The state Comptroller’s Office issued a report last week that criticized the New Hyde Park-Garden City Park School District for overestimating expenditures by $8 million over a five-year period, resulting in a $6.3 million operating surplus called excessive by the state.
“Because the district overestimated expenditures in its adopted budgets, it experienced operating surpluses in each of those five years and did not need the appropriated fund balance included in each year’s budget,” the comptroller’s office report said.
The report, which covered a period beginning with the 2008-09 school year and ending with the 2013-14 school year, said the district reported surplus funds “that essentially complied” with the state’s 4 percent limit for unexpended surplus funds each year.
But, the report said, district officials transferred money to district reserves and “consistently appropriated” unspent funds to reduce the tax levy. Nearly $3 million of the district’s fund balance went unused over the five-year period.
“These practices gave the appearance that the district’s fund balance was within the legal limit when in effect it exceeded the limit each year. We also found that the district routinely funded its retirement contribution reserve with operating surpluses at year end, instead of funding the reserve through the annual budget process, which would have been more transparent to taxpayers,” the report said.
The report also questioned the “reasonableness” for the board’s “excessive funding” of the state retirement reserve.
With annual payments to the state employee retirement system averaging $395,000 over that time, “we question whether maintaining a reserve balance of $2.7 million, or almost seven times the annual average cost, is in the best interest of district taxpayers,” the report said.
During the five-year period examined, the report said, district officials overestimated employee benefit costs by $3.4 million, instructional costs by $2.9 million and general support by $1.2 million.
The comptroller’s report said school board and the district should “develop budgets that include realistic expenditures estimates based on contractual and historical data and discontinue the practice of appropriating unexpended surplus funds that are not needed to fund district operations.” The report also recommended the school board use unexpended surplus funds to pay off debt, finance one-time expenditures or reduce district property taxes.
Superintendent of Schools Robert Katulak and other school officials defended the surpluses at a school board meeting Monday night, calling them necessary to protect the district’s finances.
“The people on this board wanted to have reserves so we can spend $8.5 million,” Katulak said.
Katulak said the surpluses were intended to allow the board to move money into a reserve fund for capital improvements approved by district taxpayers.
Voters in the New Hyde Park-Garden City Park school district approved the release of the capital reserve fund of $8.5 million for infrastructure improvements to the district’s schools in a 2010 referendum.
In a statement he read at the meeting, Katulak said “Our board believes in making sure we do not deplete all our reserves by budgeting less than is originally required.”
New Hyde Park-Garden City Park school board President Ernest Gentile said the board will submit an action plan to the state Comptroller’s Office in 90 days and will publish the plan.
District residents at the meeting said they were troubled by the surplus.
“Everybody’s concerned that you have $6 million. My concern is that we’re never going to pass another budget. This is going to hurt the children,” said Maureen Bryant, a member of the district audit committee.
Resident Daniel Eisenberg questioned the board holding money in reserve for the state employee retirement service and not making its financial practices public.
“That message, that there was a surplus for five years, I would never have known that,” Eisenberg said.
Katulak said the board presents its annual budget in various forums on 12 different occasions. He said a surplus of $900,000 in the current budget is being allocated to the 2014-15 budget, which will allow the board to hold the 2014-15 tax levy increase to 1.64 percent.
“It’s not as if we were hiding it,” Katulak said.
Katulak said the comptroller’s office has cited other school districts for having what he called “healthy reserves.” He also cited the results of an external audit from R.S. Abrams in November that praised the school district’s financial practices
Chuck Scheid, manager for auditing firm R.S. Abrams & Co., praised the district for its financial condition and its record-keeping in the audit. He said the school district’s records are consistently in “excellent” condition and said the district had a strong financial position with a 3:22-1 ratio of assets to liabilities and an $8 million fund balance at the time.
School board Vice President David Del Santo said the state Comptroller’s Office had recently commended the New Hyde Park-Garden City Park School District for the way it handles its finances. That report cited the district with a “no designation” for financial stress, the highest rating possible.
“Six months ago the comptroller’s office said our finances are spot on,” Del Santo said. “Now they come and backhand us with their report.”
Del Santo said the school district was seeking to use its surplus revenues to address its capital needs to avoid increasing taxes.
“They were patting us on the back for those reserves,” said Michael Frank, New Hyde Park-Garden City Park assistant superintendent of business.
Frank said the board’s financial practices have been part of the public discussion at board meetings.
Del Santo suggested the board hold a public meeting to discuss the comptroller’s report with a representative from R.S. Abrams, the school district’s outside auditor.
“What needs to be disclosed to everyone is that state employee retirement rates aren’t disclosed before budget deliberations,” Del Santo said.
Frank said the large and unpredictable year-to-year increases in the state retirement funds prompted the surplus funding. The comptroller’s report noted that the school district had used $3.5 million in surplus funds to increase the retirement funds “without including those transfers in the budget process and without soliciting the approval of district taxpayers.”
Frank said the financial reserve was intended to cover the cost of potential retirement fund increases.
“The board gives authorization to fund the reserve up to five years of liability,” Frank said.
He said moving funds between different reserve funds is typically done without the community being informed.
The report said the district contributed “almost $2 million” to the state employees’ retirement system over the five-year period and appropriated $1.5 million from the retirement contribution reserve fund to offset the annual contributions to reserve fund.
Since the district was able to “restore and augment” the reserve with surpluses, “the district essentially did not use the reserve.”
