Killing the Tax Cap and Gap Elimination Adjustment

Yes, I'm serious.

Our costs are growing faster than we can raise taxes to make up the difference.  Albany has all the power, since they're making the decisions on state aid.  This is the new normal.

Last month, I saw this.  And it's an example of what the new normal looks like over time.  School districts will be making drastic cuts, but the State Regents will swoop in and save us when key elections approach.  It's an effort to make us forget our struggles on our way to the ballot box.

The re-establishment of local control is a noble goal.  Our kids can't be short-changed because Albany can't balance its budget.  And communities shouldn't be in the position that they have to beg in order to keep their school districts solvent.

Some neighbors and I have something cooking to address this, at a level that's bigger than just our local school district.  And we're looking for people who share the vision of returning control of school districts' destinies to communities.  If you're interested in getting the scoop, hit me up in comments.

Seeking Volunteers: Let's Kill the Tax Cap and Gap Elimination Adjustment

TL;DR - This fiscal problem is much bigger than us and bigger than our district.  Our state government is at fault.  We need to organize.

I’ve been thinking a lot about Sachem School District’s financial woes lately.  While investigating how the school district lost access to property tax money intended for it, I learned a lot.  In fact, I learned that what amounts to a vaporization of over a million dollars is a mere drop in the bucket compared to what we’re facing and what we’ll continue to face in the future.

Along the way, I’ve also discovered that there isn’t a smoking gun here.  Local fiscal irresponsibility isn’t the culprit, here.  Almost every financial problem we have is directly attributable to New York State.  Let’s review:

In 2011, the state implemented the tax cap, and it would have been difficult even at that point to spot the issues we would have living under it.  It changed how our local governments collect taxes, it changed how our towns can fund public projects – it even changed how we vote on school district budgets.

How we vote is completely different now.  Essentially, we have two chances to pass a budget that isn’t an austerity budget.  And we have to decide whether or not we want to waste the first of those two chances trying to pass a cap-piercing budget with a 60% supermajority.  Let that sink in for a minute: If we want to grow our education budget so that it can fund anything new, we need a supermajority of the community to do that.  Passing a cap-piercing budget is exceptionally rare and requires an alignment of the community that just isn't present in many places.  Sachem tried it in 2013 and failed.  That year, seven districts tried to do it and only one succeeded.  In 2014, three tried and they all failed.  In 2015, two tried and both failed.

The dynamic of when you and I were kids has completely changed.  We're not starting from a place where we think constructively about what we might be able to do next year, building on this year's successes.  We're starting from a place of containing costs so that we can afford to fund what we funded last year.  The state is forcing school districts to shrink, regardless of what's going on in each individual district.

Nobody wants to be in this position.

We’re in this position because of the combination of the tax cap law and the Gap Elimination Adjustment. 

We’re missing a large component of the revenue side of our budget equation because of the Gap Elimination Adjustment.  Late last decade, Governor Paterson decided balancing the state budget, then at a $12 billion+ deficit, could close its gap partially on the backs of the local school districts.  This resulted in across-the-board cuts to state education aid that we’re entitled to.  It was supposed to be temporary, but all signs point to living under it as 'the new normal.'

Whatever logic was used at that point to justify the method isn’t important right now.  Just know that school districts have missed out on billions of dollars of state aid, and that money went toward closing the gap in spending by our representatives in Albany.

Not only do districts need to make huge cuts to accommodate the lack of state aid, but they also don’t have the power to shift any of that burden to taxpayers.  Because of the new budget voting dynamic imposed by the tax cap legislation, it’s next to impossible to pass budgets that will accommodate mere year-to-year increases in the cost of living.

The tax cap does not allow us to pass a budget that increases expenditures more than the lesser of 2 percent or the rate of inflation.  You can speculate about artificially low interest rates keeping inflation in check and whatnot, but the message from Albany, regardless, is the same – If you want to spend more than what you did last year, we’re going to make that exceptionally tough for you.

To a fiscal conservative, this sounds like a dream.  But the reality is that national measures of inflation do a horrible job of measuring our local district’s need for funds from year to year.  Especially when coupled with the shortfall in state aid across the board, this is a death sentence for education in New York.  It says we’re all going to have to fund more with less.

Then we have the mandates.  While Albany is holding us to minimal increases, and taking away a good deal of our funding, they’re also mandating more about what our local districts need to fund.

In effect, Albany is telling us what we need to do, that we need to do it with less money than is workable, and they’re doing both of those things while limiting our ability to fund it ourselves.  They’re strangling us.

I know.  It begs the question.  “Why does every other district seem to be able to handle this while Sachem can’t?”

First, an anecdote.  When I came into this district, I did so reluctantly.  I came from a district further east that graduated no more than a few hundred students and where everybody knew everybody else.  The idea of moving into Sachem frightened me, and I even resisted, thinking my kids would be forced to compete on a larger stage, and wondering how such a behemoth of a district could compete with smaller ones that offered more individual attention.

Since then, my fears have been diminished somewhat.  One thing that went a long way toward making me think Sachem could be a good place for my kids was the notion that Sachem should be the model district for a fiscal conservative.  It’s huge.  It takes care of a huge swath of Long Islanders.  Administration is about as consolidated as it can be.  Surely, when Albany decides it wants to pick a fight with inefficient districts, Sachem will be pretty far down the list of targets, no?

No.  The truth is that Sachem’s size is what’s causing it to be among the first handful of districts running into revenue problems in this perfect storm. 

We should be the ones thriving in a fiscally conservative environment, but we’re not.  And it’s through little fault of our own.  That tells me something isn’t working in Albany.  It also tells me that we’re the canary in the mine, and that the problems we’re having are going to be everyone else’s problems in fairly short order.

If you don’t believe me, do a Google search for "Gap Elimination" or for "New York Tax Cap law".  Read all the newspaper articles that come up about districts elsewhere on the island, or from upstate.  Clearly, the problem is on everyone’s radar, and there’s a common theme – nobody knows how to deal with financial problems that are orders of magnitude larger than what they’re able to save by eliminating their extracurriculars and their sports teams.

Yes, this is a statewide problem.  Let’s stop kidding ourselves about that.

This is such a big deal, teacher unions in New York have filed suit.  The challenges were largely unsuccessful, but I think it’s not up to the unions to fight our battles for us.  This is our problem that we need to solve.

We can’t solve it through divisive politics.  This isn’t a Republican or Democrat thing.  It isn’t a sports vs. clubs thing.  It isn’t a conservative vs. liberal thing.  This is a power thing.

The truth is that Albany has taken away our power at the local level.  To do something about it, we need to attack the tax cap and we need to attack the GAP elimination adjustment.  We’ve lived under both for as long as we can stomach.  They both need to go.

The only way we can do that in a dysfunctional Albany is to send a loud and clear message.  Our state representatives that vote to extend the status quo should lose their jobs.  Anybody promising change who doesn’t deliver should be swept out of office.  And we need to support candidates who will support our view in Albany that the tax cap and GAP elimination adjustment need to go.

I’m willing to entertain all options that have us casting our votes in November as one voting bloc.  That includes forming a PAC and getting funding, if needed.

We have plenty of natural allies.  The teacher unions have already taken action, and would support us.  Local politicians who see the tax cap as standing in the way of funding needed improvements should also support us.  People who care about education should support us.

We need to get money, find candidates and ensure pledges from like-minded people that we will support only state politicians who will overturn the tax cap and force Albany to find alternative funding for balancing the state budget.  It can’t happen on the backs of our kids.

I’d love to hear your ideas for organizing, in comments here and on Facebook.

PILOT Blues, the Tax Cap, and Unintended Consequences

TL;DR - It's as Bruce Singer described.  PILOT payments can slip through the cracks.  The worst part of it is that it's nobody's fault.

It's time to ramp up our discontent with Albany politicians.  Here's why...

As I described in my last post, the process for determining how much tax New York State will allow us to levy for a given school year is rigid.  Bruce Singer has shared with me the calculations made to determine the maximum levy.  From all outward appearances, he's followed the process outlined in the law to a 'T.'  (If you feel like giving yourself a headache, start at page six on the linked PDF to see how it works.  Or, if you need guidance, try the PDF guide here.)

I had a call with Brookhaven Town's assessor (and CFO of the IDA) James Ryan, and I was able to confirm the following by speaking to him, comparing his comments to my notes from various e-mails exchanged with Bruce Singer, and by reviewing the law.

Essentially, if we compute our maximum levy, make all the adjustments necessary with PILOT payments, and then learn that one isn't coming in at a later date, there's nothing we can do.  The levy is locked in and it's collected.  There's no bringing the levy back up to compensate for the PILOT once the levy is locked in.  If we did, we'd be breaking the law.

This represents a huge blind spot in the tax cap law.  Granted, there are other reasons to hate the tax cap - I'll post on that later - but politicians need to know about this gap.

There's also, in my opinion, a gap between the IDA, assessor and the school district.  It's really nobody's fault, but the issue is that there are no clear lines of responsibility for projecting PILOTs so that the school district can adequately and accurately prep its budget.  PILOTs can change, and they can change quickly.  Mr. Ryan said he and his office are reluctant to provide projections, given that they could change - through no fault of their own - and blame would fall on the IDA for providing inaccurate figures if they changed between the projection and the realization of those numbers.

It's important to understand that.  This isn't the fault of our local officials.  It's an unintended consequence of state law, and we need to be vocal about it.  More later.

More Information on the PILOT Situation

TL;DR – The PILOT situation isn’t as simple as I made it out to be.  Before we can hold people accountable for it, there are details of state law that need to be understood.

First off, I need to thank some people who have been helping me get information, and who have been giving me their time when they clearly have a lot of other important things going on:

Councilman Neil Foley has been eager to help me get this figured out.  He has run my questions past people in the IDA office and the assessor’s office, scheduled phone calls, sent e-mails on my behalf, and pretty much done everything he can do to help get to the bottom of this issue.  Thank you, Councilman Foley.

Associate Superintendent for Business Bruce Singer has sent me explanations of workflow, financial analyses, and answers to questions.  He has also confirmed my assumptions and my understanding of a few concepts to make sure I understand what he and the BOE have to contend with during the budget process.  Thank you, Mr. Singer.

IDA Deputy Director Jim Tullo was kind enough to sit on a conference call with Councilman Foley and me, discussing the role of the IDA, the specific situation surrounding this PILOT, and has helped me with several questions.  Thank you, Mr. Tullo.

Just last week, I thought this was a simple case of a PILOT sunsetting and moving to the tax rolls, and didn’t see how that act could affect the school district’s budgeting process.  After all, if the PILOT line item came down on the revenue side, Sachem would end up getting that money because the corresponding tax levy line would come back up to compensate.  Mr. Singer gave me a statement that appeared to shut the door on any other interpretation:

We would like to clarify some misunderstanding  of statements regarding the Brookhaven IDA.  Please be aware that The Brookhaven IDA has the authority to issue tax-exempt and taxable bonds and notes. It can also grant property tax abatements, mortgage recording tax exemption, and full sales tax exemption for qualified applicants.
The Town of Brookhaven Industrial Development Agency has issued millions of dollars in tax-exempt or taxable bonds on behalf of more than 50 companies encouraging them to either locate or expand in the Town of Brookhaven. This assistance has been extended to companies both large and small, and has resulted in the direct creation of thousands of jobs for Brookhaven residents.
As the Sachem Central School District2013-14  and 2014-15 revenue budget was revised due to the Motorola property going to FULL ASSESSMENT.  That means that the Town of Brookhaven taxpayers have been the beneficiary from the higher assessed value of that property.  While Motorola previously paid a PILOT through the IDA, they currently pay their full assessed value taxes through the Town Tax Receiver's office.
In addition to the Full Assessment of the Motorola property, they continue to maintain their presence on Long Island which generates employment.

That’s an official statement from the school district and the IDA.  If it’s not already up on the website, it will be shortly.

After he provided this statement, Mr. Singer provided some additional information that shows the situation is actually a lot more complex than I originally thought.  According to Mr. Singer, a changing PILOT situation affects how we calculate the school district’s maximum levy under the tax cap law.  Once this calculation is made and submitted to the state, Mr. Singer says it cannot be retroactively changed.

In October, the school district needs to submit its levy figures to the state for the coming year. They’re using actual numbers from the prior year and projections for the next to come up with the Maximum Allowable Levy, which is the maximum amount of money they’ll be able to raise through taxes for the next year.  When combined with state aid, this maximum levy makes up the revenue side of the budget and tells us how much we’ll have to spend.

Here’s where it gets hairy.  According to Mr. Singer, if you learn something is moving from PILOT to the tax rolls in, say, May, it’s too late and the district can’t go back and change the PILOT and tax levy line items and still be in compliance with state law.  I’ve seen the calculation.  It adds in PILOT payments we’ve received, multiplies that number by the growth factors provided by the state, then subtracts out any anticipated PILOT payments for the coming year to come up with the number for the maximum for the tax money that can come from the community.

So, what happens when you don’t receive an anticipated PILOT?  According to Mr. Singer, you lose the revenue because you never receive it, but your maximum levy is already calculated, so you never receive it on the tax side.  Even if you’ve been given advance warning of several months.

Two things:

  1.  I’m taking Mr. Singer at his word with regard to the number not being able to change, per state law.
  2. This now begs the question: If the school district doesn’t get the money, where does it go?

I will work to confirm #1.  With regard to #2, I have a conference call tentatively scheduled with the town assessor and someone from the IDA on Tuesday morning.  So stay tuned.

In a discussion with Councilman Foley yesterday and IDA Deputy Director Tullo yesterday, one of the things that became clear is that the IDA’s responsibility ends with ensuring the tax rolls come up to compensate for any projects coming off PILOT programs.  They do inform school districts of critical dates for these projects – I have asked for a copy of whatever was provided to Sachem for the Motorola project, and I may have to file a FOIL request to get it.  (Not due to any resistance from Mr. Tullo, but merely as a formality.)

After Mr. Tullo left yesterday’s call, Councilman Foley stayed on, and I intimated that it was possible we stumbled across an unintended consequence of the state tax cap law – something state lawmakers might not have spotted until the law was actually implemented.  If so, maybe we’ll need to figure out how to raise the issue with our representatives in Albany and get the law fixed.

To close this post up, please know that there is a lot that still needs to be confirmed and a lot more information that is still needed.  In fairness to Mr. Singer and the BOE, though, I thought it was best to issue an update.  The possibility exists that Sachem was the first school district to be negatively affected by an unintended consequence of the tax cap law, so I wanted to let people know what I was doing and where my thoughts were on this.  It’s not likely I’ll get all the information I need until next week, and that’s a long time to wait, particularly if you’re Bruce Singer and the community is confused about this PILOT situation.

Of course, the bigger issue is the tax cap law and how it affects districts statewide.  I’ll post something about that later.