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Decision No. 13,884

Appeal of JAMES H. LaDUE from action of the Board of Education of the Harrisville Central School District regarding the retention of unexpended surplus funds.

Decision No. 13,884

(March 13, 1998)

Sanders D. Heller, Esq., attorney for respondent

Mills, Commissioner.--Petitioner, a resident of the Harrisville Central School District ("district"), appeals respondent’s allegedly improper retention of unexpended surplus funds in connection with the adoption of its 1996-97 school budget. The appeal must be dismissed.

On June 5, 1996, the voters of the district approved a budget for the 1996-97 school year in the amount of $4,986,232.00. During its budget planning in the spring of 1996, respondent projected that, as of June 30, 1996, it would have an operating fund balance of $829,513.50. Of that amount, respondent determined that it would use $335,000.00 to reduce the tax levy for the 1996-97 school year, leaving the district with a remaining operating fund balance of $494,513.50.

Petitioner commenced this appeal on June 25, 1996 and requested an interim order. Petitioner’s request for interim relief was denied on July 15, 1996.

In this appeal, petitioner asserts that respondent improperly retained unexpended surplus operating funds, instead of using those funds to reduce the amount of the school tax levy. He requests an order admonishing respondent and directing it to abide by the legal limitations on the amount of unexpended operating funds that may be retained by a board of education.

Under Real Property Tax Law ("RPTL") "1318, at the conclusion of each fiscal year, a board of education must apply any unexpended surplus funds to reduce its tax levy for the upcoming school year. Surplus funds are 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[1]). Accordingly, at the end of each school year, all unexpended operating funds in excess of 2% of the amount of the budget for the upcoming school year must be applied to reduce the upcoming tax levy (Appeal of Moro, 35 Ed Dept Rep 474).

Respondent concedes that the amount of its unexpended operating funds which it was authorized to retain at the beginning of the 1996-97 school year was 2% of the $4,986,232.00 budget approved by the voters for that year, or $99,724.64. Nonetheless, respondent admits that, in the spring of 1996, it planned to retain $494,513.50. In its answer, respondent sets forth fourteen affirmative defenses, presumably to justify the retention of additional funds. Those defenses include claims that the budget was approved by the voters with only $335,000.00 of the unexpended surplus funds to be applied to reduce the tax levy; that uncertainties about State aid and the State budget process made it difficult for respondent to make financial plans; that retaining additional funds was fiscally prudent in that it relieved the district of having to borrow funds to make up for aid not received as a result of the late State budget; that retaining additional funds provided a "hedge" against a variety of unforeseen expenses; and that during the 1989-90 and 1990-91 school years, the State Legislature wisely authorized an increase in the amount of unexpended operating funds school districts were allowed to carry over from one year to the next.

For the most part, respondent’s affirmative defenses consist of arguments which might be made to the Legislature to change the law with regard to the retention, from one year to the next, of unexpended operating funds. However, the Legislature has neither amended RPTL "1318(1) nor continued the 1989-90 and 1990-91 increases in the amount of unexpended operating funds which may be retained (L.1989, c.53, "62 and L.1990, c.53, "71). Unless and until it does so, respondent is required to comply with the law as it currently exists.

Similarly, respondent’s argument that the voters, knowing the amount of the unexpended surplus funds it proposed to apply to reduce the tax levy, nonetheless approved the budget is unavailing. In fact, by operation of RPTL "1318(1), when the voters approved the budget, they effectively fixed the maximum amount of unexpended operating funds which could be retained by the district. It is simply beyond the power of the voters to authorize a board of education to retain unexpended operating funds in excess of those authorized by law.

RPTL "1318(1) provides that "[t]he warrant of the collecting officer...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." While the record indicates that in the spring of 1996 respondent projected an operating fund balance of $829,513.50, there is no indication in the record of the content of the warrant issued by the district’s collector. Accordingly, there is no indication of the amount of the surplus actually applied to reduce the amount of the tax levy. In the absence of such information, there is no basis to determine whether respondent actually violated the provisions of RPTL "1318(1).

In an appeal to the Commissioner of Education, the petitioner bears the burden of establishing the facts upon which he or she seeks relief and the burden of demonstrating a clear legal right to the relief requested (Appeal of Concerned Parents and Taxpayers of Abraham Wing Common School District, 36 Ed Dept Rep 165). Petitioner herein has not carried those burdens. Accordingly, the appeal must be dismissed.

Notwithstanding the dismissal of this appeal, respondent should carefully review this decision and its practices with regard to the retention of unexpended surplus funds which must be applied to reduce its tax levy, and should assure its future tax warrants are approved in strict adherence to the statutory requirements of RPTL "1318.

THE APPEAL IS DISMISSED.

END OF FILE