By LIZ BUTTON
The Rye City School District may take a tip from the city next year and impose a utility tax on district residents to help make up for a $3.8 million shortfall projected for its 2014-2015 budget.
The utility tax can apply to such things as gas and electric services, water, refrigeration and heat. State law allows municipalities and school districts to also collect on communication services like land line telephones and cell phones, but not cell phones that have pre-paid plans.
Assistant Superintendent for Business Gabby O’Connor estimates instituting the state’s maximum allowable utility tax of 3 percent could net the district $1.2 million in annual revenue, with a prorated value for the first year of implementation of $990,700.
O’Connor’s calculations were based on information provided to her by the city, which has a 1 percent tax on utilities and collects $400,000 annually.
Bob Zahm, a former school board member who served from 2004 to 2010, called the utility tax “a bad tax” that is inefficient and non-transparent and would hurt taxpayers more than increased property taxes would.
Most people are not aware of the tax since they only see a higher number in their phone or water bill’s tax column that is not broken down into the different types of tax.
Zahm said in a community like Rye with many individual property owners and a large tax base, a utility tax is less efficient and may make more sense in a community in which there are more businesses and renters than individuals, which would serve to theoretically “spread the burden.”
Superintendent Dr. Frank Alvarez explained the necessity of at least considering a utility tax as one option among many in the financially strained environs of the state’s three-year-old tax cap.
The district and the board are currently examining strategies that might help prevent the shortfall in the district’s proposed $79.4 million budget for 2014-2015 from impacting educational programs.
“If we really want to keep what we have, we really have to think of some creative ways to do this. I know the idea of the utility tax has not been popular in the past. I think in a tax cap environment we have to rethink some of these [ideas],” Alvarez said.
According to interim City Comptroller Joe Fazzino, the city bills utility companies like Con Edison and United Water, and phone companies such as Verizon for land lines. The city does not tax cell phones, Fazzino said; however, taxing cell phones is an option the school district is considering.
To actually collect the tax, the district or municipality would bill the utility or service provider, which would then be required to collect those charges on the taxing entity’s behalf. The collected fees would then be given back to the district or municipality.
Projected revenue was based on the maximum allowable utility tax of 3 percent, but whatever percentage the Board of Education decides on is up to them, O’Connor said.
The lowest possible utility tax rate in New York State is 0.5 percent.
The utility tax figures into one of two possible budget scenarios the district presented at the March 11 Board of Education meeting.
The first option is a tax cap compliant budget which would use the utility tax to garner $990,000 along with $2.5 to $2.8 million in reserves to close the shortfall.
The second is a budget that is not tax cap compliant and makes use of a tax cap override, which requires a 60 percent approval rate in the May 20 public vote. This budget would carry with it a tax levy increase of 3.88 percent, an override of the 1.64 percent limit, as well as the use of reserves of around $2.3 million.
In 2011, the City Council considered increasing the city’s 1 percent utility tax rate after the state raised its limit to a maximum of 3 percent, but it ultimately declined to do so. At the time, Zahm and fellow Rye resident Charmian Neary, a Democratic strategist, lobbied the council for an altogether repeal of the tax, which the city originally implemented in 1944.
Former school board president Jim Culyer said previous boards also looked at the utility services tax in the mid-2000s.
Given the current tax cap scenario, Culyer said he thinks Rye must look at all possible revenue-generating measures so the school’s educational programs are not impacted.
Board member Karen Belanger contested Zahm’s point of view that the tax is non-transparent.
“This is the kind of thing that, frankly, we could do by board resolution at any time of the year. The fact that we are bringing it up now, and it was very clear that this is one among several of our options, is our attempt to make this sort of a program as transparent as we possibly can,” she said.