February 22, 2010 - School districts see great value in maintaining adequate financial reserves in case of emergencies.

With schools entering this year's budget development process faced with numerous budgetary challenges, Governor David Paterson has repeatedly suggested that school districts use fund balances to cover possible losses in state aid for the 2010-11 and 2011-12 school years.
 

More recently, State Comptroller Thomas DiNapoli released a report that concluded that some school districts have accumulated reserves in excess of what current laws allow.

What is often overlooked is that school districts operate with more accountability and transparency than other entities, and with more limitations on some of their financial practices.
 

For example, a school district is permitted to maintain an unreserved, un-appropriated fund balance (a “rainy day” fund) of up to 4 percent of its budget. There is no percentage limit for municipalities.

Also, while both local governments and school districts may set aside funds for future pension contributions to the State and Local Employees Retirement System (ERS), roughly 70 percent
of school employees are in the Teachers Retirement System (TRS) and, under existing law, ERS pension reserve accounts cannot be used to for future TRS costs.

Currently, North Colonie expects to end the fiscal year with a fund balance of about $13.5 million. Of this total, more than $7 million is included in various reserves. The district currently expects to appropriate $4.5 million of its total fund balance (reserved and unreserved) as revenue in the 2010-11 budget. This will leave less than the 4% limit allowed by state law in un-appropriated fund balance. The 4% limit would have totaled approximately $3.6 million, but the district will maintain significantly less than the legal limit in order to afford tax payers a much lower increase in its tax rate.

The district plans to use a portion of the fund balance to close the revenue gap in the 2010-11 budget and to help stabilize the tax levy imposed on district residents. District leaders strongly favor a conservative approach to using fund balance, because the state budgetary problems are expected to extend beyond the 2010-11 fiscal year.

“We must take the long-term view, and ensure that we have adequate funds to carry us through these difficult years,” Assistant Superintendent for Business, Thomas Rybaltowski said.

It is important to note that while the district does maintain a number of financial reserves, each is legally restricted to specific uses. Under state law, a school district can create and maintain up to 13 different types of reserves. North Colonie has nine. For example, the district maintains a reserve to help pay for increases in ERS. Other reserves include Unemployment Insurance and Workers Compensation. Each reserve is reviewed annually by an Independent Auditor and the State Education Department, to ensure the District reserves only reasonable amounts necessary to fund its liabilities.

As Comptroller DiNapoli has warned, next year could be even worse, due to the “funding cliff” facing the state and the schools, as federal stimulus aid expires under current laws.
 

In addition, like other public agencies – or businesses or families – schools do need to have money in the bank to cover unforeseen costs.

Would a family feel comfortable with nothing on hand to cover emergency costs? Or should they have an emergency fund of less than 4 percent of its annual expenses – the maximum that schools are supposed to have?

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