Dept Rep 203; Appeal of Warner, 32 id. 533; Appeal of Langenmayr, 30 id. 322). However, the question of whether the amount of the tax was overstated due to a failure to properly apply unexpended surplus funds -- the issue in this appeal -- is not rendered moot by the fact that the tax was collected. Moreover, this issue is "capable of repetition, yet evading review" because it is necessarily raised within a tight timeframe, with the fiscal year ending on June 30 and taxes collected in September (See, Southern Pac. Terminal Co. v. Interstate Commerce Comm'n, 219 US 498, 515). It is therefore justiciable.

As to the merits, respondents admit that the district's 1995-96 undesignated unreserved fund balance of $380,309 exceeded 2 percent of the district's 1996-97 budget, but contend that the district attempted to comply with RPTL '1318 based on the information available. Respondents claim that on August 12, 1996, when the district established its 1996-97 tax rate, the district applied $45,000 toward the tax levy and estimated that the remaining fund balance would be about 2 percent of the budget. Respondents contend that the fund balance was not determined to be $380,309 until a meeting with the district's auditor on August 20 or 21, 1996. Respondents claim that the increase was largely due to adjustments to two anticipated 1995-96 outstanding expenses, BOCES services and the New York State Teachers' Retirement System. Respondents contend that they could not have known the actual amount of the fund balance until after August 12, 1996 when the school tax rate was established. Respondents also argue that it would be cumbersome and disruptive to order a tax refund and that there is no statutory authority for such a refund.

Under RPTL '1318, at the conclusion of each fiscal year, a board of education must apply any unexpended surplus funds to reduce its upcoming tax levy for the current school year. "Surplus funds" is defined as "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 law" (RPTL '1318). Accordingly, at the end of each school year, a board of education may not retain more than 2 percent of its surplus funds for expenditures in the following year, and must use the remaining surplus funds to offset its upcoming tax levy (Appeal of Moro, supra).

It is clear that respondent board is in violation of '1318 in that it retained unexpended surplus funds from the 1995-96 fiscal year. Accordingly, I admonish respondent board and its officers to abide by the requirements of RPTL '1318 hereafter. I direct respondent board to apply any unexpended surplus funds which exist at the end of the 1996-97 fiscal year to the reduction of the school tax levy for 1997-98 as required by RPTL '1318 and to prepare its tax warrants in strict adherence to that provision. I further direct respondent board to abide by the requirements of RPTL '1318 hereafter.

Petitioner also claims a violation of '19.40 of the Commissioner's rules. Such claim must be disregarded as there is no '19.40 of the Rules of the Board of Regents or of the Regulations of the Commissioner of Education.

As a final matter, respondents contend that petitioner's Exhibits 1, 3 and 4 -- letters from respondent board's attorney to Dr. MacGregor and Mr. Martin which are marked "privileged and confidential" -- are protected by the attorney-client privilege and should be stricken from the record. It is unclear from the record the extent to which these documents have been made public in a letter to the editor prior to the commencement of this appeal. In light of the disposition of this appeal, it is not necessary for me to consider those exhibits. However, I caution petitioner that as a school board member he is subject to '805-a of the General Municipal Law which prohibits him from "disclos[ing] confidential information acquired by him in the course of his official duties."

THE APPEAL IS SUSTAINED IN PART.

IT IS ORDERED that respondent board henceforth fully comply with Real Property Tax Law '1318 and that it approve its tax warrants in strict adherence to the statutory requirements.

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