Decision No. 15,142
Appeal of GEORGE R. HUBBARD from action of the Board of Education of the Greece Central School District regarding the district�s financial practices.
Decision No. 15,142
(November 24, 2004)
Harris Beach LLP, attorneys for respondent, Alfred Streppa, Esq., of counsel
MILLS, Commissioner.--Petitioner, a member of the Board of Education of the Greece Central School District (�respondent�), challenges a number of respondent�s financial practices. The appeal must be sustained in part.
On August 12, 2003, respondent issued a tax warrant for $61.1 million and voted to apply $4.5 million of its surplus funds from the 2002-2003 school year toward the 2003-2004 budget. On September 9, 2003, respondent used $600,000 of the remaining $3.6 million 2002-2003 budget surplus to establish a tax certiorari reserve fund to bring the retained surplus within the two percent limit permitted by State law. This appeal ensued. Subsequently, respondent published its annual financial statement on or about October 9, 2003.
Petitioner alleges, among other things, that respondent improperly held unexpended surplus funds at the end of the 2002-2003 school year in violation of Real Property Tax Law (�RPTL�) �1318(1), improperly created a tax certiorari reserve fund, and failed to timely publish its annual financial statement for 2002-2003. Additionally, petitioner claims that respondent�s 2003-2004 tax warrant did not correctly identify the amount of surplus funds used to reduce the tax levy. Petitioner requests that I direct respondent to publish a financial statement for the 2002-2003 school year and in the future file timely financial statements, prepare an accurate fund balance at the time of adopting a proposed budget, and comply with legal requirements for preparing its tax warrant. He also asks that I direct respondent to rescind its tax certiorari reserve fund.
Respondent admits that it did not publish its annual financial statement until October, but explains that it was unable to do so by July or August, as required by Education Law �1721, because year-end budget information was not yet available. Respondent also claims that it properly retained $600,000 in a tax certiorari reserve fund and therefore only retained approximately $3.0 million in surplus funds, within the two percent allowed under RPTL �1318(1). Finally, respondent denies that its 2003-2004 tax warrant failed to reflect the amount of surplus funds used to reduce the tax levy.
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 (RPTL �1318). 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" (Id.). Accordingly, at the end of each school year, all unexpended operating funds in excess of two percent of the amount of the budget for the upcoming school year must be applied to reduce the tax levy (Appeal of Gorman, 43 Ed Dept Rep , Decision No. 14,906; Appeal of Schadtle, 40 id. 60, Decision No. 14,421; Appeal of Siver, 37 id. 498, Decision No. 13,912).
For the 2003-2004 school year, respondent is operating under a contingency budget of $154.6 million. Accordingly, respondent had authority to retain $3.1 million in unexpended surplus funds from the 2002-2003 school year. Petitioner alleges that respondent improperly retained $3.6 million. Respondent does not dispute that it had a $3.6 million unappropriated fund balance at the end of 2002-2003 school year, but claims that it properly retained $600,000 of this amount in a tax certiorari reserve fund, leaving a retained surplus of approximately $3 million, within the two percent permitted under RPTL �1318(1).
RPTL �1318(1) permits a board of education to retain additional unexpended operating funds when authorized to do so �under other sections of law.� Thus, the authority to exceed the two-percent limit applies only to reserve funds specifically authorized by law (Appeal of Gorman, supra; Appeal of Simons, 39 id. 744, Decision No. 14,367; Appeal of Mills, 34 id. 92, Decision No. 13,243). If surplus money is to be used to establish a reserve fund, the fund should be established before the tax levy (Appeal of Gorman, supra; Appeal of Simons, supra). Education Law �3651(1-a) authorizes the establishment of a reserve fund for the payment of judgments and claims in tax certiorari proceedings without voter approval, provided that �the total of the monies held in such reserve fund shall not exceed the amount which might reasonably be deemed necessary to meet anticipated judgments and claims arising out of such tax certiorari proceedings.�
Although this provision grants respondent the authority to establish a tax certiorari fund, respondent did not create the fund until after the tax warrant was issued. Accordingly, the $600,000 was not �properly retained under other sections of law� when the tax warrant was issued. Respondent had no authority to retain surplus funds in excess of the two percent limit for future funding of a tax certiorari reserve fund (Appeal of Mills, supra). With the inclusion of the $600,000, the record reflects that respondent retained approximately $3.6 million in unexpended surplus funds, and therefore exceeded the two percent limit set forth in RPTL �1318(1). I admonish respondent to comply fully with the requirements of RPTL �1318(1) in the future.
While I find that the $600,000 was improperly carried over and used to establish a tax certiorari reserve fund in 2003-2004, I find no need to direct respondent to rescind the fund. Pursuant to respondent�s resolution, any amount not used or required for tax certiorari claims and judgments as of July 1, 2006 will be returned to the general fund. I further remind respondent that such funds may only be expended for judgments from claims arising from the tax roll in the year such monies are deposited (Education Law �3651[1-a]).
Petitioner also claims that respondent�s 2003-2004 tax warrant failed to correctly identify the amount of surplus funds used to reduce the tax levy. As discussed above, although respondent improperly retained unexpended surplus funds in the 2003-2004 school year, the tax warrant correctly states the amount that respondent applied toward the 2003-2004 budget.
Petitioner further claims that respondent did not timely publish its annual financial statement. Pursuant to Education Law �1721, a board of education is required to publish a detailed statement of the district�s finances in July or August. Respondent concedes that it did not issue an annual financial statement until October 9, 2003, explaining that it was unable to gather all the necessary fiscal information within the statutory time frame. While I am sympathetic to the constraints identified by the assistant superintendent, they do not excuse respondent�s failure to issue the financial statement in a timely manner. Accordingly, respondent is directed to comply with Education Law �1721 in the future.
I have examined petitioner�s remaining claims and find them to be without merit.
THE APPEAL IS SUSTAINED TO THE EXTENT INDICATED.
IT IS ORDERED that respondent henceforth fully comply with Education Law ��1721 and 3651 and Real Property Tax Law �1318.
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