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POINT II

THE APPEAL IS UNTIMELY WITH RESPECT TO
SCHOOL FISCAL YEARS PRIOR TO THE 2004-05
SCHOOL FISCAL YEAR AND IS PREMATURE
WITH RESPECT TO THE 2005-06 SCHOOL YEAR

Petitioner Giardina seeks an Order from the Commissioner of Education directing respondents "to restate and correct all of the District's 2002-03, and 2003-04 tax certiorari reserves" and also seeks to stay the District's officials from developing a budget for the 2006-07 school year until after respondents have corrected all prior tax certiorari reserves. A stay seeking such relief was denied by the Commissioner. The appeal is untimely in some respects and is premature in others.

Petitioner alleges that the respondent school officials have improperly funded the 2002-03 and 2003-04 tax certiorari reserve funds. He contends that as a consequence of such improper retention, that the District has in fact retained funds in excess of the 2% limitation contained in RPTL §1318. RPTL §1318 requires that all unexpended operating funds in the undesignated fund balance in excess of 2% of the amount of the budget for the upcoming school year which have not been properly retained under other sections of law must be applied to reduce the upcoming tax levy.

It is well-settled that an appeal pursuant to pursuant to RPTL §1318(l) is timely only when brought within the fiscal year during which such unexpended surplus funds are improperly retained (Appeal of Muench, 43 Ed. Dept. Rep. 419 [2004]; Appeal of Schadtle, 40 Ed. Dept. Rep. 60 [2000]; Appeal of

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Molineaux, 38 Ed. Dept. Rep. 672 [1999]). Although petitioner challenges alleged improper retention of funds in excess of the 2% limitation for prior school years, the appeal is untimely except arguably as to the 2005-06 school year.

On July 14, 2005, respondent school officials established a tax certiorari reserve fund and directed that it be funded in an amount not to exceed $1,429,489 from undesignated surplus funds in the 2004-05 school district budget. On September 1, 2005, the date upon which the school tax levy was given to the tax collectors, the District's Assistant Superintendent for Business wrote to the District's external auditor to advise the firm that the tax certiorari reserve fund created by the resolution of July 14, 2005 should be funded in the amount of $1,310,000.

While Petitioner contends that the previous tax certiorari reserve funds were overfunded and that as a consequence thereof, the District improperly retained in excess of the 2% limitation for at least the past three school fiscal years, petitioner's allegations with respect to improper retention of surplus funds for prior school fiscal years are time-barred, since this appeal was not brought until January, 2006.

To the extent that the Petitioner seeks prospective relief addressed towards the 2006-07 budget, the appeal must be dismissed as speculative and premature (Appeal of Molineaux, supra). The Commissioner of Education will rule only on specific matters in controversy and will not entertain a request for an advisory opinion. Thus, in Appeal of Golden, 45 Ed. Dept. Rep.

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Decision No. 15362 dated February 9, 2006, the Commissioner of Education recently refused to address a request for removal of board members who might in the future fail to comply with the provisions of RPTL §1318.

The Commissioner should dismiss as time-barred those aspects of the within appeal which relate to the creation and funding tax certiorari reserves for the 2002-03 and 2003-04 school years and should further dismiss those allegations relating to anticipated future improper actions as speculative.

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POINT III

THE SCHOOL RESPONDENTS HAVE NOT UNREASONABLY
OVERFUNDED THE 2004-05 TAX CERTIORARI RESERVE FUND

Education Law, §3651, subd. 1-a provides as follows:

1-a. Notwithstanding the provisions of subdivision one of this section, any school district may establish a reserve fund for the payment of judgments and claims in tax certiorari proceedings in accordance with article seven of the real property tax law, without approval by the qualified voters of the district, provided, however, that the total of the monies held in such reserve fund shall not exceed that amount which might reasonably be deemed necessary to meet anticipated judgments and claims arising out of such tax certiorari proceedings. Any monies deposited to such reserve fund which are not expended for the payment of judgments or claims arising out of such tax certiorari proceedings for the tax roll in the year such monies are deposited to the said fund and/or which will not reasonably be required to pay any such judgment or claim shall be returned to the general fund on or before the first day of the fourth fiscal year following the deposit of such monies to said reserve fund.

Petitioner alleges that respondent school officials have substantially overfunded tax certiorari reserve funds for prior and for the current school fiscal year. He alleges that as a consequence thereof, the District has actually^­overwithheld surplus funds, beyond the 2% limitation contained in RPTL §1318, and has failed to return such excess funds to the taxpayers through a reduced tax levy for the school fiscal years in question.

The Petition is untimely on its face with respect to tax certiorari reserves created for the 2002-03 and 2003-04 school fiscal years. As previously stated in Point II of this Memorandum, an appeal to the Commissioner predicated

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upon a violation of RPTL §1318 must be brought not later than the close of the fiscal year in which such funds were improperly withheld. Since this was not done, those allegations of the Petition relating to the 2003-04 school fiscal year and previous fiscal years are time-barred.

Petitioner challenges the funding of the 2004-05 tax certiorari reserve fund which was created in July, 2005 and was funded with undesignated surplus funds from the 2004-05 budget prior to the tax levy. Petitioner commenced the within appeal on January 26, 2006, well beyond the thirty day limitation set forth in Section 275.16 of the Commissioner's Regulations relating appeals to the Commissioner of Education (Title 8 NYCRR §275.16). Since petitioner has not established any good cause for his delay in initiating the within appeal until substantially beyond the thirty day limitation specified in the Rules of Practice, petitioner should not now be permitted to challenge either the creation or the funding of the 2004-05 tax certiorari reserve fund. If the challenge to the creation or funding of the reserve is untimely, then petitioner's claim that the District has overwithheld surplus funds in such fund in violation of the limitation contained in RPTL § 1318 must necessarily fail.

Education Law, Section 3651, subd. 1-a, which specifies the manner of creation and funding of tax certiorari reserve funds, is different in many significant respects from the statutory provisions relating to the creation and funding of capital reserve funds. Creation of a capital reserve fund requires voter approval; creation of a tax certiorari reserve fund does not. Expenditures from a capital reserve fund require voter approval; expenditures from a tax

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certiorari reserve fund do not. A proposition to create a capital reserve fund must state the purpose of the fund, the ultimate amount thereof, its probable term and the source from which its funds will be obtained. No similar provision appears in Education Law §3651, subd. 1(a). Petitioner confuses the different statutory provisions and suggests that the form of the proposition creating the tax certiorari reserve must follow the requirements for creation of capital reserve fund. There is no legal basis for such conclusion.

Education Law §3651, subd. 1(a) seems to suggest that there can only be separate tax certiorari reserve funds for the preceding three school fiscal years. The subdivision states that any monies deposited to such reserve fund "which are not expended for the payment of judgments or claims arising out of such tax certiorari proceedings for the tax roll in the year such monies are deposited to the said fund and/or which will not reasonably be required to pay any such judgment or claim shall be returned to the general fund on or before the first day of the fourth fiscal year following the deposit of such monies to said reserve fund^". The use of the conjunctive "and/or" suggests that a tax certiorari reserve fund may indeed continue beyond the first day of the fourth fiscal year where the funds contained therein remain reasonably necessary to pay judgments or claims attributable to such prior school fiscal years.

We acknowledge the principle established in previous Commissioner's decisions that the proceeds of tax certiorari reserve funds are not fungible but must be used solely for tax certiorari proceedings for the tax roll in the specific year in such monies are deposited (Appeal of Goldin, 43 Ed. Dept. Rep. 20

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[2003]). However, calculation of an appropriate level of retention often requires an exercise of judgment and discretion, rather than simple mathematical calculation. As the Commissioner is aware, the great majority of tax certiorari proceedings involve multi-year claims. Most are settled and do not proceed to trial. The settlement often contains an allocation of refund liability over the various school fiscal years. For reasons best known to the parties, they may agree on greater percentage refunds attributable to the most recent school fiscal years with lesser percentage increases allocated to prior fiscal years.

Respondent school district has not maintained any tax certiorari reserve fund for any school fiscal year prior to the 2002-03 school fiscal year. Indeed, the prior reserve fund which had been established for the 2001-02 school year was rolled into the general fund as part of the budget process for the 2004-05 school fiscal year. The District, however, has hundreds of thousands of dollars of potential refund liability attributable to school years for which there exists no current tax certiorari reserve fund. In addition, if percentages of recovery exceed predicted estimates, it is conceivable, and perhaps likely with respect to the 2003-04 school fiscal year, that refunds may actually exceed the amount maintained in the tax certiorari reserve funds for such school fiscal years, leaving the District unprotected to the extent of the shortfall of reserves against claims.

It should also be noted that no reserve has as yet been established for the 2005-06 school year. This will not normally occur until the District has ascertained available undesignated surplus funds from the 2005-06 budget.

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However, the District has already settled various claims and is obligated to make refunds, where there is presently no reserve fund to absorb the expenditure. A school board should be given reasonable latitude and discretion with respect to the funding of its tax certiorari reserve funds in order to protect the district against the contingency of refund liability without any budget code designated to address such liability.

As the Commissioner of Education will note from the charts annexed as exhibits to the Verified Answer, that the District's experience over the last few years indicates both an acceleration in the number and amount of claims and also in the percentage of the reductions granted. If the District participates in settlement negotiations, it can to a significant degree allocate the refund

liability against the various years in question in such a manner as to provide greater coverage through its existing tax certiorari reserves. In this case, while it might at first blush appear that the 2004-05 tax certiorari reserve is funded at a higher level than might historically appear to be necessary, it is substantially likely that during the settlement process, a higher percentage of the allocation of refund liability would be directed toward the 2004-05 school tax roll, with lesser percentages allocated to prior school tax years.

It is essential to note that the District has not overwithheld surplus funds that would otherwise have gone back to the voters to reduce the tax levy. Even if the Commissioner of Education were to determine that respondent school officials had overwithheld funds in the 2004-05 tax certiorari reserve fund, such monies would nevertheless necessarily have had to be withheld,

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albeit through other means such as a separately-stated expenditure code within the budget to cover the contingencies of uncovered refund liability for prior years for which the District maintains no reserve; for the current year; and for school fiscal years for which an existing reserve may prove insufficient.

The Commissioner of Education has previously refused to direct the refunding of improperly created tax certiorari reserve funds. In Appeal of Hubbard, 44 Ed. Dept. Rep. 183 (2004), the Commissioner of Education saw no need to direct respondent to rescind a tax certiorari reserve fund which had been improperly established, because any amounts not required for tax certiorari judgments would necessarily be returned to the general fund. Furthermore, those cases in which the Commissioner of Education has found unintentional or technical violations of the 2% rule have uniformly provided only prospective relief by way of a direction to school officials to comply more scrupulously with the 2% limitation in the development of future budgets.