By Sarah Hall
Editor
The Baldwinsville Central School District inappropriately allowed its unrestricted fund balance to grow beyond state limits instead of using the money to cut taxes, according to an audit released by New York State Comptroller Tom DiNapoli’s office June 17.
According to the audit, which covered the period from July 1, 2014, to Oct. 31, 2015, the BCSD Board of Education’s failure to adequately predict the district’s needs led to overages in the last several budget cycles.
“Fund balance represents resources remaining from prior fiscal years that can be used to provide a cushion for unexpected fluctuations in operations, assist with cash flow operations or lower property taxes for the ensuing fiscal year,” the audit report reads.
Where the BCSD erred is in hoarding that money instead of using to lower property taxes.
“From fiscal years 2011-12 through 2014-15, the district improperly calculated its unrestricted fund balance and spent nearly $23.8 million (93 percent) less of appropriated fund balance and reserves than were budgeted to finance operations,” the report states. “As a result, the district’s recalculated year-end unrestricted fund balance averaged about 9.4 percent of the next year’s budgetary appropriations over the last four years, which is more than two times the statutory limit [which is 4 percent].”
In doing so, the report states that “the board and district officials did not develop reasonable budgets or effectively manage the district’s financial condition to ensure that the general fund’s unrestricted fund balance was within the statutory limit.”
District officials disagreed, however. In a statement to the comptroller, they argued that the fund balance the district carries from year to year is appropriate.
“We firmly believe that the existence of reserves in our balance sheet — and cash in our bank accounts — is a sign of a fiscally healthy school district,” wrote BOE President Victor Jenkins and Interim Superintendent Matthew McDonald in their official response to the comptroller. “We use the designated fund balance to offset budgeted fund balance as a mechanism to preserve our balance sheet. If our budgeted expenses rise higher than our revenues in a particular year we use designated fund balance to make up the difference.”
The response also pointed out that the district’s bond rating, Aa2, is one of the highest for a school district in the state, that the average annual tax increase over the period the comptroller’s office examined was just 1.75 percent, that the district has been recognized by the comptroller’s office for its financial stability and that it has received a score of 0 percent from the office using the Fiscal Stress Monitoring System.
Moreover, Jenkins and McDonald wrote, the state has made it harder and harder to adequately plan when making school budgets.
“In view of the history of state aid to schools in the past six years, having a fund balance proved to be of value to Baldwinsville CSD,” they wrote. “Since 2009-10 the state of New York through the Gap Elimination Adjustment (GEA) has taken over $29 million in aid from the district…. If we had precipitously moved to lay people off in response to this we would have had to eliminate over 80 positions.”
In all, district officials believed their handling of the unrestricted fund balance was prudent and in the best interest of the district and its students.
“With the tax cap, the district can no longer tax its way out of a problem,” Jenkins and McDonald wrote, “and state aid to education being inconsistent, the district needs to be fiscally conservative in its financial practices.”
The comptroller was unmoved by the district’s response, still insisting the behavior was inappropriate: “Appropriating unnecessary fund balance circumvents statutory controls, helps maintain excessive reserves and fund balance and diminishes the transparency of district finances to residents.”
The audit also raised concerns over several other reserve funds created by the district. These funds had several million dollars set aside, but were not being used for their designated purposes. Instead, the district had levied taxes that paid for those costs (retirement, liability, unemployment). By law, the reserves aren’t necessary, so the report questioned why the board kept them if they weren’t being used to pay the costs for which they were established.
The district is required to file its Corrective Action Plan (CAP) with the comptroller’s office within 90 days of the issuance of the audit. As part of the CAP, the district is expected to establish a multi-year action plan to estimate the future costs of ongoing services over the next three to five years; develop procedures to adopt “more realistic” budgets that keep taxes down; and create plans for its fund balances to ensure that the unrestricted fund balance stays within statutory limits, that reserve balances aren’t excessive and that they’re used appropriately and discontinued if necessary.
A copy of the CAP must also be filed with the New York State Department of Education and made available at the district office. If practical, by law, the plan is expected to be implemented in the next fiscal year.
The full report can be viewed at osc.state.ny.us/localgov/audits/schools/2016/baldwinsville.pdf.
