Comptroller finds Chatham’s reserves far exceed limit

CHATHAM—An audit of the Chatham Central School District by the state Office of the Comptroller finds that over the last five years, the district’s real property tax levy was about $400,000 more than necessary.

School district officials dispute that finding, saying the funds have been handled properly based on the opinion of the district’s outside auditor school district policies aimed at cushioning cuts in state aid.

The period covered in the report is July 1, 2013 to March 11, 2015. Property taxes increased by an average of 2.7% each year from the 2009-10 ($17.4 million) through 2013-14 ($19.3 million) fiscal years, says the report.

The $400,000 was more than necessary, says the report, because district officials overestimated liabilities by more than $1.5 million and over-funded reserve funds by more than $1.4 million.

The state law allows a Board of Education to retain up to 4% of the ensuing year’s appropriations as an unrestricted fund balance. The money is supposed to serve as a financial cushion in the event of unexpected expenses.

But with a combination of unused funds and reserves, the comptroller’s audit says Chatham’s total fund balance was 14% of its 2014-2015 budget. The budget that year was $29.4 million and the Unrestricted Fund Balance was $4.1 million.

In a response letter signed by board President Melony Spock and Superintendent Cheryl K. Nuciforo the district respectfully but firmly disagrees.

For example, the state comptroller’s office recommends that the district develop a plan for the use of excess fund balances and reserve funds “in a manner that benefits district taxpayers.” The district could reduce taxes, increase other reserves, pay off debt or finance one-time expenditures.

In its response, the district writes, “… the School District’s long-range plan benefits taxpayers and students for the long term. Because State Aid has not kept up with cost increases in recent years, the district has utilized reserves and fund balance in the budget to reduce property tax increases.”

The response also notes that the district has developed a plan to use a budget surplus due to one-time revenues to fund a capital reserve, and in the 2013-14 school year the District spent over $200,000 for one-time computer purchases using those reserve funds.

In its response to the district’s response, the comptroller’s office notes, “District officials did not provide us with information to support the reasons why they believe the funding levels in the reserves were necessary.”

Ms. Nuciforo and Ms. Spock concluded the district’s response, writing that “… the District does not believe that the purpose of the Comptroller’s Audit should be to substitute their judgment for that of the Board of Education and its administration in terms of overall financial management for the District… . While we respect the Comptroller’s opinions as to appropriate reserve levels, we strongly feel that our approach has and will continue to provide the best possible education for our students in a fiscally responsible manner.”

But in the back-and forth on the audit, the comptroller’s office accuses the district of a lack of transparency in its budgeting and reserves.

Ms. Nuciforo noted this week that the district has 90 days to prepare a response plan and would do that by stating “what we’re going to do, or not do, and why.”

“This coming year the tax cap is at or just above zero,” said Ms. Nuciforo. “It has to do with inflation. The district may have to go into its reserves, or not. But if we get two or three years of a zero tax cap, we will need to go into reserves.”

The district does have only the allowed 4% in unallocated reserves, said Ms. Nuciforo. The other 10% of the funds identified by the comptroller are allocated, in part for “accrued liability.”

She added, “You set aside money that you know you need to spend in the next year. The district’s outside auditor said this was allowed.”

The comptroller’s office and the district had a difference of opinion, Ms. Nuciforo said, which is not the same as the district having made a mistake.

The other allocated reserves have to do with retirements. The district has five different unions, said Ms. Nuciforo, and upon retirement some employees may receive cash for unused sick time. In fact, the district was in the process of changing its reserve system for retirement benefits on the advice of its own auditor, she said, when the comptroller’s office did its audit.

“If you take out those two funds, that’s the majority of funds that the comptroller was talking about,” said the superintendent. Further, she said, “For a lot of things that they said we did wrong, there is no legal requirement about how much can be in a reserve.”

The district will be changing its reserve for tax certiorari–the money needed for adjusting tax bills. It had been keeping a reserve for any instance in which a property owner successfully grieved an assessment and was due a refund. But the comptroller’s office said the reserve may be used only for court cases, not for administrative reviews, which, when successful, must be taken out of a district’s operating budget.

And finally, both Ms. Nuciforo and Ms. Spock said that maintaining reserves leads to a financially healthy district. “We’re retaining opportunities for students,” said the superintendent.

“We’re very open about the reserves, and it’s important to have them,” said Ms. Spock. “Otherwise we’ll have to make important decisions that would affect the students.”

In December 2013 the Germantown Central School District was found by its own outside auditor to have—in addition to an operating surplus of $602,000 and $1.1 million in restricted reserves—$2.5 million set aside “for no specific purpose.”

The Germantown District had reached that point by the board’s consistently overestimating expenses and underestimating revenue in its budgets, auditor Raymond G. Preusser said. “You’re taxing unnecessarily,” he said. The comptroller’s office audit came to similar conclusions about the Chatham District.

In Germantown, the school board used its surplus for tax relief—a 0% tax increase for two years—and a capital project.

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