Audit faults schools on inflated reserves
Surplus funds tied to higher tax rates
Published: February 10, 2010, 7:44 am
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Many property owners across New York State paid higher taxes than they should have over the last five years because 250 school districts inflated their reserve funds by a total of $615 million, State Comptroller Thomas P. DiNapoli said Tuesday.
"We found that some school districts' budget processes routinely result in significant annual surpluses," DiNapoli said in a 46-page report. "That's money that could have been used to lower property taxes. Now more than ever, every dime counts."
DiNapoli issued the report as a summary of his five-year effort to audit all 733 public school districts in the state.
DiNapoli's audits highlighted numerous alleged problems in school districts in Erie and Niagara counties.
The comptroller said previously that the Kenmore-Town of Tonawanda School District accumulated more than $22 million that should be used to benefit taxpayers and that the Williamsville Central Schools had $8.9 million in excessive reserves that could have lowered taxes.
Officials in both Ken-Ton and Williamsville countered that their reserve fund practices were proper and wise, and they stressed that the state audits found no instances of financial irregularities.
"While recent budgets have generated surpluses averaging about 2 percent per year, the surpluses have been strategically reserved as part of a responsible plan to deal with current and future fiscal challenges in order to provide financial stability in an uncertain economic climate," said Ken-Ton Superintendent Mark P. Mondanaro.
Williamsville Superintendent Howard Smith said the district's long-term planning and prudent use of reserves are the reasons the tax levy has gone up an average of just 2 percent over the past four years. At the same time, he said, the district has been able to maintain its highly regarded academic offerings in tough fiscal times.
In Buffalo, a comptroller's audit said an "astonishing" lack of technology oversight was underlined by the discovery of pornography on a school system laptop computer issued to Board of Education President Ralph Hernandez.
Hernandez denied knowing anything about the pornographic images. Hernandez and Superintendent James A. Williams said DiNapoli chose to "appeal to prurient interest," when "a less-opinionated report would have still highlighted the issues the state wants addressed."
DiNapoli said that reserve funds are necessary and prudent but that $615 million in those reserve accounts statewide were "in excess of the liabilities that [school districts] would reasonably need to pay in the foreseeable future."
At the same time, he said that most of the state's districts "are managing their money the right way" and that the "overwhelming majority" of school officials are "honest, ethical and care" about quality education.
Many of the state's charter schools were not included in the reviews because of a 2009 court ruling that the State Legislature lacks the constitutional authority to require audits of charter schools.
David K. Albert, a spokesman for the New York State Association of School Boards, said the bulk of the $615 million cited is in designated reserve funds that can only be used for specific purposes, such as paying employees for unused sick time when they leave the district.
"The important thing is that the comptroller is actually proposing some solutions" to the complexities of the reserve fund system, Albert said.
The report released Tuesday urges the State Legislature to tighten controls on school budgeting and increase transparency. A key recommendation would require boards of education to approve any increases in reserve funds.
"Currently, in many schools, business officials transfer operating surpluses to the school's reserve funds without board involvement or the public's knowledge," the report said. In some cases, board members "were not aware of their districts' excess reserve funds," the report added.
DiNapoli also recommends that districts be allowed to establish "tax stabilization reserve funds" that could only be used to lessen or prevent projected property tax increases that would otherwise be above 2.5 percent of the tax levy needed to meet district expenditures. Money set aside in that fund would have to be spent within three years. The proposed legislation also would allow school districts to set aside reserve funds specifically for future retiree health care costs and retirement costs.
DiNapoli said his audits also turned up $140 million in missed Medicaid reimbursement, $25 million in improper contract payments, nearly $18 million in fraud at 19 school districts and $49.4 million in non-competitive contract awards.
Local school districts with reserve fund surpluses
| District | Surplus |
| Kenmore-Town of Tonawanda | $22 million |
| Lockport | $9.4 million |
| Lancaster | $9 million |
| Williamsville | $8.9 million |
| Niagara Wheatfield | $8 million |
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