Local Government and School Accountability
Required Reporting: Constitutional Tax Limits
Instructions for Counties
Understanding Tax Limits
Real property taxes are the single largest source of revenue for local governments in New York State. In the standard budget process, property taxes are used to cover the difference between appropriations and estimated non-property tax revenues. The New York State Constitution places a legal limit on the authority of counties, as well as cities and villages, to impose property taxes. Statutes intended to enforce these constitutional provisions require the Comptroller to withhold certain local assistance payments if taxes are levied in excess of a municipality’s tax limit.
In the current fiscal environment, tax limits are taking on an increasing importance on the ability of local governments to use real property taxes to balance their budgets. Growing municipal budgets and shrinking non-property tax revenue streams generate pressure to increase property taxes, thus exhausting a greater percentage of the limit. At the same time, if property values decline overall, the tax limit will decline as well. As a result of these factors (growing expenditures, diminishing non-property tax revenues and a declining or stagnant tax base), some municipalities are rapidly approaching their tax limits. With pressure on the property tax continuing, more local governments may find themselves in this predicament.
As a county advances towards its tax limit, it loses flexibility in its revenue structure and may not be able to sustain the current level of services provided to its citizens. Even routine cost increases can pose serious budget difficulties if there is no corresponding growth in non-property tax revenues. Also, both declines in property values and changes in amounts excluded from the tax limit will impact the calculation of the taxing capacity of the county. Thus, a county can approach or exceed its tax limit even with no change in real property tax levies from year-to-year.
The Office of the State Comptroller wants to help local governments manage compliance with their tax limits as a component of a comprehensive financial plan. This booklet provides guidance on the implications of the Constitutional tax limit, information on its calculation as well as reporting instructions. We hope you find it useful in understanding the issues and encourage you to contact our office if further assistance is needed.
Taxing Capacity – How it is Calculated
Simply stated, the Constitutional tax limit is the maximum amount of real property tax that may be levied in any fiscal year. It is computed by multiplying the value of taxable real property by a certain percentage enumerated in the Constitution. The more complex aspect of the process is determining whether the tax levy required by an annual budget stays within the limit.
Taxes levied for certain purposes are not subject to the tax limit. The Constitution and related statutes allow for taxes in the amount of certain appropriations to be excluded when determining the amount of levy that must be below the tax limit. This tax levy amount (total levy minus exclusions) is often referred to as taxes subject to the limit. In addition, certain credits or payments to reduce county levy to towns are also excluded from the computation of taxes subject to the limit.
Frequently, the tax levy is expressed as a percentage of the tax limit. For example, if a county with a $1,000,000 tax limit levied taxes of $800,000 (net of exclusions), the county would have used or exhausted 80 percent of its tax limit. A related term is the tax margin which refers to the difference between the tax levy and the tax limit. Using the example above, the county would have a tax margin of $200,000.
There are four components in the calculation of the taxing capacity: the average full valuation of taxable real property, the tax limit percent, the tax levy and exclusions from the tax limit.
Five- Year Average Full Valuation of Taxable Real Property
A key component of the tax limit calculation is the average full valuation of taxable real property. This computation has several parts.
Five-Year Average: The calculation of this value ordinarily requires the use of five sets of assessment rolls--the last completed assessment roll and the four preceding rolls for each town and city within the county. In general, the last completed assessment roll of a town or city is the most current final assessment roll for which a final State equalization rate has been established. Once the five assessment rolls have been identified for each town and city, the full valuation of the taxable property on each roll must be computed. These full valuation amounts should be added together and divided by five to establish the five-year average. The county five-year average is the sum of each of the town and city five-year averages.
Full Valuation: The full valuation of the taxable real property on each of the assessment rolls used in the calculation of average full valuation is computed by dividing the total taxable assessed value (for county purposes) of the real property on the roll by the final State equalization rate established for that assessment roll.
Equalization Rate: State equalization rates are established by the New York State Office of Real Property Tax Services (ORPTS). An equalization rate is a measure of the percentage of full valuation at which taxable real property is assessed on an assessment roll. ORPTS establishes a separate State equalization rate for each year’s assessment roll for each assessing unit. The process of establishing State equalization rates involves the determination of tentative and final equalization rates. Only final State equalization rates may be used in tax limit calculations. In a county having a department of assessment, the State equalization rates established for the cities and towns in the county must be applied to the appropriate portions of the county roll.
Tax Limit Percent
The State Constitution limits the taxing power of counties to 1.5 percent of the five-year average full valuation. A county can increase its tax limit to a maximum rate of 2 percent by a resolution of the legislative body. Such a resolution must be approved by either (a) two-thirds of its membership or, (b) by a majority of the board and a mandatory referendum. Currently, 40 counties are subject to the basic 1 1/2 percent tax limit, 14 are at 2 percent, and 3 are in between.
A county may also enact a local law, subject to a mandatory referendum, to establish a lower tax limit (e.g., 1 percent). However, enactment of such a local law does not affect the Constitutional tax limit and, therefore, does not reduce the threshold over which the State Comptroller is required to withhold certain local assistance payments.
Tax Levy – General County Purposes
The tax levy for purposes of determining a county’s taxing capacity is the total amount of real property taxes imposed for county purposes. Not every item included in a county tax levy is a tax for county purposes. Section 233-a of the county law describes the numerous items to be included or excluded in computing a county’s taxing power.
Exclusions can have a considerable impact on a local government’s taxing capacity. When determining the amount of a tax levy that is subject to the tax limit, the State Constitution allows for the exclusion of taxes in the amount of certain debt service payments and taxes in the amount of direct budgetary appropriations for most capital expenditures (see Local Finance Law §11.00[a]). The amount of the taxes for these purposes is subtracted from the tax levy resulting in a lower tax levy subject to tax limit and a higher tax margin.
Importance of the Tax Limit in the Budget Process
As a county advances towards its tax limit, it loses flexibility in its revenue structure and may not be able to sustain the current level of services provided to its citizens. Even routine cost increases can pose serious budget difficulties if there is no corresponding growth in non-property tax revenues. Since tax limits are computed based on the full valuation of real property, counties that are experiencing stagnation or a decline in property values are generally at a higher risk of approaching or exceeding their tax limit. Also, changes in exclusions from the tax limit will impact the calculation of the taxing capacity. Thus, a county can approach or exceed its tax limit, even with no change in property tax levies from year to year.
There is no absolute standard or target for a tax levy as a percent of the constitutional limit; however, based on our experience, counties that have exhausted over 80 percent of their tax limit are in a caution zone, while those over 90 percent are in a danger zone. In instances where municipalities have exceeded their tax limits, our research shows that those municipalities had exhausted 90 percent or more of the limit in the previous year.
Exclusions should be carefully monitored from year-to-year, as any changes will have an impact on taxing capacity. It should be noted that the availability of exclusions must be evaluated on an annual basis, and that exclusions may not be available on a recurring basis. For example, as debt is retired, debt service payments may decline causing the associated exclusion to also decline.
As shown in the sample tax limit computation (Figure 1), the proposed tax levy exhausts 87.7 percent of the county tax limit. For counties such as this that are nearing their tax limits, their ability to increase property taxes is severely limited, and their ability to maintain existing tax levels may be at risk, because even small variations in exclusions or real property valuation could cause the county to exceed its tax limit. Local governments must therefore be vigilant in managing their tax margin, particularly if they approach the caution zone (80 percent of their tax limit).
|SAMPLE TAX LIMIT CALCULATION|
|Five-Year Total Full Valuation||$ 8,604,639,769|
|Five-Year Average Full Valuation (1/5 of full valuation)||1,720,927,953|
|Constitutional Tax Limit (1.5% of 5-year average)||$ 25,813,919|
|Tax Levy – General County Purposes||$ 24,638,993|
|less Total Exclusions||1,998,099|
|Tax Levy Subject to Tax Limit||$ 22,640,894|
|Percentage of Tax Limit Exhausted||87.7%|
|Constitutional Tax Margin ($25,813,919 - $22,640,894)||$ 3,173,025|
Instructions for Completing County Constitutional Tax Limit Form
- Please do not put information in shaded areas of the report form. These areas, including EDP codes, are for OSC use only.
- Within your report packet, we have enclosed the prior year Constitutional tax limit data for your county that is currently on our database. Please refer to this data before completing your current form. We may have made adjustments to the data that you originally submitted.
- Please note that the chief fiscal officer must file with this office a certified copy of the 2013 budget within 30 days of its adoption. The certification should be attached to the budget. The following statement is an example of a budget certification:
I certify that this is a true copy of the budget of the County of ______________ for the fiscal year ending December 31, 2013 as it was adopted by the County on _______________.
Whether you choose the paper or electronic format, you are required to file the Constitutional Tax Limit Form with the State Comptroller 10 or more days before budget adoption.
Electronic forms may be accessed by selecting the following link: https://nysosc11.osc.state.ny.us/product/efsdex.nsf
If you choose to file a paper form, please return the completed form to our office at:
Office of the State Comptroller
Local Government and School Accountability
Monitoring & Analysis Unit 12-8-C
110 State Street
Albany, NY 12236-0001
If you require additional forms or assistance in completing these forms, please contact the Monitoring and Analysis unit at (518) 473-0006 or email: LGSAMonitoring@osc.state.ny.us
Instructions for Filing an Electronic Budget:
To file an electronic budget, a county must include a signed certification that contains the county’s name, the file name of the electronic budget that is attached to the email, and the fiscal year end. After the certification is signed, it can be scanned and sent as an attachment to the email. The budget may be in a PDF, Microsoft Word, or Microsoft Excel file. A sample of a certification is provided below:
I certify that the document transmitted to the Office of the State Comptroller as an attachment to the email [specify file name as shown on e-mail] is a true and correct copy of the budget of the County of ______________ for the fiscal year ending December 31, 2013 as it was adopted by the County on _______________.
Please note that the chief fiscal officer must file with this office, a certified copy of the 2012 budget within 30 days of its adoption.
Electronic budgets may be filed by using the following link: https://nysosc11.osc.state.ny.us/product/efsdex.nsf
Contact Information: Please provide the name, title, phone number and email address (if available) for the chief fiscal officer. For forms filed electronically, the email used to submit the form will serve as the signature.
Tax Limit Calculation (Page 1):
The five-year average full valuation is the cornerstone for determining the Constitutional taxing power of a local government. For counties, the full value for each roll year is the total of the taxable full value (for county purposes) of each town and city within the county. This section also includes summary data relating to levies and charges subject to the limit (separate section) and exclusions that are summarized on page 2 of the form.
Tax Year: Tax year refers to the fiscal year for which taxes either are to be levied, or have already been levied, on the assessment roll. Tax levy year does not refer to the assessment roll date, that is, the year in which the assessment roll was completed.
The last completed assessment roll for each city and town is determined as of the date on which the county budget is adopted. They are the most current final assessment rolls (i.e., an assessment roll that has been signed and verified, after hearing of grievances) for which: (1) a final State equalization rate has been established; and (2) if applicable, railroad ceilings or estimated railroad ceilings have been established according to Real Property Tax Law. State equalization rates and railroad ceilings are established by the State Board of Real Property Tax Services (ORPTS). Information on State equalization rates and railroad ceilings can be found on the ORPTS website. Any questions regarding equalization rates or railroad ceilings should be directed to ORPTS at (518) 474-5666.
Many of the categories below require calculations. For those counties using the electronic forms, the amounts are calculated automatically.
Taxable Full Valuation for County Purposes: Enter the total full valuation of the taxable real property (for county purposes) determined from the last completed assessment roll and each of the four preceding assessment rolls, for each city and town within the county. To determine the full valuation for an assessment roll, divide the Taxable Assessed Valuation on the assessment roll by the final equalization rate established for that roll. It is important to remember that an equalization rate can be applied only to the assessment roll for which it has been established. Note: Taxable Full Valuation data for county purposes is reported annually to the Office of the State Comptroller on the Schedule of Real Property Taxes Levied by the County Board of Supervisors (Form MA-144).
Five-Year Total Full Valuation: Enter on line 5P10TFV, the sum of the full valuations for each of the appropriate five assessment roll years.
Five-Year Average Full Valuation: Divide the Five-Year Total Full Valuation by five and enter the result on line 5P11AFV.
Constitutional Tax Limit: Multiply the Five-Year Average Full Valuation by one and one half percent (.015) or the appropriate percentage if the limit has been increased. This is the maximum amount of property taxes subject to the limit that may be raised during the fiscal year. Enter the amount on line 5P12CTL.
Tax Levy – General County Purposes: Enter on line 5P150 the total tax levy for county purposes subject to the tax limit. This figure comes from the Tax Levies and Charges Subject to the Tax Limit section of the form (page 2, line 5P13TTL)—see instructions below.
Total Exclusions: Enter on line 5P13EXC the Total Exclusions from the Exclusions section of the form (page 2) – see instructions below.
Tax Levy Subject to Tax Limit: Subtract the Total Exclusions amount from the Total Tax Levy amount and enter the result on line 5P14CHG.
Percentage of Tax Limit Exhausted: Divide the Tax Levy Subject to Tax Limit amount by the Constitutional Tax Limit amount and enter the result on line 5P15EXH.
Constitutional Tax Margin: Subtract the Tax Levy Subject to Tax Limit amount from the Constitutional Tax Limit, and enter the result on line 5P16MRG. This amount is the unused taxing power of the county.
Exclusions from the County Constitutional Tax Limit
Exclusions are taxes in the amount of budgetary appropriations that are not subject to the tax limit.
Debt Service: With certain exceptions, the State Constitution generally provides that taxes in the amount required to pay principal and interest on a county’s indebtedness are not subject to the tax limit. The exceptions to the rule, that is, amounts for debt service payments that are not excluded from a county’s tax limit, generally include amounts required to pay principal and interest on
- bond or notes issued for purposes other than financing capital improvements and contracted to be redeemed in one of the two fiscal years following the year of issue
- tax anticipation notes
- revenue anticipation notes
- certain pension bonds
- installment purchase contact debt
- bonds or notes issued for revenue-producing public improvements or services to the extent that revenues from the improvement, after payment of the costs of operation, maintenance and repair, are available to pay debt service.
Water Bonds and Notes: Enter on lines 5P170 and 5P180 the amounts required to pay principal and interest on bonds and notes issued for public improvements constructed to provide a supply of water, joint sewer projects and joint drainage projects. Enter such amounts even if the debt service on the bonds or notes will be paid from a source other than property taxes (e.g., rents or other user fees).
Revenue Producing Improvement Bonds and Notes: Enter on lines 5P190 and 5P200, the amounts required to pay principal and interest on bonds and notes for revenue-producing public improvements or services, such as electric utilities, sewer systems, or parking facilities. Enter on line 5P210 the total amount of revenue from such public improvements available for payment of principal and interest from Schedule A. For Counties filing electronically, please note that Schedule A (page 3) must be completed before the corresponding amount will appear (by formula) on line 5P210.
Please also note that Schedules B, C and D (see below) must also be completed before the corresponding amounts will appear (by formula) on lines 5P300, 5P330 and 5P13CH of the Exclusions section (page 2).
To complete Schedule A, in the column with the heading Nature of Improvement, list each type of revenue-producing public improvement or service owned or operated by the county. For each type of public improvement or service, enter in the column with the heading Total Estimated Revenue the total estimated revenue expected to be derived from the public improvement or service from sources other than taxes, assessments and subsidies by the county, such as fees, rates or other charges for use of the improvement or service. Enter in the column with the heading Less: Amount Appropriated for Operation Maintenance & Repair, the total amount appropriated for operation, maintenance and repairs for each type of public improvement or service. For each type of public improvement or service, in the column with the heading Amount Available for Payment of Principal and Interest, enter the difference between the total estimated revenue and the amount required for operation maintenance and repairs, and then enter the sum of the entries at the bottom of the column and on Schedule A, line 5P210. For Counties filing electronically, please note that amounts in the Amount Available for Payment of Principal and Interest column will be automatically calculated (by formula) and also be transferred (by formula) to line 5P210 of the Exclusions section on page 2.
To determine the amount to be entered on line 5P220, add together the principal and interest entered on line 5P190 and 5P200, and subtract from that amount the total amount of revenue available for payment of the debt service entered on line 5P210 from Schedule A; if the difference is less than zero, enter zero. For Counties filing electronically, this amount will automatically be calculated by formula.
Other Bonds, Capital Notes and Bond Anticipation Notes: Enter on lines 5P230 through 5P280 the amounts required to pay principal and interest on bonds, bond anticipation notes and capital notes issued for purposes other than water supply improvements, joint sewage projects or joint drainage projects. Include on lines 5P270 and 5P280, respectively, principal and interest on bond anticipation notes only if the notes are to be paid from a source other than bond proceeds. Do not include principal and interest on bond anticipation notes entered on lines 5P170, 5P180, 5P190, 5P200. Do not include principal and interest on tax anticipation notes, revenue anticipation notes or budget notes, unless the notes have been outstanding for more than five years after their original date of issue.
Total Exclusions for Debt Service: Enter on line 5P290 the sum of the amounts on line 5P170, 5P180, 5P220, and 5P230 through 5P280. For Counties filing electronically, this amount will automatically be calculated by formula.
Revenues Designated for Debt Service: For line 5P300, report non-property tax revenues designated by law or by contractual obligation to apply against debt service, and revenues other than real property taxes to be applied to the payment of any assessment debt shown on lines 5P230 and 5P240. Funds applied to debt service solely at the option of the municipality should not be shown. Using Schedule B (page 4), calculate the total and describe the authority, statute or charter provisions requiring that these revenues be applied to such debt service. Revenues applicable to bonds for which an exclusion from the debt limit has been granted by the State Comptroller pursuant to §123.00 or §124.10 of the Local Finance Law should be shown here only if the debt service for such bonds has been included in the amounts entered on lines 5P230 and 5P240. Again, for Counties filing electronically, this amount will automatically appear (by formula) on line 5P300 when Schedule B has been completed.
Net Exclusions for Debt Service: Subtract line 5P300 from line 5P290 and enter the difference on line 5P310. For Counties filing electronically, this amount will also automatically be calculated by formula.
Other Exclusions: (Lines 5P320, 5P330 and 5P340)
Down Payment on bonds to be issued (5P320): Under certain circumstances a municipality is required to provide a down payment of at least five percent of the estimated cost of capital improvement or equipment (Local Finance Law, §107.00). If this share is provided by the tax levy, the amount of money raised for this purpose may be excluded from the tax limitation.
Object or Purpose with a Period of Probable Usefulness (5P330): Whenever a county provides a direct budgetary appropriation for the payment of the cost of an object or purpose for which a period of probable usefulness has been determined by law, the taxes required for such appropriation shall be excluded from the tax limitation. Local Finance Law, §11.00 provides specific periods of probable usefulness for numerous objects and purposes. Use Schedule C (page 4) to identify the purpose for which the appropriation is made and the authority for the exclusion.
Other (5P340): Specify other exclusions and amount.
Failure to supply sufficient documentation of debt or other exclusions as appropriated in the adopted budget may result in disqualification of such exclusions which could adversely affect your municipality’s tax margin.
Tax Levies and Charges Subject to the Tax Limit
For line 5P13TCW, enter the total county-wide ad valorem tax levy. This amount should agree with totals reported on form MA-144 (Schedule of Real Property Taxes Levied by the County Board of Supervisor), line 4P001 for all towns and cities.
County Law §233-a, provides for certain amounts to be excluded from computation of the amount of taxes to be raised within the county tax limit. These amounts include: prior year surplus sales tax; sales tax, applied to reduce county taxes levied on real property in cities and towns; and surplus monies paid by a town to reduce tax levies upon the town. Total all such credits and enter the sum on line 5P13TC. For Counties filing electronically, this amount will automatically be calculated by formula.
Subtract total credits reported for code 5P13TC from county-wide tax levy reported for code 5P13TCW and enter the resulting Net Tax Levy on line 5P13NTL. For Counties filing electronically, this amount will also automatically be calculated by formula.
Use Schedule D (page 4) to identify the real estate taxes (not assessments) and chargebacks levied on an area smaller than the county which are subject to the county tax limit. Enter totals on line 5P13CH. Again, for Counties filing electronically, this amount will automatically be calculated by formula. Chargebacks for expenditures by the county in the prior year, are described in §233-a. Some of them are as follows:
|Purpose||Citation of § 233-a|
|Assessment roll and tax roll copying||1-h|
|Delinquent property taxes:|| |
|Preparation of tax sale conveyances||1-dd|
|Taxes returned as unpaid||1-cc|
|Health district, county or part county||1-u|
|Health services, county having no general health district||1-d|
|Laboratory district, county or part county||1-v|
|Library district, county or rural traveling||1-j|
|Police district, county||1-jj|
|Prisoner maintenance under contract||1-c|
|Refunds on tax collections erroneously assessed||1-f|
|Supervisors proceedings, printing and distribution||1-g|
|Veteran’s service agency||1-o|
|Vocational education and extension board||1-k|
|Weights and measures administration||1-a|
|Institutional and hospital care, foster home care||1-x|
|Institutional care provided by another county||1-w|
|Option III city||1-z|
|Under county commissioners||1-y|
Refer to County Law §233-(a) for more complete information. The allocation of these chargebacks to towns and cities within a county is shown on the MA-144 form, as prepared by the Clerk of the Board.
To calculate the total tax levy, add amounts for 5P13NTL and 5P13CH and enter total on line 5P13TTL. For Counties filing electronically, this amount will automatically be calculated by formula.
Where to Call for Help
Assistance is available at LGSA contact page located here.