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Decision No. 14,869

Appeal of ANTHONY and ELIZABETH LIBERATORE from action of the Board of Education of the Whitesboro Central School District regarding retention of unexpended surplus funds.


Decision No. 14,869


(May 15, 2003)


Foley, Frye & Foley, attorneys for respondent, Richard A. Frye, Esq., of counsel


MILLS, Commissioner.--Petitioners appeal the action of the Board of Education of the Whitesboro Central School District ("respondent") in retaining surplus funds in excess of 2% of the 2002-2003 operating budget.  The appeal must be sustained in part.

 On October 15, 2002, an audit report was presented and discussed at respondent"s meeting.  The auditors advised that respondent had $3,695,593.00 in its undesignated fund balance as of June 30, 2002, approximately 9% of the ensuing year"s budget.  Respondent does not dispute the auditors" conclusion, but states that, when it determined its budget for the 2002-2003 school year, it overestimated expenditures for the 2001-2002 school year, and also underestimated the revenue that the district would receive in the 2001-2002 school year.  This caused respondent to underestimate the amount of surplus funds available to be applied to the school tax levy for the 2002-2003 tax year.  Petitioners request that I order respondent to return all funds in excess of 2% of the operating budget.  Petitioners" request for interim relief was denied on December 3, 2002.

First, I note that petitioners" reply contains additional facts and exhibits concerning respondent"s  retention of unexpended funds that were not in the petition, including allegations concerning prior school years.  The purpose of a reply is to respond to procedural defenses or new material contained in an answer (8 NYCRR ""275.3 and 275.14).  A reply is not meant to buttress allegations in the petition or to belatedly add assertions that should have been included in the petition (8 NYCRR ""275.3 and 275.14; Application of Bean, 42 Ed Dept Rep ___, Decision No. 14,810; Appeal of O"Herron, 40 id. 204, Decision No. 14,461).  Therefore, I have not considered those portions of the reply that contain new assertions regarding past school years or the use of the district"s reserve funds, or that are not directly responsive to new material or affirmative defenses set forth in the answer.  I also have not considered the content of newspaper articles that petitioners attached to the reply to support their factual claims.  It is well settled that newspaper articles do not constitute evidence of the truth of the statements contained therein (Application of Wilson, 41 Ed Dept Rep ___, Decision No. 14,663; Appeal of Toftegaard, 25 id. 159, Decision No. 11,532).

Pursuant to "1318 of the Real Property Tax Law ("RPTL"), 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 impending tax levy (Appeal of Silletti, 40 Ed Dept Rep 426, Decision No. 14,518; Appeal of Schadtle, 40 id. 60, Decision No. 14,421; Appeal of Clark, 37 id. 386, Decision No. 13,885).

RPTL "1318(1) further requires 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" (Appeal of Silletti, supra; Appeal of Schadtle, supra).  As discussed above, respondent improperly retained unexpended surplus funds for the 2002-2003 school year.  The tax warrant approved by respondent in August 2002 should have reflected the correct amount of surplus funds, and applied the excess toward reducing the tax levy for 2002-2003.

It is not indicated in the record before me whether respondent knew prior to October 15, 2002 that the unexpended funds as of June 30, 2002 exceeded 2% of the ensuing year"s budget.  If respondent was not aware of the extent of the excess unexpended funds until October, that is a matter of concern to me unless circumstances show a credible reason for not having a reasonably accurate computation of the amount of unexpended funds by the time the tax warrant was approved in August 2002.  Respondent claims that it inadvertently retained 9% of the prior year"s unexpended funds because it overestimated the amount of expenditures and underestimated revenue during the 2001-2002 school year.  However, the 2001-2002 budgetary appropriations and revenues were closed as of June 30, 2002 to determine the fund balance, and the tax warrant for 2002-2003 was not required to be approved until September 1, 2002 (RPTL "1306[1]).  During the interval between the close of the fiscal year (June 30) and the date that the tax warrant is due, districts must take sufficient steps to determine the year-end fund balance.  Districts should know the amount of unexpended funds before the tax warrant is approved by the board of education because the RPTL requires that the total of such unexpended funds be specified in the tax warrant, and that the excess over 2% must be applied to reduce the amount of the tax levy (RPTL "1318[1]).  An estimated surplus balance should also be included in proposed budgets (Appeal of Schadtle, supra; Appeal of Sumner, et al., 27 Ed Dept Rep 250, Decision No. 11,936).

There is no mechanism for returning a pro rata share of funds to the taxpayers once the tax levy has been made, as requested by petitioners.  However, respondent is directed to comply fully with the requirements of RPTL "1318 in the future. 


IT IS ORDERED that respondent henceforth fully comply with Real Property Tax Law "1318 and approve tax warrants in strict compliance with the statutory requirements.