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Audit: Middle Country school district piled up millions in surpluses

Middle Country School District Superintendent Roberta Gerold in

Middle Country School District Superintendent Roberta Gerold in her office in Centereach on June 29, 2016. Credit: Ed Betz

State auditors have accused the Middle Country school district of repeatedly overestimating costs of employee benefits and other expenses from July 2012 through November 2015, by amounts ranging from $16.2 million to $18.3 million each year.

The audit drew a heated response from district administrators, who said they are protecting student programs and have no intention of changing course.

The dispute between Long Island’s third-largest school system and Albany’s fiscal watchdogs is just the latest in a series that have arisen across New York over the question of how local educators should cope with tight state cap limits on taxation and spending.

State Comptroller Thomas P. DiNapoli’s office issued findings Wednesday that Middle Country maintained cash surpluses well beyond legal limits, even though its bookkeeping showed dwindling reserves.

Middle Country’s accounting practices were all the more questionable, auditors contended, because they had warned the district once before — in 2009 — that its budget surpluses had grown too large.

State auditors concluded that the local school board “has not adopted reasonable and structurally balanced budgets.” As a result, auditors said the district should draft plans to use surplus funds in a constructive way — for example, by reducing property taxes.

State law limits districts’ “rainy day” reserves, technically known as unassigned fund balances, to no more than 4 percent of total budgets. The comptroller’s office calculated that Middle Country’s reserves amounted to between 5.6 percent and 5.7 percent of budgets over three years, though the district’s math indicated 4 percent.

Middle Country officials showed no sign of backing down. Superintendent Roberta Gerold, in a response letter, contended Albany was unrealistic in expecting her district to draw down reserves at a time when the state limits yearly hikes in property taxes to well under 1 percent.

Gerold added that the district could not change what she described as “realistic” budgeting without jeopardizing important programs, including full-day prekindergarten classes and technology training for older students.

She suggested that the state’s demands for lowered reserve levels in the face of fluctuating tax caps was “shortsighted and indicative of fiscal irresponsibility.”

Middle Country enrolls nearly 9,800 students in Centereach, Selden and Lake Grove. The district’s budget for the 2015-16 school year was $235.8 million.

Controversy over budget surpluses is growing statewide, with taxpayer groups charging that districts build up reserves in large part to provide bigger contract raises for employee unions.

Many school leaders have replied that the state follows an unrealistic “Goldilocks” approach — not too hot, not too cold — in trying to fine-tune the amount of money that districts can set aside as a hedge against tax caps.

The baseline state cap is 2 percent or the annual inflation rate, whichever is lower, and can fluctuate greatly from one year to the next.

Middle Country is the latest of 15 districts in Nassau and Suffolk counties cited for maintaining excessive reserves in comptroller’s reports issued since January 2014. Babylon and Huntington were written up in March for overestimating expenses in repeated budget cycles, leading to surpluses that could have been used to hold down taxes.

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