School District defends fiscal health

On the heels of getting a clean bill of health from the Shelter Island School District’s external auditors came a report from State Comptroller Thomas DiNapoli that its finances are “susceptible to stress.”

The auditors, Melville’s Nawrocki Smith, told the Board of Education in January there were no material weaknesses or significant problems with its finances. In addition, the district’s bond rating, which determines its ability to borrow money at favorable rates, is “stellar,”said School District Business Leader Tim Laube.

Examining seven areas that the state comptroller reviews for its numbers, Mr. Laube said the district was cited for:
• Short-term borrowing increases over a three-year period
• Increased borrowing for capital expenditures
• Lowering of its reserve funds — money that is sometimes used to offset spending to keep taxes in line or for emergency purposes.

In all three cases, Mr. Laube defended the district’s practices.

Short-term borrowing through tax anticipation notes is something 85 percent of school district must do since their fiscal years start July 1, but they don’t receive tax money until January of the following year. That forces them to borrow to pay bills for several months until taxes flow to the school district’s coffers, Mr. Laube said.

In 2014, the district borrowed $1.4 million; in 2015, $1.5 million; and in 2016, $1.6 million, he said. Those notes are paid off as soon as the tax money arrives, he said.

As for other borrowing, the district doesn’t carry a lot of debt, the business official said. But it did have to spend for building improvements, including a new boiler.

It’s true that the district has been applying money from its fund balance account to offset spending, Mr. Laube said. But that was done at the instruction of the state comptroller who said Shelter Island had more money in its reserves than is allowed by the state. It had to either return money to taxpayers or spend down to what’s allowed by law — 4 percent of the district’s budget.

That has always been a controversial subject for small districts.

Any emergency spending — whether it’s the arrival of a student with expensive major special needs in a district or unexpected maintenance problems — can exceed 4 percent of a small district’s reserves, Mr. Laube said. While that percentage might be a lot of money for a large district, it may not cover the unexpected expenses in a small district like Shelter Island.

Several years ago, tiny New Suffolk experienced a last minute transfer of a special needs student into its district and had to return to taxpayers for permission to raise its budget to accommodate more than $100,000 in added expenses.

Brian Butry, a spokesman for Comptroller DiNapoli, said Shelter Island wasn’t cited for its issuance of short-term debt — the tax anticipation notes — and that Shelter Island’s score was “not as alarming” as scores other districts received.

There are 59 districts designated as being in “fiscal stress,” with two in “significant fiscal stress,” Mr. Butry said.

Nine other districts were listed as facing “moderate fiscal stress.”

But he noted that those, like Shelter Island, that were in the third category of being “susceptible to stress,” were getting warnings of areas to be watched that could raise future problems.

“It’s an early warning system,” Mr. Butry said.

It’s important for the district to reach out to taxpayers and explain the circumstances of the ratings and what each is doing to address any potential future concerns, Mr. Butry said.

Shelter Island provides monthly fiscal reports to the Board of Education, Mr. Laube said.

He also consults with the district’s external auditing firm and Port Jefferson’s Munistat Services, which provides advice on bond ratings and capital spending projects, he said.