(The following was submitted by the Manhasset School District.)

The New York State Education Department Budgeting Handbook states that "Managing fund balance can be one of the most difficult tasks of the budgeting process, since budgets are estimates of expenditures and anticipated revenues for a future fiscal period. Reasonably accurate estimates of year-end fund balances are essential to the budget preparation process since the amounts available can have a material effect upon the estimated real property tax rates." The handbook also states "Establishment and funding of reserve funds should be given careful consideration in the overall financial plan for any school district."

The Reference Manual for Audits of Financial Statements of NYS School Districts advises school districts to maintain a reasonable level of fund balance. The amount should be sufficient to permit the district to address shortfalls in revenue or unanticipated expenses. In recognition of the need to provide school districts with the ability to address shortfalls in revenues or unanticipated expenses, Real Property Tax Law Section 1318 was amended by the Laws of 2007 to increase the limit placed on school districts' allowable unreserved, undesignated fund balance from 2 percent to 3 percent of the budget for the 2007-2008 school year and from 3 percent to 4 percent of the budget for the 2008-2009 school year.

In the next several months, the district will seek to refinance its prior debt issuances, issue the second portion of its 2007 bond referendum, issue tax anticipation notes, and seek funding for its energy performance contract. The ability to obtain financing at favorable rates is critical to the long-term fiscal stability of the district. Fund balance management, including the unreserved, undesignated fund balance, is a key component to achieving favorable rates. The district's financial advisor has stated the district's credit rating, currently Aa1, is of extreme importance due to the current turbulence in the municipal bond market. He and the district's external auditor have both advised that rating agencies look to proactive management of total fund balance as a key component in the rating process. Stability of fund balance in the range of 12 percent to 18 percent of budget is most desirable. The district's fund balance to budget ratio at June 30, 2007 was 13.3 percent, its lowest ratio since 2002. In the absence of any other changes, the increase to 4 percent in unreserved, undesignated fund balance will restore the ratio to its previously higher levels. This is an important level as the district goes to market.

With respect to fund balance appropriations, which is the portion of the unreserved general fund balance that is used for tax reduction in the next fiscal year, Moody's report affirming the district's Aa1 rating, dated July 25, 2007, states: "Moody's expects the district's strong financial position to continue to benefit from a trend of structurally balanced operations and conservative budgeting practices, including decreasing fund balance appropriations [used to reduce the tax levy]......Fund balance appropriation has declined significantly in recent years, from a peak $1.5 million in 2004." Fund balance appropriated to reduce the tax levy in 2008 was $700,000, and, consistent with Moody's observation, the same amount is planned for 2009.

As Moody's affirmation report goes on to acknowledge "The district's financial position may be negatively impacted by the results of outstanding litigation which carries a significant potential liability. Management expects to pay any settlements with current set-asides and additional borrowing if necessary." The district's financial advisor stated that, while New York State is one of the few states that permits borrowing to cover judgments, such borrowing can have a negative impact on the district's credit rating. In February 2006, a plan for short and long-term management of the district's reserves was presented to the board of education. One aspect of this plan, executed at the end of 2006, addressed the litigation liabilities against the district through the establishment of two reserves, the Insurance Reserve and the Liability Reserve. Although the district continues to vigorously defend these litigations, prudent use of reserve funds authorized by law for such reasons will continue to protect the taxpayers from the fiscally negative effect of a reduced credit rating.

Although some residents in the district have advised in the Manhasset Press to make a 100 percent return of reserves to the taxpayers, the district demurs and has chosen to follow the advice of its financial advisors and the observations of Moody's Investment Service, to protect the district's taxpayers. In the end, it is Moody's who will rate the district's financial management and establish its bond rating.