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Decision No. 13,912

Appeal of HAROLD C. SIVER, JR. from action of the Board of Education of the Remsen Central School District regarding the retention of unexpended surplus funds.

Decision No. 13,912

(April 9, 1998)

Ferrara, Fiorenza, Larrison, Barrett & Reitz, attorneys for respondents, Susan T. Johns, Esq., of counsel

MILLS, Commissioner.--Petitioner, a resident of the Remsen Central School District ("district"), appeals respondent's allegedly improper use of surplus funds, which he asserts should have been used to reduce the district’s tax levy for the 1996-97 school year. The appeal must be sustained in part.

At the end of the 1995-96 school year, respondent’s balance sheet showed unreserved fund balances totaling $658,939.00. This was divided between two funds with $211,096.00 designated for subsequent years' expenditures and $447,843.00 labeled "Undesignated." On August 27, 1996, respondent approved its tax warrant for the 1996-97 school year, based on a budget of $6,028,808.00. In determining the amount of the tax levy, respondent applied $211,096.00 of its unreserved funds to reduce its 1996-97 tax levy.

Petitioner contends that respondent violated Real Property Tax Law ("RPTL") "1318(1) by retaining more than 2% of its unexpended operating funds from the 1995-96 school year. Based upon respondent’s 1996-97 budget of $6,028,808.00, petitioner alleges that respondent was prohibited from retaining more than $120,576.00 of its unexpended operating funds from the prior year. Relying on numbers obtained from the district, petitioner argues that respondent improperly retained more than that amount. Petitioner further asserts that respondent improperly intended to retain some of its 1996-97 surplus funds instead of applying them to the 1997-98 tax levy. To explain respondent’s actions, petitioner hypothesizes that respondent wanted to accumulate sufficient funds to pay the taxpayers’ share of the principal and interest on funds to be borrowed for a capital improvement project in the district. As explained by petitioner, this would make it easier for respondent to obtain voter approval of the project.

Petitioner commenced this appeal on March 5, 1997 and asked for an interim order prohibiting respondent from using any excess unappropriated fund balance to pay for the district’s capital improvement project, from holding a vote or taking any further action on the project, and from holding its annual budget vote. Petitioner’s request for interim relief was denied on March 26, 1997.

Respondent contends that the petition is untimely with respect to the amount of the unexpended operating funds it retained from the 1995-96 school year and that it is premature with respect to any action concerning the amount of the tax levy for the 1997-98 school year.

Pursuant to section 275.16 of the Commissioner's Regulations, an appeal to the Commissioner of Education must be commenced within 30 days of the making of the decision or the performance of the act complained of. With regard to alleged violations of RPTL "1318(1), an appeal is timely if it is brought within the fiscal year during which unexpended surplus funds are improperly retained (Appeal of Astafan, 36 Ed Dept Rep 463; Application of Morris, et al., 35 id. 193; Appeal of Markert and Bertrand, 31 id. 481). Because this appeal was commenced within the 1996-97 school year, it is timely with respect to allegations that surplus funds from 1995-96 were improperly retained by respondent into the 1996-97 school year. With respect to petitioner’s assertions that respondent might improperly retain surplus funds from the 1996-97 school year into the 1997-98 school year, I find that such assertions are speculative and must be dismissed.

Under 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’s 1996-97 budget was $6,028,808.00, and under RPTL "1318(1) it was authorized to retain 2% of that amount or $120,576.00. A report prepared by respondent’s auditors indicates that, at the end of the 1995-96 school year, respondent had an "undesignated unreserved fund balance" of $447,843.00, and it does not appear that this amount was used to reduce the district’s 1996-97 tax levy. Clearly, respondent retained more than 2% of the amount of its 1996-97 budget.

In its answer, respondent argues that as long as unexpended operating funds from one fiscal year are eventually used to offset expenses in the following fiscal year, it is in compliance with the law. This argument is without merit (Appeal of Clark, 37 Ed Dept Rep ___, Decision No. 13885, dated March 13, 1998). Respondent must use its entire unexpended surplus to reduce the tax levy. It may retain unexpended operating funds in the amount of only 2% of its budget for the upcoming school year, and by definition, that 2% is not part of respondent’s surplus. All unexpended operating funds in excess of 2% are defined as surplus and, except as otherwise specifically authorized by law, must be applied to reduce the tax levy.

I have considered petitioner’s claims of other improprieties allegedly committed by respondent. 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 LaDue, 37 Ed Dept Rep ___, Decision No. 13884, dated March 13, 1998; Appeal of Concerned Parents and Taxpayers of Abraham Wing Common School District, 36 Ed Dept Rep 165). Except as determined above with respect to respondent’s violation of RPTL "1318(1), petitioner has failed to sustain that burden.

THE APPEAL IS SUSTAINED TO THE EXTENT INDICATED.

IT IS ORDERED that respondent 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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