Submission Date:
Question:
Our library is supported by a school district tax levy. The levy provides the bulk of our annual budget. Out of the blue, the district has told us that rather than turning over the full amount of the levy (which it has done for years), the district will now pay over the money “as it is collected.” This could create a cash flow problem, since our remaining funds are budgeted for a construction project.
Is this “pay as you collect” approach legal? If it is legal, are there any options?
Answer:
Short answer: yes, it is legal, and yes, there are options.
Let’s review why it is legal,[1] and then we’ll discuss the options.
For over thirty years, there has been clear guidance that when a municipality or school district collects taxes for a public library, the money should be turned over “as soon as practicable after their receipt.”
For this reason, libraries and their taxing authorities should stay in close communication about the timing of payment(s).
If an “incremental” approach is needed because of delayed payments, this close communication is more critical, because there are a few more details to consider, such as how to know when to demand payment, and how to demand incremental payments efficiently.[2]
Because the district is obligated to keep the library’s moneys in a separate account,[3] the district should be able to provide current information about when there are moneys to be paid.
Proceeding from there, the district and the library should be able to agree on periodic payments, and memorialize the agreement as follows:
RE: [NAME LIBRARY] [YEAR] Levy
Agreement regarding payments of [LEVY AMOUNT]
Dear [NAME AT DISTRICT]:
Thank you for meeting with [NAMES] on [DATE] to discuss the manner in which the District will convey the levy.
As we discussed, the District will remit the full amount by [DATE], unless it has not received the full amount, in which case it will remit what it has collected.
In the event the full amount cannot be paid, after [DATE], the District will pay over moneys collected for the Library by [the # day of the month].[4]
The District will consider this letter a standing request for payment of the [YEAR] levy per Education Law Section 259.
In the event the District receives notice of assessment challenges that might result in the need to return funds, the District shall notify the Library as soon as possible via an email to [ADDRESS].
Thank you for your assistance in this matter.
Sincerely,
NAME
President
NAME Library
Going back to the Comptroller’s guidance from 1992, this might not be the only option. In many counties, the county as taxing agent actually fronts anticipated revenue to the entities it collects for. In some places, steady revenue is assured by issuance of “tax anticipation notes,”[5] which are low-interest loans that bridge any gap between the need for funding and the levy collection.[6]
What does this mean?
If a library depends on timely collection of a levy for cash flow (either because that’s just how things are, or because there may be a time of unusual burden on reserve funds, as in the question), it is important for the library to:
- Know how taxes are collected.
- Know if funds are ever advanced prior to full collection.
- Know if there are anticipated “claw backs” due to assessment challenges.
- Know if “tax anticipation notes” are issued.
- If “tax anticipation notes” are not used, but could ensure fiscal stability for the library, work with the taxing agency to explore if they can be used.[7]
This approach could be helpful in a scenario like one described by the member, because the issue is created not only by some special circumstances at the library (construction project) but sudden notification of a change in payment practice.
In a case like the one in the question, being tactical/diplomatic/strategic and involving legal counsel and/or accountants with experience in municipal/school district finance is just as important as knowing the law.[8] Prior to meeting with the district, setting out a plan and confirming it with the library’s board of trustees is the way to go.
Thank you for an important question. Given the pressures on library budgets and taxpayers in 2024, this is likely not going to be a unique situation.
[1] The bulk of this answer is based on 1992 guidance from the New York State Comptroller (Opinion # 92-28). Many things from 1992 have not stood the test of time (I’m looking at you, Lollapalooza), but like Nirvana t-shirts, Wu-Tang Clan, and Mozart symphonies, this aged opinion is still with us. Where the law has evolved past this opinion (notably, on the topic of clawing back overpayments due to assessment challenges), I have made note.
[2] Done wrong, this could make for good sitcom scene or video clip. The library treasurer calls: “Is the money there yet?” The district’s accountant sighs and says, “Let me check” [pause, sounds of keyboard]. “Nope.” The library treasurer replies, “Okay, well, uh, talk to you next week.” The district’s accountant replies: “I’m looking forward to it. Really. Please keep calling.” Amusing, but not the recipe for a positive relationship.
[3] See New York State Education Law Section 259.
[4] The parties can agree on a frequency of payment that meets their needs.
[6] Fun fact: Although libraries cannot issue “tax anticipation notes,” if a municipality or district issues a tax anticipation note and gets interest on moneys to help for the library, the interest must be paid over to the library. See OSC Opinion 92-28 again.
[7] This requires DIPLOMACY. An entity may be reluctant to take on short-term debt. However, if the availability of such short-term funding can ensure stability, it is responsible to consider doing it. Information on using and accounting for tax anticipation revenue is here: https://www.osc.ny.gov/files/local-government/publications/pdf/tan_ran_premiums.pdf.
[8] This is a case of “please help” rather than “give us our money.”
