Treasurer’s report: ‘Making the schools whole’

By IRA COHEN, Sullivan County Treasurer

Sullivan County’s government suffers from sparse revenue sources, notwithstanding the economic revitalization experienced in the past few years. Fiscal year 2005 was positive in many aspects, including increased sales tax revenue of approximately $1.7 million. However, unfunded state-mandated programs and increased costs of operations generally have resulted in the need to increase every variety of tax in order to fund the county’s 2006 budget.

The problem is not only with the amount of revenue, but with its timing. Towns collect current real property taxes levied on January 1 of each year, including county taxes, but they retain 100 percent of the money, including the county’s share, until the town’s warrant (that is, the total revenue its budget requires for that year) is paid in full.

During February and March, the towns pay the county any monies they have collected above the amount of their warrants, and the county relies upon this influx of revenue to prepare for expenses that the county is responsible to pay during the remainder of the year. The towns continue to collect current taxes until April 1, at which time uncollected taxes are turned over to the county treasurer for collection.

On the payment side, county finances are stretched by the need to support local government entities as well. The largest single payment made by the county during the course of the year is when the school districts are “made whole.” Unlike towns, school districts do not collect enough taxes to cover their warrants. School taxes are levied on September 1 of each year, and are collected by school tax collectors through the first week of November. The unpaid tax bills are then turned over to the county treasurer for a brief collection effort in November. After November 30, however, all unpaid school taxes become the sole obligation of the county to pay. This obligation to pay the school districts’ uncollected taxes is known as “making the schools whole,” and is mandated by New York State law. County government must make the payment by April 1 of every year, even though the county has not collected all outstanding taxes owed at that time. In other words, the county must front its own funds, and hope that during the remainder of the year it will collect the rest of the unpaid taxes. That never happens.

This year, the unpaid school taxes exceed $15 million. County government has been fortunate to collect approximately $24 million from the towns in February and March, and $3.5 million in sales tax from the state. However, the payment of over $15 million at once makes it difficult to keep up with the county’s expenses and obligations.

An 11-year analysis from 1996 through 2006 indicates that the unpaid school taxes remained rather steady for the first eight years, even decreasing in some years. The annual average amount in that period was $11 million. However, in 2004 the number rose to $13 million. This year’s $15 million represents a jump of almost 43 percent in the past three years.

Clearly, the purpose of the state law is to ensure that our public schools function without fear that they will be unable to pay their bills. School officials assert that their boards are diligent and prudent in the formulation of school budgets and spending policies, at least as much as other taxing authorities. Others argue, however, that the county’s annual monetary contribution creates a comfort level that undermines fiscal discipline. Moreover, the county government’s loss of cash flow for its own purposes might very well necessitate county borrowing to cover operating costs. This often causes a downgrade in the county’s bond rating, higher costs of operating county government, and, in the end, an increase in county taxes. Given the consequences, it would be worthwhile to analyze the factors leading to the huge increase in uncollected school taxes and find a way to fix it.

I am not passing judgment on the state mandate to make schools whole, nor am I suggesting that the system be changed, although many people before me have apparently done so, and indeed legislation was proposed in 2001 to that effect. My purpose here is to bring the facts of the county’s finances to public notice, as promised during my campaign.

In the end, the public has the right to choose its priorities, and how its tax dollars are best spent. Knowledge of the facts can help assure that these choices will be made with a better understanding of the options and consequences.