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Decision No. 14,054

Appeal of CLYDE M. RABIDEAU from action of the Board of Education of the Peru Central School District regarding the retention of unexpended surplus funds.

Decision No. 14,054

(December 21, 1998)

Stafford, Trombley, Purcell, Owens & Curtin, P.C., attorneys for respondent, Dennis D. Curtin, Esq., of counsel

MILLS, Commissioner.--Petitioner appeals the retention of surplus funds by the Board of Education of the Peru Central School District ("respondent"), which he asserts should have been used to reduce the tax levy of the Peru Central School District ("district") for the 1997-98 school year. The appeal must be dismissed.

On June 25, 1997, district voters defeated the budget proposed by respondent. Respondent thereafter approved an austerity budget and submitted to the voters three propositions authorizing appropriations for field trips, equipment, and interscholastic sports. All three propositions were approved by district voters on August 13, 1997. The total amount of the austerity budget and the three propositions was $22,250,633, which was the same as the amount of the proposed budget defeated by the voters on June 25, 1997.

On August 20, 1997, respondent authorized a tax levy in the amount of $5,766,195 for the 1997-98 school year. When determining the amount of the tax levy, respondent retained unappropriated operating funds in the amount of $438,610. The balance of respondent’s unappropriated operating funds was used to reduce the amount of the tax levy.

Petitioner contends that respondent lacked the authority to retain any unappropriated operating funds because the district was operating on an austerity budget. He argues that Education Law "2021(21) requires voter approval of the retention of any unexpended operating funds and that because the district was operating on an austerity budget, respondent did not have the required approval of the voters. Petitioner requests that I admonish respondent for its action and enjoin respondent from taking such action in the future.

Respondent contends that it acted properly and in a manner consistent with Real Property Tax Law ("RPTL") "1318(1).

Prior to discussing the merits of this appeal, it is necessary to address a procedural matter. In his reply, petitioner raises for the first time the issue that respondent’s tax warrant, which was included as an exhibit to his petition, does not contain certain language required by RPTL "1318(1). In addition, the other issues raised in the reply simply bolster the allegations of the petition. The purpose of a reply is to respond to affirmative defenses or new material contained in an answer (8 NYCRR 275.3 and 275.14; Appeal of Corbett, 34 Ed Dept Rep 138; Appeal of Post, 33 id. 151). A reply is not meant to buttress allegations contained in the petition or add assertions or exhibits that should have been in the petition (Appeal of John and Lorraine W., 37 Ed Dept Rep 713). Accordingly, I will not consider petitioner’s reply in deciding this appeal.

Under RPTL "1318(1), 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 Siver, 37 Ed Dept Rep 498; Appeal of Moro, 35 id. 474).

Respondent’s budget for the 1997-98 school year was $22,250,633, and the amount of the district’s unexpended operating funds retained by respondent was $438,610, which is less than two percent of the total budget. Respondent’s actions in this regard are consistent with RPTL "1318(1).

Petitioner argues, however, that notwithstanding the provisions of RPTL "1318(1), respondent is prohibited from retaining any unexpended operating funds from the prior school year when it is operating on an austerity budget. When operating on an austerity budget, a board of education may include in such budget only expenses which are for legal obligations of the district; specifically authorized by statute; or necessary to maintain the educational program, preserve property or assure the health and safety of students or staff (Formal Op of Couns No. 213, 7 Ed Dept Rep 153; Appeal of Citizens for Education, 36 id. 12). Such expenses are termed ordinary contingent expenses (Education Law "2023), and it is the responsibility of the board of education to determine in the first instance what items constitute ordinary contingent expenses (Appeal of Seerup, 33 Ed Dept Rep 585). If there is a disagreement regarding a board’s determination of an ordinary contingent expense, the issue may be referred to the Commissioner of Education pursuant to Education Law "2024.

In the instant matter, petitioner is not challenging an expense included in the budget by respondent. Rather, he is challenging respondent’s authority to retain unexpended operating funds from the preceding school year when determining the amount of the tax levy for the current year. He appears to equate the retention of such funds with the statutory provision authorizing the collection of sufficient funds to meet the expenses of the first one hundred twenty days of the school year following the school year in which such funds are collected. In the latter instance, such a tax on district residents may only be imposed with the approval of district voters (Education Law "2021[21]).

The retention of unexpended operating funds pursuant to RPTL "1318(1) is clearly distinct from the provisions of Education Law "2021(21). The funds obtained under the former section are not raised by a tax (although the retention of such funds may result in an increase in the taxes required by the district), and the use of such funds is not limited to meeting expenses incurred at the beginning of the following school year. The distinction between funds obtained pursuant to RPTL "1318(1) and those obtained pursuant to Education Law "2021(21) was explicitly noted in Appeal of Smelter, 26 Ed Dept Rep 418. Moreover, the retention of a limited portion of the district’s unexpended operating funds is specifically authorized by RPTL "1318(1), and there is no requirement that voter approval must be obtained in order to retain such funds.