northport-east northport schools board of education dr. marylou mcdermott superintendent of schools...

Conserving Today,Protecting Tomorrow

Analysis of the NYS Comptroller’s AuditOctober 2014

Northport-East Northport Schools Board of Education

Dr. Marylou McDermottSuperintendent of Schools

Kathleen MolanderAssistant Superintendent for Business

Careful Attention to Taxpayer Resources

There are few things the Board of Education and District Administration take more seriously than the trust taxpayers place in us to make sound decisions with precious financial resources.

We are legally responsible for safeguarding the District’s financial resources .

Philosophy of Budgeting

Conserving Today and Protecting Tomorrow

• The District begins the budgeting process by projecting student enrollment and examining prior year’s expenditures

• The District reduces spending and manages its budget aggressively, wherever possible, while still maintaining and/or enhancing District programs

• When the District is successful in under-spending, the savings realized are used to lower the tax levy and fund the reserves

The District’s Record

Adopted budgets for 6 years with tax levies under 2%Prudently utilized reserves when appropriateReplenished reserves when feasible Maintained staff and programsMaintained class sizeEnhanced programs (AIS, Balanced Literacy, Go Math, Labs)Improved or enhanced facilities Infused Technology (Smart Boards, netbooks) Reduced positions through attritionExecuted Energy Performance Contract

Our Moody’s Aa2 ratings have been consistent over the years, and

Moody’s Investors Service has repeatedly commended the District for its

use of funds and financial flexibility.

That translates to lower borrowing costs.

Moody’s Investors Service

The District’s Greatest Challenge

LIPA/National Grid Tax Cert is Pending• Taxes Could Spike Dramatically

• Programs and Class Size Could BeSignificantly Affected

• Tax Cap remains challenging

So it is critical that we maintain our financial health and flexibility to secure our future!

Appropriately funded reserves will help ease the financial challenges that the tax cert could impose.

The NYS Comptroller’s Audit makes no mention of the LIPA/National Grid Tax Cert or

the ongoing challenges of the tax cap. These omissions seem odd, since we believe it is critical to have this context in place when

making decisions about building our budgets and funding our reserves. The future matters!

In other words, Our Philosophy of Budgeting Takes Into Account our Local Needs and as

noted by Moody’s is Acknowledged for Its Strength

The Comptroller’s Audit Does Not Consider Our Local Needs and Concerns

We will examine the basic concerns and recommendations of the audit.

But first, please know that:

• We have always complied with the law.• No malfeasance or criminality is suggested.

• No monies have been misappropriated.

NYS Audit Concerns…

… That overestimation of expenditures occurred from 2008-2013

…That the district has an ‘assigned fund balance’ while operating in a surplus

… That the balance in the Retirement Contribution Reserve is too high

The NYS Audit Stated the District Overestimated Expenditures in:

Special Education • Benefits • Debt Service

There are sound reasons:

• Significant cost fluctuation can occur after budget adoption

• Additional students enrolled in 2013-2014 after the budget was adopted; $700,000 in unanticipated expense

• Infusion of one-time Federal grant money in 2009-10 was used to pay special education staff, which generated a surplus in the general fund




• Health benefit increases not announced until January of following year

• This is six months into our fiscal year

• Estimates are highly conservative and often will result in overestimation of actual expenditures.




• Negotiations spanned multiple fiscal years and budget cycles

• Anticipated settlement monies were budgeted in benefit and debt service codes

• Preserves the integrity of negotiations

The assigned fund balance is monies generated in the current budget to apply to the following year’s budget to lower the tax levy.

The District has had an assigned fund balance for more than 30 years.

Only a handful of the 126 districts on Long Island do not have an assigned fund balance.

The District has reduced its assigned fund balance by $950,000 over the last two years.

The administration will continue to recommend to the Board that the assigned fund balance be further reduced.

Assigned FundBalance

The audit states that $21 million was ‘unnecessarily’ taxed to residents by the District since 2008-09.

The District believes this is a mischaracterization, since most of this money is from “assigned fund balance” which cannot be

accumulated. (In other words, assigned fund balance monies are carried over from year-to-year not added one year to the next.)

To be clear: we did not accumulate, nor do we currently hold, $21 million of taxpayer money, as the report implies.

2008-2009 2009-2010

2010-2011

2011-2012

2012-2013

Assigned Fund

Balance

$3,160,000 $3,500,000 $3,500,000 $3,775,000 $3,300,000

↓ ↓ ↓ ↓ ↓Give it back by lowering the tax

levy

Lowered tax levy

increase in2009-2010to 1.85%

Lowered tax levy


Lowered tax levy


Lowered tax levy


Lowered tax levy


Under-spending Used to Lower the Tax Levy the Following Year

Calculation of Tax Levy

2014-15 Operating Budget

$159,109,341

Less: Assigned Fund Balance

($2,825,000)

Less: Appropriation of Reserve Funds

($2,550,000)

Less: State Aid ($12,606,469)

Less Other Sources of Revenue

($2,504,705)

2014-15 Tax Levy $138,623,167

% Increase in Tax Levy 1.99%

District % Increase

District A 16.78%

District B 15.99%

District C 15.57%

District D 14.43%

District E 13.45%

District F 13.19%

District G 8.82%

Northport-East

Northport

6.56%

Town of HuntingtonTotal Tax Levy Percentage Increase

2008-2009 to 2012-2013

AuditRecommendations

District’sResponse

The Board should develop procedures to ensure it adopts more realistic budgets to avoid raising more real property taxes than necessary.

The District tax levy has been under 2% for the last six years, and since 2010, the District has work diligently to reduce overestimated budget expenditure codes. In fact, the District has run at an operating deficit for the past two years.

The Board should discontinue the practice of adopting budgets that result in the appropriation of unexpended surplus funds that are not needed to fund District operations.

The District has reduced its assigned fund balance by close to $1 million over the last two years. The administration will continue to recommend further reduction to the Board of Education in the years to come.

The Board should develop a formal plan indicating how reserves will be funded, how much will be reserved and when reserves will be used.

The District currently has a procedure for funding reserves that will be formalized into a plan and submitted to the Board of Education for approval.

AuditRecommendations

District’sResponse

The Board should ensure that budgets presented to the voters for approval are transparent and inform residents of their intent to increase reserves by including an appropriation that quantifies such increase.

The District budgets include line-by-line justifications, and print / electronic copies of all budget documents are available on the District web site. With regard to including a “reserves appropriation” in the budget, the District has sought guidance from the State on how to legally accomplish this. We are still awaiting a response.

The Board should reconsider the funding limit established for the retirement contribution reserve fund to reflect a balance that is in line with the actual retirement contribution expenditure trends.

We believe there is no provision in the law that establishes a limit on funding this reserve. We have asked for clarification from the Comptroller but have not received a response. Furthermore, the District’s reserves in 2014-2015 are less than the averages in New York State, Nassau and Suffolk.

June 2010 – reserve funded 4,405,000

2010-2011 – interest earned 23,597


2011-2012 appropriation of reserve to lower 2011-2012 tax levy

(1,750,000)


June 2012 – reserve funded 671,000


(1,800,000)



Funding/Use of Retirement Contribution Reserve


(1,800,000)


June 2014 – reserve funded 372,400


(1,800,000)

June 2014 – actual balance 4,820,531

June 2015 – projected balance 3,020,531

Continued…

Average Restricted Reservesas a % of 2014-2015 Budget

NYS Average 13.5%Nassau Average 13.6%Suffolk Average 11.2%

Northport-East Northport 7.3%

In fact, in each of the past 7 years, our restricted reserves have been below the NYS average.

Where We Stand Today

• $2.8 million in assigned fund balance (to reduce the next year’s tax levy)

All but a handful of districts use the assigned fund balance each year, which lowers the tax levy. We have begun reducing this amount and plan to continue to do so.

• $10.8 million in restricted reserves to help reduce the tax levy each year

These are monies from surplus that are legally set aside into reserve accounts for specific purposes. Taxpayers benefit each year by having a portion of these funds returned to them through lowering the tax levy, helping preserve programs and keeping the tax levy steady.

• $1.2 million in two separate capital (facilities) reserve funds, also restricted

These two capital reserves, authorized by voters, are used to fund a variety of facility projects on an ongoing basis.

RESERVEDESCRIPTION

What is it for?

ActualJune 30, 2012

ActualJune 30, 2013

ActualJune 30, 2014

EBALR(Employee Benefit Accrued Liability Reserve)

Non-medical employee benefits upon leaving employment

$4,162,845 $3,777,403 $3,390,782

ERS(Employee Retirement System)

Non-teacher pension contributions

$6,973,851 $6,237,950 $4,820,531

UNEMPLOYMENT

State-required unemployment insurance

$962,521 $965,144 $895,063

WORKERS’

COMP.

State-required Worker’s Comp contribution

$2,637,464 $2,143,288 $1,647,058

INSURANCE

Other insurances

$49,182 $49,316 $49,429

TOTAL $14,785,863

$13,173,101

$10,802,863

We continue to believe our approach and practices are in the best interest of the district. Further, we have

always operated in a good-faith manner in full compliance with NYS laws.

The District is currently in a sound financial position, but we remain cognizant of significant fiscal

challenges on the horizon, includingthe LIPA Tax Cert and the 2% Tax Levy Cap.

northport-east northport schools board of education dr. marylou mcdermott superintendent of schools...

Documents

business slide

high slide

moodys investors service

district programs

general fund slide

nys audit concerns

nys comptrollers audit

overestimation of expenditures