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Decision No. 15,201

Appeal of KEN UY and ARTHUR NORDEN from action of the Board of Education of the Sullivan West Central School District regarding the retention of surplus funds.

Decision No. 15,201

(April 6, 2005)

Shaw & Perelson, LLP, attorneys for respondent, David Shaw, Esq., of counsel

MILLS, Commissioner.--Petitioners appeal the action of the Board of Education of the Sullivan West Central School District ("respondent") in retaining unexpended, unreserved surplus funds in excess of 2% of its 2003-2004 operating budg et.  The appeal must be sustained in part.

The district's budget for the 2003-2004 school year was $26,829,103. The district's balance sheet for June 30, 2003 reflected an unreserved, undesignated fund balance of $3,357,452. Respondent's tax warrant dated September 1, 2003, indicated the "amount of fund balance withheld for use in 2003-04" to be $1,088,588. Petitioners commenced this appeal on December 31, 2003 alleging that respondent improperly retained surplus funds from the 2002-2003 school year in violation of Real Property Tax Law ("RPTL") �1318(1). Petitioners also contend that respondent's tax warrant does not comply with RPTL �1318(1). Petitioners request, among other things, that I order respondent to comply with RPTL �1318.

Respondent acknowledges that it retained unexpended, unreserved funds in excess of the 2% limit permitted under RPTL �1318(1) but alleges that the petition is untimely.

Initially, I will address petitioners' reply. The purpose of a reply is to respond to new material or affirmative defenses set forth 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 in the petition (Appeal of General , 43 Ed Dept Rep 146, Decision No. 14,948; Appeal of Crosier, 42 id. 232, Decision No. 14,835). Therefore, while I have reviewed petitioners' reply, I have not considered those portions containing new allegations or exhibits that are not responsive to new material or affirmative defenses set forth in the answer.

An appeal under RPTL �1318(1) is timely if it is brought within the fiscal year during which unexpended surplus funds are improperly retained (Appeal of Gorman, 43 Ed Dept Rep 32, Decision No. 14,906; Appeal of Schadtle, 40 id. 60, Decision No. 14,421; Appeal of Siver, 37 id. 498, Decision No. 13,912).  This appeal was commenced on December 31, 2003, during the 2003-2004 school year, and therefore is timely with respect to allegations that respondent improperly retained surplus funds in the 2003-2004 school year.

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 tax levy (Appeal of Gorman, supra; Appeal of Schadtle, supra; Appeal of Siver, supra).

Based on the foregoing, respondent was authorized to retain $536,582.06 of its unexpended operating funds from the 2002-2003 school year (2% of $26,829,103). Respondent acknowledges that it exceeded the 2% limit under RPTL �1318(1) by some $2,820,870, but implies that it was not fully aware of the problem until it consulted with its attorney and an accountant after the tax warrant was issued. Respondent's explanation, however, does not excuse its failure to comply with the law.

Additionally, respondent's tax warrant does not comply with RPTL �1318(1), which provides 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." Respondent's tax warrant does not include this statutory language. In addition, the fund balance figure noted on the warrant is inaccurate and exceeds the 2% limit authorized by RPTL �1318(1).

The record indicates that this is not the first time that respondent has improperly retained excess surplus funds. By letter dated October 6, 2003, the State Education Department's Office of Audit Services advised respondent that it had improperly retained excess surplus funds in the 2002-2003, 2001-2002 and 2000-2001 school years. I admonish respondent to be scrupulous in its future budgetary practices and remind respondent of the need to comply fully with the requirements of RPTL �1318. I further remind respondent that willful violation of law is grounds for removal of school officers under Education Law �306.



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.