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School district audit spotlights practice of building up surpluses

Franklin Square school officials, like colleagues in many other Long Island districts, built up budget surpluses totaling millions of dollars over multiple years, according to a report issued Thursday by state auditors.

The report spotlighted what monitors in Comptroller Thomas DiNapoli’s office describe as a frequent issue — school districts that accumulate excess cash by overestimating expenses year after year.

A smaller number of state audits, including one on the West Hempstead system that also was released Thursday, have found districts struggling financially where cash reserves were deemed to be too low.

Under state law, districts are legally limited to unrestricted fund balances, also known as “rainy day” funds, of no more than 4 percent of annual budgets.

The charge of excess budgeting rankles many school administrators in Nassau and Suffolk counties, who say they must maintain financial cushions to preserve student programs and small class sizes in an era of fiscal uncertainty. Those administrators point, in particular, to state-imposed tax caps that increasingly limit districts’ ability to raise revenue from local property taxes.

In Franklin Square’s case, state auditors found that the district maintained unrestricted fund balances of between 18.95 percent and 19.65 percent of total budgets from the 2012-13 through the 2014-15 school years.

The amounts of those funds ranged from $6.7 million to $7.2 million annually.

Excess cash accumulated, auditors reported, because the district consistently overestimated costs of payrolls, fuel oil and other items. For example, auditors found that cost projections of employee services were more than $700,000 too high in each year reviewed, though such costs were mostly spelled out in union contracts.

“Overestimating expenditures results in taxes being higher than necessary,” the auditors stated.

Franklin Square enrolls about 1,840 students and operates on a budget of about $36.7 million.

Superintendent Patrick Manley responded that his district recently moved to reduce its unrestricted funds by winning voter approval to establish a capital reserve. That, he said, will allow the district to renovate schools and make other improvements without raising taxes.

“The Franklin Square Union Free School District prides itself on our proven track record of enhancing the educational program for our children while keeping taxes low for our community,” Manley wrote in his response.

DiNapoli’s office noted that the issue of surplus funding is persistent. Franklin Square is the latest of 17 districts on the Island alone that auditors have cited since January 2014 for overestimating costs and maintaining excessive reserves.

“Unfortunately, it’s a subject that continues to come up, not only on Long Island, but across the state,” said Brian Butry, a spokesman for the comptroller.

The widespread practice of overestimating expenses misleads local voters, who are asked to approve districts’ spending plans in May of each year, state auditors have noted.

Fiscal approaches vary widely from one district to another, however.

Another report released Thursday found that the Malverne district generally managed its reserve funds effectively, though its approach was termed “overly conservative.”

State auditors checked the district’s seven reserve funds and concluded that one of those, covering unemployment insurance, was excessive in size.

Malverne Superintendent James Hunderfund responded that the district would transfer excess money out of the unemployment reserve to keep within statutory requirements. The district, which enrolls about 1,700 students, has a $53.5 million budget.

In West Hempstead’s case, auditors reported that district reserves had decreased by almost $2.1 million, about 45 percent, over three years. Auditors added that the trend suggested the district might be headed toward fiscal challenges.

West Hempstead — which has about 2,120 students and a $59.5 million budget — drew down reserve funds in large part because of dwindling tuition revenue from the nearby Island Park district. Island Park, which serves children in prekindergarten through eighth grade, once sent all of its older students to West Hempstead High School, but decided in 2008 to give students a choice between there and Long Beach High School.

John Hogan, superintendent of West Hempstead schools, responded that a boost in state financial aid for the 2016-17 school year allowed the district to reduce dependency on cash reserves. He predicted the budget would continue stabilizing in future years.


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