Schools Illegally Withhold $415 Million in Taxpayer Money

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By: Daniel Branda, Program Director – Affordability

New York’s school districts are illegally withholding up to $415 million from taxpayers despite legal counsel telling them that this money must be used to reduce property taxes.

Last year, the Comptroller’s audit of the Vestal Central School District (Broome County) determined it illegally withheld taxpayer money in an unassigned fund balance—basically, they were keeping taxpayer money in a general savings account rather than refunding that money to taxpayers in the form of property tax relief.

According to the Comptroller:

“New York State Real Property Tax Law [section 1318] limits the amount allowable (in an unassigned fund balance) to 4 percent of the ensuing year’s budget appropriations.”

This means, any money in a school district’s general savings account (unassigned fund balance in account A917) cannot exceed 4 percent of what the district budgets to spend in the upcoming school year. Vestal got caught, but was given the opportunity to rectify the problem by moving money into other reserve accounts.

Read: School Savings Keep Pace with Property Tax Increases

Read: While Pension Costs Decline, School Property Tax Bills Continue to Increase

So how widespread is this problem? Very. 277 school districts have potentially illegal unassigned fund balances, withholding as much as $415 million from their taxpayers. See the list HERE.

Worse, school boards know this to be wrong. They were put on notice of the illegality, remedies, and consequences by legal counsel.

According to a memo circulated by the New York State School Boards Association from Associate Counsel Kimberly A. Fanniff:

“In a pair of recent decisions, the commissioner of education ordered two school boards to ensure they fully comply with a state law limiting retention of surplus funds to 4 percent of the budget for the upcoming school year. … However, there is no mechanism for returning a pro rata share of funds to the taxpayers once the tax levy has been made. Therefore, the commissioner ordered the boards to ensure that, in the future, all unexpended unreserved funds are used to reduce the tax levy.”

Fanniff notes that in one case, a technicality saved the entire school board from being removed.

The top offender, in whole dollars, is the Buffalo City School District. Its unassigned reserves were $24.5 million above the limit. Yet last week, the Buffalo News reported that the city’s school district is somehow facing a financial crisis: “It all leads to the school district staring at an $8.5 million budget shortfall for the coming year and facing some tough choices about how to reduce its expenses – both now and into the future.”

Perhaps more egregious is the Salamanca School District in Cattaraugus County, with more than $20 million in unassigned funds above the limit for a $32 million budget. At least Buffalo’s reserves are measured against $1.1 billion in spending.

$415 million illegally withheld from taxpayers—that’s about equal to this year’s 2-percent school tax growth for the whole state. School districts with illegal fund balances have failed to put that money in the classroom; they need to return that money to their taxpayers.

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Methodology Note: While actual spending for this year is not yet available, the Comptroller reports each school district’s total expenditures last year as well as how much they had in their A917 accounts at the end of the fiscal year.  Because spending this year will only be a few percentage points higher than spending last year (thanks to a very low 2017-2018 property tax cap), one could reasonably assume that general savings as a percentage of last year’s spending will look a lot like this year’s spending. This warrants further scrutiny at the end of this fiscal year, when updated numbers become available from the Comptroller.