Riverhead School District

Riverhead School District surplus: Smart budgeting or overtaxing?

Since 2009, the Riverhead School District has significantly underspent its approved budget at least five times, amassing more than $30 million in surplus funds that have been used to relocate the district’s bus barn and complete repairs at district buildings, while also helping to keep the tax levy below state-mandated maximums.

School officials have called this “conservative budgeting,” which they say facilitates much-needed improvements and enables the district to avoid shortfalls due to unanticipated expenses.

Critics, including one vocal community member who has repeatedly opposed the district’s reserve plans — specifically a $7.5 million repair reserve fund measure on the ballot this month — call it “overtaxing.”

“I feel they’ve been overtaxing us for years,” said Sal Mastropaolo, a retired IBM employee and school board watchdog who attends most meetings. “They take the surplus that’s left over and they put it in their funds. My feeling is, if they wind up with surplus at the end of the year, that should be used the following year to offset the tax increase.”

School officials want to make it clear that some of those reserves are being used to offset tax increases. In this year’s budget, the district applied $2.3 million in fund balance and reserves — down from $3.29 million a year ago — to ensure that its $130.6 million proposed spending plan kept the anticipated tax levy hike at the 3.77 percent limit allowed under state law.

But an analysis of proposed versus actual spending since 2009 shows the district often ends up with a surplus exceeding $5 million. Take, for example, the 2012-13 school year, when the district proposed a nearly $112 million budget and increased the tax levy — the amount raised from taxes — by 1.73 percent. It actually spent just over $105 million that year — less than it had proposed to spend not only for that school year, but for each of the three previous years as well. Despite having amassed more than $17.5 million in surplus funds over that four-year stretch, the district still underspent the 2013-14 budget by $7.8 million. The proposed tax levy increase for that school year? About 3.82 percent.

While Mr. Mastropaolo said he feels the district should keep the appropriated fund balance at even levels and lower the tax levy even more by using surplus from year to year, deputy superintendent Sam Schneider said tax levy increases are necessary to maintain an appropriate fund balance.

“If you continue to appropriate funds out of the reserves at the level we did this year, we will be without funds in, I’d say, two years,” Mr. Schneider said at the April 19 Board of Education meeting. “That is a very dangerous position to be in financially, and that is what causes financial instability in a district.”

The office of the New York State comptroller monitors fiscal stress within school districts, issuing a statewide report annually. Year-end fund balances and operating deficits and surpluses are among the factors used to determine stress within a district.

In 2015, Riverhead was placed in the “susceptible to financial stress” category, the lowest of three stress categories but enough to earn a designation. In 2016, the district narrowly avoided the designation for a second consecutive year, according to the comptroller’s analysis.

Ms. Carney at last year’s Riverhead High School graduation. (Credit: Katharine Schroeder)

School district Superintendent Nancy Carney said at the time of the 2015 designation that it was caused by a transfer from a reserve to a capital fund that gave the appearance of a budget deficit to auditors. In reality, the district surplus nearly topped $6 million in the 2014-15 school year.

Between 2009 and 2015, the most recent year for which actual spending reports are publicly available, the Riverhead School District spent 4 percent less overall than it proposed in its approved budgets.

Mr. Schneider said that’s prudent planning, adding that the district needs to prepare not only for the upcoming school year, but also for future budgets in order to eliminate “spikes,” where tax rates go up and down from year to year.

“You need to have a certain fund balance in order to be fiscally responsible, because we don’t know what additional costs may arise,” Ms. Carney said. “You don’t want to be in a situation, which some districts have been in, where you don’t have enough reserves in fund balance.”

Ms. Carney said spikes in enrollment, the arrival of special education students who are sometimes very costly to educate, or other unexpected items can lead to unplanned cost increases.

The district’s enrollment has increased by 600 students since 2009, according to Ms. Carney. During that same time, she said, the number of English Language Learners increased by more than 1,000 students and the number of special education students increased by 281.

In a statement this week, Ms. Carney said she’s “grateful to the taxpayers for their support of our budgets in the past and I am grateful to the Board of Education for their tireless advocacy on behalf of the students of this district. [We have] never pierced the property tax cap and the voters have recognized that by endorsing our budgets. I encourage members of the community with questions about the budget to contact me directly.”

Currently, Riverhead has reserve funds covering a range of areas. The employee benefit accrued liability fund, for example, deals with unused employee sick or vacation time. Other reserve funds include the employee retirement system, unemployment insurance, workers’ compensation and transportation and athletic fields. The board must pass a resolution stating how much they are putting into each reserve fund in June and another stating how much they are taking out in October. These reserve accounts are all permitted by state law.

Administrators stressed the importance of getting voter approval on May 16 for the $7.5 million repair reserve fund referendum, saying that less than $1 million remains from two previously approved funds.

In order to spend money from the repair reserve fund, the Board of Education must first identify the projects it intends to pursue. A public hearing is required and the board must then pass a resolution authorizing use of the repair reserve funds.

Riverhead school district deputy superintendent Sam Schneider, right, talking with Superintendent Nancy Carney during the school budget vote in 2013. (Credit: Barbaraellen Koch)

District residents have overwhelmingly supported similar repair reserve referendums in the past. In 2011, a $5 million repair reserve fund was approved by 69 percent of voters. In 2015, when a second $5 million repair reserve fund was placed on the
ballot, 63 percent voted in support of it.

At the March 28 Board of Education meeting, Mr. Schneider said just $736 remains in the 2011 reserve and $824,289 in the 2015 reserve. If voters approve the current proposed referendum, the prior accounts will be closed and their balances will be moved into the new $7.5 million repair reserve, Mr. Schneider said.

Mr. Mastropaolo took issue with the referendum when it was announced earlier this year.

“It’s been only two years since 2015 and $7.5 million is a lot of money,” he told administrators and school board members.

Mr. Schneider said construction costs have risen in the past two years and cautioned that if the board sought a third repair reserve of only $5 million, it would be seeking additional money from voters “fairly soon.”

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