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Fund Balance

When Mr. William Lilly presented the independent audit report for the school district for the fiscal year 1999-2000 at the Oct. 17 board of education meeting, there was one area that generated apprehension: a small fund balance. New York State's guideline is a fund balance of 2 percent of the total budget, Mr. Lilly explained, which would mean roughly $1.4 million for this district, with a budget of approximately $71 million. Instead, the district is starting the year with just $381,000 as its fund balance. While this situation should not cause tremendous alarm, he said, it does have serious implications, like a need to formulate spending cuts, close monitoring, and a likely increase in the next budget to restore some monies to the fund.

Giving high marks to the district overall for fair representation of numbers, "the best report auditors can give," Mr. Lilly of Miller, Lilly, & Pearce, LLP, nonetheless raised the subject of the fund balance for discussion. The situation was not an overnight occurrence. The superintendent, Dr. Albert Inserra, explained that in 1998, they had recommended that the board of education return approximately $1.7 million to the taxpayers, and also retain $1 million in the fund balance. But that year, against the recommendations of the Administration, the school board added another $700,000 to tax support of the community, reducing the tax levy. In June of 1998, then, the undesignated fund balance was $323,379, Dr. Inserra said. (It should also be noted that in 1998 Richard Sussman voted against this action of the school board.)

A significant factor arose in 1998 when the County did not set the tax rate for each class (businesses, residents, etc.) until well after the school budget vote. Thus, when the school board worked on the budget, this crucial percentage could only be estimated. When the numbers were finally provided by the County, with the budget set and already approved by the community, the school board had to make a significant adjustment and added the $700,000. "We've been carrying a low fund balance since then," Dr. Inserra indicated in a 10/27 telephone conversation.

Another factor that contributed to the low fund balance was last year's bond failure. Paying the architect's fees, the facilities drawings, and related costs totaled roughly $450,000. Because the assumption was that these costs would be covered by the bond, they were not budgeted. As a result of the bond's failure, these costs had to be taken from the General Fund, lowering the balance further. Over the last four years, the fund balance has never been at the 2 percent level.

This year's unreserved fund balance, Mr. Lilly said, is $1.81 million. Of that, $1.5 million is being used to give back to the taxpayers. Thus, the current budget is extremely tight. "Over the long run, we feel it is better to retain some money, have a stable fund balance, than returning or giving additional money back each year," he said. Should heating oil prices skyrocket, for example, the fund might have to be tapped if the amount budgeted is exhausted. In response to former school board member Nancy Cowles' question about the reasons for having a large fund balance, Mr. Lilly said it was for "extraordinary things that could happen in the school district, that are beyond the board's control, or are unanticipated. The real reason for having a fund balance is when times get bad so we can handle them, without passing cost on to the taxpayer." Other repercussions of a reduced fund balance could be a low credit rating, which could lead to a higher interest rate on the upcoming bond.

Monies for a general fund budget can come from a balance carried over from the previous year, excess revenues, and from not spending the entire budget that voters authorized. School board members were quick to ask how the fund could be bolstered. "If the bond were to go up soon, some funds could go back to the fund, with a board resolution ... it could come off the top of the bond," Mr. Lilly answered. Board member Julie Meyer also said "we will have to watch our expenses and monitor spending closely." In a 10/27 telephone conversation, BOE President Richard Sussman indicated the district might have to cut back on educational programs, and postpone projects they had hoped to develop. "It also means a large increase in this year's budget, to make up the fund," he added.

If the fund has a negative balance, the situation becomes far more serious. "New York State could start knocking on our door like other school districts, with the State Education Dept. oversight of our finances," Mr. Lilly described. But if it remains low, "it is not a problem," he answered.


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