MILLS, Commissioner.--Petitioner appeals the amount of unexpended operating funds retained by the Board of Education of the Altmar-Parish-Williamstown Central School District ("respondent"). The appeal must be sustained in part.

Respondent’s budget for the 1997-98 school year was $15,880,646. When determining the amount of its tax warrant for that year, respondent retained $866,511 in unexpended operating funds from the preceding school year.

Petitioner contends that respondent violated Real Property Tax Law ("RPTL") "1318(1) each year from June 30, 1992 through March 25, 1998, the date he commenced this appeal, and that he anticipated that respondent would again violate the statute with regard to funds to be retained from the 1997-98 school year into the 1998-99 school year. He further asserts that respondent has recorded false encumbrances in an effort to conceal the amount of the unexpended operating funds it has improperly retained.

In its answer, respondent contends that this appeal is untimely with respect to the 1991-92 through 1996-97 school years. In its memorandum of law, respondent extends this argument to the 1997-98 school year as well. While respondent concedes that it has retained unexpended operating funds in excess of those permitted by law, respondent disputes the amount of such funds petitioner alleges to have been improperly retained. In addition, respondent denies that it has recorded false encumbrances in order to conceal the amount of the unexpended operating funds it has retained.

Respondent has sought permission to submit a supplemental affidavit pursuant to 8 NYCRR "276.5. In this instance, I will grant respondent’s request insofar as the affidavit in question provides new information which was not previously available and will aid in the determination of the issues raised by the parties.

With regard to respondent’s procedural defense, 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 (8 NYCRR "275.16). 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 Siver, 37 Ed Dept Rep 498; Appeal of Astafan, 36 id. 463; Application of Morris, et al., 35 id. 193). Because this appeal was commenced on March 25, 1998, it is untimely with respect to allegations that surplus funds were improperly retained by respondent in the 1991-92 through 1996-97 school years.

Respondent’s contention that the appeal is also untimely with respect to the 1997-98 school year was not raised in its answer, and that issue is not, therefore, properly before me in this appeal. However, even if that contention had been properly raised in respondent’s answer, I would decline respondent’s suggestion that I reconsider my prior determinations that an appeal based on an alleged violation of RPTL "1318(1) is timely if it is brought within the fiscal year during which unexpended surplus funds are improperly retained.

With respect to petitioner’s assertions that respondent might improperly retain surplus funds from the 1997-98 school year into the 1998-99 school year, I find that such assertions are speculative and must be dismissed (Appeal of Siver, supra).

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, supra; Appeal of Moro, 35 Ed Dept Rep 474).

Respondent’s budget for the 1997-98 school year was $15,880,646. Accordingly, respondent possessed the authority to retain $317,612.92 of its unexpended operating funds from the 1996-97 school year, plus additional funds properly retained under other sections of law. According to petitioner, respondent retained $1,809,586 instead of $317,612.92. Respondent counters that petitioner has included in his total unexpended operating funds which were properly retained by respondent under other sections of law and which were not subject to the two percent limit. Respondent asserts that the amount of the unexpended operating funds it was authorized to retain was $566,511.

My review of the record indicates that neither party has correctly determined the amount of unexpended operating funds that were improperly retained by respondent. Petitioner has included in his calculation funds which were unreserved but designated for expenditure in the subsequent year and funds which were part of a property loss and liability reserve fund. The funds which were unreserved but designated for expenditure in the subsequent year were used to reduce the amount of the tax levy in accordance with RPTL "1318(1). With regard to the property loss and liability fund, the retention of such funds is not subject to the two percent limitation because they are "properly retained under other sections of law" (RPTL "1318[1]).

Petitioner notes, based on a report from respondent’s auditors, that respondent recorded certain encumbrances in a manner inconsistent with generally accepted accounting principles. It appears that $300,000 of the amount included by respondent in its reserve for encumbrances should have been included in its unreserved-undesignated fund balance which in turn is the amount of unexpended operating funds subject to the two percent limitation. Thus it appears that the amount of unexpended operating funds retained by respondent was $866,511 -- 5.5% of the budget for the 1997-98 school years. This clearly violates RPTL "1318(1).

I note, however, that a supplemental affidavit submitted by respondent’s school business administrator indicates that respondent retained less than two percent of its unexpended operating funds from the 1997-98 school year into the 1998-99 school year. Respondent is commended for recognizing its prior violations of RPTL "1318(1) and for bringing its budget practices into compliance with that law. The fact remains, however, that respondent did violate "1318(1) by retaining unexpended 1996-97 operating funds in excess of two percent of its 1997-98 budget.

Petitioner has requested that I order respondent "to discontinue the recording of false encumbrances, and to comply with generally accepted accounting principles in the preparation of its financial statements." As noted above, respondent’s auditors reported to respondent that it had recorded certain encumbrances in a manner inconsistent with generally accepted accounting principles. While I have no reason to believe that respondent will not comply with the recommendations of its auditors in this regard, I will direct respondent to record all encumbrances in a manner consistent with generally accepted accounting principles.

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; and

IT IS FURTHER ORDERED that respondent review its budgeting practices and assure that all encumbrances are recorded in a manner consistent with generally accepted accounting principles.

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