In a just released audit of Shelter Island School District’s finances, New York State Comptroller Thomas DiNapoli took the district to task for over-estimating expenses and under-estimating revenues, resulting in a larger than legal surplus.“The Board has not adopted budgets with accurate revenue and expenditure estimates, which has contributed to the District’s increase of unexpended surplus funds that are greater than 4 percent of the ensuing year’s budget in violation of the law,” according to the audit report.
Operating deficits were expected in school years between 2009 and 2013 but instead, approximately $1.2 million has accumulated, according to the audit. The result fund balances were nearly three times greater than the 4 percent allowed by law.
Shelter Island isn’t the first small district to be caught with a larger than legal fund balance. Oysterponds in Orient has been cited for similar accumulations of fund balances in past years, arguing that 4 percent for a small district is a tiny amount to have in reserve should a major unexpected need arise.
That happened to the tiny New Suffolk District several years ago when a single student with special needs transferred into the district well after a budget had been adopted. To pay for those and other unexpected costs, the district had to ask taxpayers for a special assessment totalling $160,000.
Nonetheless, the state has been cracking down on the practice of large fund balances, even among small districts.
“The District may face different challenges than other school districts, but Real Property Tax Law is applicable to all school districts,” the Shelter Island audit report said, using similar language to what it told Oysterponds in the past.
“In an era of limited resources and increased accountability, it’s critical that schools make every dollar count,” Mr. DiNapoli said in releasing the audit results for five school districts, including Shelter Island.
“By auditing school district and charter school finances and operations, my office continues to provide taxpayers the assurance that their money is being spent appropriately and effectively,” Mr. DiNapoli said.
The Board of Education is responsible for general management and control of the district’s finances with the superintendent functioning as the chief financial officer and the business manager playing a major role in budget development.
Given the span of years involved, former superintendent Michael Hynes was involved in constructing only one of those budgets for the 2012-13 school year and current business manager Kathleen Minder wasn’t involved in any of the budgets cited.
Over-estimated expenses were in areas including unemployment insurance, retirement fund contributions and contractual transportation costs.
The audit recommends the following changes in how the district handles its finances:
• The board should use historical data to guide its development of future budgets;
• The practice of applying money from the fund balance to subsequent budgets should not be done unless those funds are actually going to be used in meeting operating expenses;
• The fund balance should be kept in line with the real property tax law requiring that it not exceed 4 percent of the next year’s budget.
• The district should develop a plan to use the excess funds to benefit taxpayers. That could include increasing other specific reserve funds; paying off district debt; financing one-time expenses; and
• Reducing district property taxes.
That could make it possible for the district to apply some of the excess funds to a project to replace and upgrade the building heating and ventilation system. Current plans call for a September 23 vote on a projected $1.6 million bond for the project.
With Dr. Hynes gone and new Superintendent Leonard Skuggevik not in place until September 1, it fell to Acting Superintendent Jennifer Rylott to respond to the state audit.
“While we have many similarities with other school districts throughout New York State, our unique geographic situation — a small school on an Island — requires us to find different and creative ways to meet our educational mission, while respecting the limited resources or our taxpayers,” Ms. Rylott wrote to the Reporter in response to the news. “It is critical that we maintain a certain amount of flexibility in our annual and multi-year budgets so that we can address unplanned expenses as well as opportunities for savings.”
She pointed to special education expenses that can change “rapidly and significantly” along with health insurance costs and unpredictable costs when bidding for various products and services in a remote area.
She also noted that between 2009-10 and 2012-13, expenses increased by an average of only 1 percent a year and that between 2011-12 and 2012-13, expenses were reduced by $100,000.
“This indicates that the administration and the Board of Education are carefully managing the expenditures of the District,” Ms. Rylott wrote.
At the same time, she said the district will consider the various recommendations and take steps to comply with fiscal constraints of both Shelter Island and New York State.