Legislation Introduced To Aid School Districts’ Financial Reserves

Joe Giglio

Assemblyman Joe Giglio, R-Gowanda, has introduced legislation in the state Assembly that could make it easier for small school districts to stockpile financial reserves.

Giglio’s legislation, A.5645, would amend the state’s Real Property Tax Law to allow schools with fewer than eight teachers, districts with budgets less than $5 million or enrollment of less than 1,500 in the previous school year to hold 10 percent of their operating budget in reserve rather than the 4 percent they can hold now.

“Currently, school districts are only allowed to retain 4 percent of the current school budget in unreserved, unappropriated fund balance,” Giglio said in the legislative justification for his legislation.

“This cap greatly restricts the ability of small school districts to plan for the future and give them the flexibility they need to meet unforeseen challenges.

This legislation would alleviate this problem for small school district by allowing them to retain 10 percent of the current school budget in unreserved, unappropriated fund balance.”

The legislation’s limit of a 1,500 student enrollment would mean that every school district in Chautauqua County except for Dunkirk and Jamestown would be allowed to increase their reserves. According to the most recent School Property Tax Report Cards posted by the state Education Department, Bemus Point, Brocton, Clymer, Falconer, Fredonia, Frewsburg, Panama, Pine Valley, Randolph, Sherman, Silver Creek, Southwestern and Randolph have unrestricted fund balances more than 4 percent of their operating budgets.

Some of those districts have been chided by the state Comptroller’s Offices for their fund balance amounts, including Cassadaga Valley, Fredonia and Westfield in 2018, and Clymer and Panama in 2016.

District officials in each case cite uncertainty with state aid as reasons for the excess fund balance, while Panama officials also noted uncertainty of take-back provisions relating to its $4.9 million state find for failure to submit final cost reports at the end of building projects was a reason the district was holding excess reserves.

Clymer’s response was also interesting with the benefit of hindsight.

The district has seen its initial budget proposal defeated in each of the last two years, with district administrators trying not to exhaust the district’s fund balance to quickly in efforts to limit hefty tax increases.

“The district understands the statutory limitations on fund balance and is aware that the fund balance is in excess, however, due to the volatility of state aid since the inception of the Gap Elimination Adjustment introduced in 2010 and the tax cap legislation, the district was motivated to protect the district financially in anticipation of survival in the future.”

Clymer’s unrestricted fund balance going into the 2019-20 school year is $869,104, or 7.12 percent of its operating budget.

But, Clymer was close to exhausting its fund balance by spending $357,192 from the surplus to bring the 2018-19 tax levy increase from 13 percent to 4 percent so that district voters would approve the budget when the board held a second vote on the spending plan. If not for “significant savings” during the current school year of almost $800,000 due to numerous staff positions not being filled and conscious decisions by the district, Ed Bailey, district superintendent, has said the fund balance would have been depleted already.

In addition to uncertainty with state aid, Cassadaga Valley officials response to the Comptroller’s Office also stated the district expected to be in compliance with the 4 percent limit on fund balance by June 30, 2018, while noting the challenges districts face while putting budgets together each year.

“School districts face significant challenges with the uncertainty of school aid, continued unfunded mandates and increases in employee benefit costs,” William Carlson, school board president, wrote in the district’s response.

In addition, current retirement system contribution levels are based largely on a record run in the stock market and will once again increase when the market inevitably enters into a correction. The district has conservatively approached the budget process in the face of these challenges to ensure, to the extent possible, that the district’s educational program will not be disrupted by budgetary shortfalls and that the district’s taxpayers will not be subjected to wildly fluctuating tax rates.”