Three Long Island school districts — Levittown in Nassau County, and Montauk and South Huntington in Suffolk — should not have built up multimillion-dollar budget surpluses, state auditors said in separate reports released last week.
South Huntington’s superintendent, however, took issue with the findings by auditors from state Comptroller Thomas DiNapoli’s office, saying the district was being criticized for exercising careful spending under the limit of the state-imposed tax cap.
The charge of excess budgeting, which auditors have noted in reports on about 20 districts on the Island since January 2014, annoys 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 tax caps that increasingly limit districts’ ability to raise revenue from local property taxes. 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.
In the report on South Huntington, which covered July 2014 through December 2015, auditors said the school board and district officials overestimated general fund appropriations in the last three adopted budgets, resulting in operating surpluses totaling approximately $10.6 million. The district’s unrestricted fund balance during those years exceeded the statutory limit, the report said.
District officials designated more than $3 million of unrestricted fund balance for costs related to other post-employment benefits each year, but did not use the funds to make related payments, the report noted. Based on projections made by the district’s actuary, the workers’ compensation reserve was overfunded by $1.4 million, it said.
Superintendent David Bennardo, in an interview, said, “While we always welcome feedback and are very sensitive to any recommendations that can help us better serve the public, this report is particularly frustrating because it represents a troubling double standard.”
He noted that the district remained within its prescribed tax cap, which for 2016-17 was .10 percent — equal to the system’s limit.
School officials carefully managed the current budget not to cut programs while “judiciously using portions of that same savings that the comptroller so vociferously criticizes in the report,” he said. “We call that wise and careful planning, and the report paints a very different picture.”
The auditors recommended the district stop adopting budgets that result in the appropriation of fund balance that will not be used to pay for operations.
Bennardo said district officials “have every intention of gradually reducing our reserves and minimizing year-to-year fund balance, and have acted accordingly before the auditors visited our district.”
The report on Levittown’s operations said school officials must ensure that reserve funds are governed by board resolutions or policies that include the reasons why money is being set aside, financial objectives for the reserves, optimal funding levels and the conditions under which each reserve fund will be used. The audit covered from July 2014 through December 2015.
The district had five reserves, with a balance totaling about $38.3 million as of June 30, 2015. District officials provided board resolutions establishing four of the reserves, but were unable to locate a resolution establishing the unemployment insurance reserve, auditors found.
That reserve had a balance of $2.9 million on June 30, 2015 — a figure that auditors said could cover unemployment insurance costs for more than 27 years.
In addition, the district paid for unemployment insurance costs totaling $320,912 over the last three fiscal years by including appropriations in the budgets instead of using money from the reserve fund, the report found.
The district also had established an employee benefit accrued liability reserve fund, which held about $6 million, which it does not need, the report said.
Levittown school officials, in a written response, said the district will move some reserve funds and use the money to improve and maintain district facilities.
In Montauk, auditors found that school officials overestimated appropriations in the adopted budgets from 2012-13 through 2014-15, resulting in a cumulative operating surplus of about $1 million. The district’s unassigned fund balance during those years exceeded the statutory limit, said the report, which covered July 2012 through December 2015.
The audit also found that district officials appropriated nearly $2.8 million of fund balance in the annual budgets but did not use approximately 94 percent of that amount. District officials had not developed formal, specific reserve plans, auditors noted, adding that the district had not developed long-term financial and capital plans.
The audit recommended that Montauk use its surplus to pay for one-time expenditures, fund needed reserves and reduce property taxes. The district should ensure that the district’s unassigned fund balance complies with statutory limits, the report said.
Montauk Superintendent J. Philip Perna said, “We feel that we have budgeted very responsibly, but we will certainly follow through with the audit report’s recommendations.”