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Decision No. 15,039

Appeal of GREGORY M. MUENCH from action of the Board of Education of the Central Square Central School District regarding a tax levy.  

 (March 30, 2004)

Ferrara, Fiorenza, Larrison, Barrett & Reitz, P.C., attorneys for respondent, Craig Atlas, Esq., of counsel

 MILLS, Commissioner.--Petitioner appeals the adoption of the tax levy for the 2002-2003 school year by the Board of Education of the Central Square Central School District ("respondent").  The appeal must be sustained in part.

At its August 26, 2002 meeting, respondent voted to adopt a proposed tax levy and executed tax warrants for the 2002-2003 school year.  At that meeting, petitioner stated that the proposed levy was illegal because no accommodation had been made for the unreserved and unexpended fund balance, and because the levy did not reflect an increase in the amount of State aid the district would receive during the 2002-2003 school year.  This appeal ensued.  Petitioner"s request for interim relief was denied on September 27, 2002.

Petitioner contends that respondent retained an unreserved and unexpended fund balance in excess of 2 percent of the ensuing year"s budget, in violation of Real Property Tax Law ("RPTL") "1318(1), and that respondent failed to modify the tax levy to reflect an increase in the district"s 2002-2003 State aid estimate.  Petitioner seeks an order directing respondent to apply the unexpended and unreserved fund balance to reduce the tax levy for the 2002-2003 school year.  Petitioner also alleges that respondent has exhibited a pattern of retaining excess unreserved funds over five years, and requests that I order an audit of respondent"s accounts. 

Respondent contends that it fully complied with RPTL "1318(1) and maintains that its unappropriated and unreserved fund balance as of June 30, 2002 was only 1.91 percent of its 2002-2003 budget.  Respondent further contends that, although more accurate information about the amount of State aid the district would receive during 2002-2003 was available in August 2002 when the tax levy was approved, it decided to levy taxes in the amount approved by the voters, in the exercise of "prudent financial management."

Respondent also raises several procedural objections.  Respondent asserts that the petition fails to state a claim upon which relief may be granted, that the petition is moot because many taxpayers had paid their taxes before the appeal was commenced and that it would be "unduly cumbersome and disruptive" to order a refund to district taxpayers.  Respondent also contends that any allegations concerning actions that took place more than 30 days prior to the commencement of this appeal are untimely.  Respondent states that, in any event, its retained unreserved fund balance as of June 30, 2001, had been only 1.38% of the 2001-2002 budget, well within the 2% limitation.

Respondent also objects to the timeliness of petitioner"s memorandum of law.  However, I have accepted petitioner"s memorandum of law because my Office of Counsel gave petitioner an extension until December 5, 2002 to serve a memorandum of law, and the affidavit of service indicates timely service on that date.  Respondent further objects to new matter contained in the memorandum, consisting of conclusory allegations that transfers of funds were made at respondent"s September 9, 2002, meeting.  A memorandum of law, however, does not constitute proof or evidence of any facts stated therein (Appeal of Goldin, 43 Ed Dept Rep ___, Decision No. 14,904).  I have therefore not considered these allegations as evidence or proof.

Respondent contends that the appeal is moot. Indeed, the Commissioner of Education only decides matters in actual controversy and will not render a decision on a state of facts which no longer exists or which subsequent events have laid to rest (Appeal of L.D. and M.D., 43 Ed Dept Rep ___, Decision No. 14,947; Appeal of Deborah F., 42 id. ___, Decision No. 14,813; Appeal of Johnson, 41 id. 407, Decision No. 14,727).  Here, the 2002-2003 taxes were due by the time the parties had submitted all the necessary papers in this appeal, and now the 2002-2003 fiscal year has concluded.  However, "[I]t is settled doctrine that an appeal will, nevertheless, be entertained where, as here, the controversy is of a character which is likely to recur not only with respect to the [same] parties . . . but with respect to others as well" (East Meadow Community Concerts Ass"n v. Board of Educ., Union Free School Dist. No. 3, County of Nassau, 18 NY2d 129, 135; Appeal of Student Suspected of Having a Disability, 38 Ed Dept Rep 796, Decision No. 14,145; Appeal of Feiss, 37 id. 339, Decision No. 13,874).  Therefore, I decline to dismiss this appeal as moot, because it raises important legal issues concerning the proper use of State aid estimates in preparation of tax warrants that affect all districts and taxpayers statewide.

Petitioner argues that respondent violated RPTL "1318(1) which states that 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 percent of the amount of the budget for the upcoming school year must be applied to reduce the impending tax levy (Appeals of Gorman, 43 Ed Dept Rep ___, Decision No. 14,906; Appeal of Liberatore, 42 id. ___, Decision No. 14,869; Appeal of Silletti, 40 id. 426, Decision No. 14,518). 

Respondent"s 2002-2003 budget, as adopted by the voters in May 2002, was $45,963,503.  Respondent applied $1.4 million of the unappropriated and unreserved fund balance toward the 2002-2003 budget.  (Respondent explains that there was a clerical error on the tax warrants, and this $1.4 million figure was inadvertently typed on the line for "amount of fund balance withheld for use in 2002-03" rather than the line indicating "surplus estimated to be available for appropriations."  However, respondent assures and petitioner agrees that the funds were applied to decrease the tax levy.)  Respondent states that the audited financial statements for 2001-2002, which respondent accepted at its October 8, 2002, meeting, indicate that the total amount of the unappropriated and unreserved fund balance retained by respondent as of the end of the fiscal year, June 30, 2002, was $878,675, or 1.91% of the 2002-2003 budget. 

Petitioner contends that this final audited figure is not appropriate to use for evaluating compliance with RPTL "1318(1), because additional expenditures and revenues after June 30, 2002, are reflected in that total, as well as transfers to reserve funds.  I disagree.  A district"s fiscal records may not reflect the exact fund balance for the end of the fiscal year on the very day of June 30.  There are generally additional expenditures applicable to that fiscal year that have not yet been paid or revenues that have not yet been received, and there may also be accounting transfers or other matters that must still be finalized.

In recognition of the fact that districts need time after June 30 to finalize the fiscal year"s accounts, audited fiscal reports of the actual revenues, expenditures and fund balances for each concluded fiscal year are not required to be filed with the State Education Department ("the Department") until October 1.  However, a sound estimate of the fund balance should be taken into account when developing a budget for the next school year, and must be reflected in the computation of the tax levy and noted on the tax warrants (RPTL "1318[1]).  Guidance issued by the Department urges districts to start a fund balance projection in January of each year, and update the projection monthly.  A district must also take sufficient steps after June 30 to determine with reasonable accuracy the year-end fund balance by the time the tax warrants are approved, on or before September 1 of each year (RPTL ""1306[1], 1318[1]; Appeal of Liberatore, supra).

Transfers to reserve funds, if otherwise authorized, may be made prior to the imposition of the tax levy (Appeals of Gorman, supra; Appeal of Simons, 39 Ed Dept Rep 744, Decision No. 14,367; Application of Mills, 34 id. 92, Decision No. 13,243).  As noted supra, although petitioner makes a conclusory statement in his memorandum of law that respondent made final transfers within the 2001-2002 budget line items at the September 9, 2002 board meeting (after the tax levy had been approved and the warrants signed), that conclusory statement in a memorandum of law does not constitute evidence or proof (Appeal of Goldin, supra).

In an appeal to the Commissioner, petitioner has the burden of demonstrating a clear legal right to the relief requested and the burden of establishing the facts upon which he seeks relief (8 NYCRR "275.10; Appeal of General, 43 Ed Dept Rep ___, Decision No. 14,948; Appeal of Vazquez, 42 id. ___, Decision No. 14,841).  P etitioner in this appeal has not produced evidence to refute the determination in respondent"s audited final financial statements for the 2001-2002 school year that respondent retained an unappropriated unreserved fund balance of $878,675, which equaled 1.91% of the 2002-2003 budget, in compliance with RPTL "1318(1).  

Petitioner also contends that respondent did not properly reflect the most recent estimate of State aid the district would receive under the enacted 2002-2003 State budget, which petitioner alleges is substantially greater than the estimate used to prepare respondent"s proposed budget.

In determining the tax levy, respondent should use the best estimate of State aid that is reasonably available at the time the tax warrant is issued.  In this case, respondent estimated the amount of State aid as $29,125,887, based on the estimate contained in the Governor"s Executive Budget.  Petitioner notes and respondent agrees, however, that pursuant to the State budget enacted in May 2002 (Chapter 53, Laws of 2002), the State aid estimate was $30,627,699, or $1,501,812 higher than the Executive Budget estimate.  When respondent met on August 26, 2002 to levy taxes and issue tax warrants, it was obligated to take the enacted State budget into account in estimating its State aid for 2002-2003.  Respondent has offered no satisfactory explanation of why it deviated from the most recent aid estimate.  Although I sustain the appeal in this regard, there is no need to adjust the 2002-2003 tax levy at this time because the use of a low estimate of State aid should have led to an excess of revenues over expenditures at the end of the 2002-2003 school year, which the district would have been obligated to apply to reducing the 2003-2004 tax levy.

I deny petitioner"s request for an audit based on his allegation of a five-year pattern of retaining excess surplus funds.  Petitioner has failed to establish that respondent retained an excess unappropriated unreserved fund balance as of June 30, 2002 and concedes that respondent did not retain a surplus as of June 30, 2001.  Although petitioner provides information about retained funds in prior years, petitioner acknowledges that any claims involving those years are untimely.  I find that this record does not justify the extraordinary relief sought by petitioner.

In view of the foregoing determination, I need not address the other issues raised by the parties.




IT IS ORDERED that respondent henceforth utilize the best estimate of State aid that is reasonably available to respondent at the time it calculates the tax levy and issues tax warrants, and strictly comply with the requirements of Real Property Tax Law "1318.