School reserves: how much is enough?

School reserves: how much is enough?

DUNDEE—Dundee School Board President James Koehler said the projected total of the school district’s reserve fund balance is $11 million, with a total unrestricted reserve of $1.7 million. As the school board looks at a budget for 2013-14 that currently contains a tax levy increase of 6.4 percent, Koehler explained why the district holds money in reserve, where the money comes from and what money can be used to influence the tax levy.
“We approve the budget for next year before this year is done,” Koehler said. “We have a pretty good idea of how the state funding is going to go, but a few things can happen. They can change it at any time, even if we are already into the start the school year they can change what they will give us.”
Koehler said the school puts away money left over at the end of the year into reserves to account for any surprise expenses or dips in state aid.
“We are making a budget at a period of time where there are lots of unknowns,” Koehler said. “If we have excess, and that could come from the revenue side or the expense side, sometimes we do get more money than anticipated. What are we going to do with those funds that are leftover? They can be applied to reduce that tax levy, which we have done the past couple of years. We have tried to keep the tax levy as even as possible and as low as possible. Or we can reserve some of those funds.”
Koehler said not all reserves can be used to lower the tax levy, saying some are restricted for a specific purpose.
“Each reserve is handled differently,” Koehler said. “Say a school bus reserve, we have to have voter approval to create the fund, we have to have voter approval to take money out of the fund and when we have money left over at the end of the year we can put money back in there. What that does for us then is right now we are working on the 2013-14 budget, we don’t have to put in this year’s budget school buses at $100,000 each because we know we can buy it out of this reserve fund.” Koehler said the last school bus fund the district had was for $1 million.
Koehler said the largest reserve fund is called EBALER, which deals with employee expenses and totals more than $3 million. He said teachers can bank sick days they do not use, and when they retire they can use the values of those days to buy health insurance. Since the board is unable to predict how many retirements will come in a given year and since when an employee does retire the money has to come out of the current year’s budget, Koehler said having money in reserves avoids having those surprise expenses, which helps keep taxes even.
Koehler said there is also a capital reserve fund for buildings at $1 million, which he said is almost completely from fund balance left over at the end of the year. He said it greatly reduces the overall cost of repairing or constructing a building because having money in reserve keeps the school from having to borrow money in the middle of a year to complete a necessary project.
Koehler said reserve funds like these are restricted uses, which only allows the money to be spent for each specific purpose. He said the school also has $1.7 million in unrestricted funds like the $600,000 unemployment reserve and appropriated accounts for future projects, which can be used to lower the tax levy. Koehler said the school has been using these funds to keep the tax levy increase at 0 percent the past two years, even though the budget has been passed with a levy increase. He said between when the budget is approved and when the bills are actually mailed out, the school has discovered they had more money than anticipated which allowed them to keep the levy increase down.
“Dundee is very, very fortunate that we have these,” Koehler said. “If we didn’t, first off taxes would go up and down a lot more, plus they would be higher for local property taxes. The biggest part of our budget is state funded, and of the $14 million overall budget, $4 million of it is from local property tax.”
Koehler said the main reason why the board does not automatically apply unrestricted reserves to the tax levy while coming up with the budget is because they want to prepare the school for as many unknowns that could occur as possible. He said if they did automatically apply their reserves, there would be two or three years of zero levy increase and then taxes would skyrocket.
He said the state has a limit on how much a school district can hold in reserve, saying it is 4 percent of a school’s total budget. Yet, according to a review conducted in November, Dundee had $900,000 more than what the state said was allowable.
“While the size of a school district might raise a question of the appropriate amount of adjusted, unrestricted fund balance, Real Property Tax Law section 1318 statutorily sets the limit at four percent of the subsequent year’s budget,” said Tom Dunn, director of communications at the New York State Education Department. “Approximately 120 districts [across the state]  were estimating their adjusted, unrestricted fund balance to be greater than four percent. A resident of the district who believes they have been aggrieved by the district’s action may appeal to the commissioner of education for a review of such action. In addition, the comptroller’s office, in its audits of public school districts, has cited those districts that exceed the statutory limit.”
However, Koehler said the school has actually received good scores in the audits from other entities, saying they have received praise for their savings practices. He said the reserve funds help keep the district afloat, and it is worth the slap on the wrist from the state than to have to go out and borrow money for unexpected expenses.
Koehler said he actually advocates raising property taxes slightly soon in order to avoid a large levy hike in the future like was seen in Yates County for their 2013 budget. During a budget workshop meeting held Thursday, Feb. 21, the board said they were comfortable looking at savings that would bring the 2013-14 year budget down to a 2 percent tax levy increase instead of holding it at zero.
Koehler said in the nine years he has worked for the district, there has always been some kind of fund balance at the end of the year. However, he said in the next two to three years the district will probably start seeing year end deficits, which is why the board is trying to prepare for such worst case scenario situations.