Ulster County Must Pay Millions to Districts to Cover Delinquent Taxes

January 18, 2010

Ulster County Comptroller Elliott Auerbach predicts the county will be on the hook to reimburse 15 school districts a total of $22 million to cover unpaid property taxes for the current school year, an increase of nearly 6 percent from last year.

Unpaid Ulster County school taxes have been on the rise, according to a brief “snapshot” report issued by the comptroller. The projected total, which must be paid by April, is up from $20.8 million in the 2008-09 school year; $19.46 million in 2007-08; and $14.3 million in 2006-07.

Those totals include state land for which the county later is reimbursed, but not the Kingston school district, for which the city collects unpaid property taxes.

Auerbach attributed the growth of tax delinquencies to taxes having grown so much that many people cannot afford to pay them.

“When your property taxes are more than your mortgage payments, that’s a scary thing,” he said, adding that he believes the state of the economy has compounded the problem.

The growing tax delinquency rate could become an issue for the county, Auerbach said, because state law dictates that county governments — except for Westchester’s — are required to pay school districts the full amount of unpaid taxes plus the initial 3 percent penalty charged to those who are late.

Counties then take on the responsibility of collecting overdue school taxes. If the county has to act as a debt collector, Auerbach said, it can charge a 7 percent penalty a s its “reward.” After three years, he said, the county can foreclose on a property if the owner still does not pay, meaning the county has to pay school districts up front and collect later.

Auerbach said Ulster County reimburses school districts through its “cash flow.” In better times, he said, the requirement to “make school districts whole” was less of a burden.

But now, he said, because revenues, including sales taxes and state aid, are down, managing the money could be more difficult and even force the county to tap into its “already reduced fund balance” or borrow money.

“It’s always difficult for the county to put out large sums of cash when we have limited money coming in,” said county Budget Director Arthur Smith.

Paying school districts is not a budgeted cost because it is managed through cash flows and reimbursed, but Smith said it could cost the county if it has to borrow to cover the short term cost.

So far, Smith said, the county does not appear to be in the position of having to borrow this year. And he expressed optimism that the fiscal climate will improve over the next year.

If the situation does not improve over the next 12 months, every municipality could struggle with cash flow, Smith said.

Auerbach’s report estimated school districts collect 89 percent of their net tax warrant minus state School Tax Relief (STAR) reimbursements. The county’s payment to make districts whole ties up less than 10 percent of the county’s annual cash flow, he said.

Auerbach, noting most school funding is made up of state aid and property taxes, said schools collect more property taxes than other government entities, and with state aid being cut back, property taxes are likely to continue to increase. He said the predicament facing the county is another reason la wmakers should consider property tax reform.