N.Y. Taxes Schools|to Bail Itself Out

RIVERHEAD, N.Y. (CN) - New York is unconstitutionally taxing exempt school districts in a dozen counties to fill the hole in the Metropolitan Transportation Authority's $1.8 billion operating deficit, a Suffolk County school district says.

The William Floyd Union Free School District complains that it has paid more than $190,300 since the Legislature enacted the tax in May 2009 "to bail out the Metropolitan Commuter Transportation Authority."

"Rather than implement a direct bailout, the state imposed a tax obligation on employers within the Metropolitan Commuter Transportation District, including school districts, such as plaintiff that are otherwise generally exempt from taxation," according to the complaint in Suffolk County Court. (Italics in complaint.)

The "high-need, low-income" school district says it already had had to cut more than 100 jobs and now has been tapped to reduce the MTA's $1.8 billion deficit - and the state refuses to say when it will be paid back.

"Although the law purported to provide for school districts to be reimbursed for the commuter tax payments made, the parameters for return of those payments are not provided," according to the complaint. "The commuter tax law in effect permits the state to retain the commuter tax money the district remits for an indefinite period, without any compensation, thereby requiring the district to make unsecured, interest-free loans to the state, in violation of the New York State Constitution and New York State law."

The school district says the state needs a special certification from the Commission of Taxation to provide reimbursements, and says it has no idea when the repayment might be made or whether it will be paid with interest.

If the state does not reimburse the school districts, then "the commuter tax serves as an unprecedented, unconstitutional tax on school districts, for which there is no authority and which permanently depletes the school districts' financial resources," according to the complaint.

Even if the school district is reimbursed, it says, the state has required a "mandated, unsecured, interest-free loan with an indefinite term, which violates the State Constitution and interferes with school districts' ability to control their already compromised financial positions."

The school district says the tax law, which applies only to New York City and seven other counties, cannot take effect, legally, unless submitted to the people at a general election. The tax also violates the MTA provision that its budget must be self-sustaining, according to the complaint.

The school district sued New York, Commissioner of Taxation and Finance Jamie Woodward, and MTA Chairman and CEO Jay Walder.

It seeks declaratory judgment that it does not have to pay the tax, and reimbursement, with interest. It is represented by Howard Miller with Bond, Schoeneck & King of Garden City, N.Y.

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