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School District Surpluses Questioned

The New Hyde Park-Garden City Park School District miscalculated more than $8 million in expenses from 2008-13, creating illusory budget surpluses (about $6.3 million), according to a report by New York State Comptroller Thomas DiNapoli’s office.

 

The financial report said New Hyde Park transferred money to reserves and appropriated unexpended surplus funds to reduce the district’s tax levy. According to the comptroller’s office, more than $3 million of the district’s fund balance appropriated over the five-year period was not used.

 

“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,” the report stated. “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.” 

 

New Hyde Park overestimated employee benefit costs by $3.4 million, instructional costs by $2.9 million and general support by $1.2 million since 2008, the report revealed. The audit also found the district used  about $3.5 million in surplus funds to “increase the retirement reserve without including those transfers in the budget process and without soliciting the approval of district taxpayers.”

 

“The district’s practice of consistently planning operating deficits by appropriating unexpended surplus funds that were not needed to finance operations, in effect, circumvents the statutory limitation of retaining unexpended surplus funds to no more than 4 percent of the ensuing year’s appropriations,” the comptroller’s report said.

 

The comptroller recommended New Hyde Park develop plans to pay off debt, finance one-time expenditures and reduce district property taxes. 

 

“It should be noted that the annual audit reports from independent auditors did not find the district deficient in any of the areas raised in the comptroller’s report and praised the fiscal management and financial stability of the district,” Katulak and Business Superintendent Michael Frank said, in a letter attached to the report.

 

The two claimed DiNapoli’s report erroneously stated budget appropriations were “deliberately set higher than necessary,” resulting surpluses were used to “fund reserves excessively and inappropriately,” and the district was “not transparent in its actions.” While Katulak and Frank say in the letter “it is not difficult to examine prior year’s budgets and determine which expenditures were less than amounts budgeted.” They also argue the budget process relies on estimating future expenses based on “information available at the time.”

 

“The problem is that when the budget is being developed, there are a lot of unknowns,” the letter said.

 

In a phone interview, Katulak said healthcare insurance costs fall into those unknowns. The New York State Health Insurance Program usually provides rates to districts in the middle of the subsequent school year, affecting budget season projections.

 

“They only give us the rates for the first six months,” Katulak said. “Now you have to do a projection. The state said you should do the projection based on an average of the last six years. We said ‘we don’t agree with that.’ They’re saying we should underestimate projections so we won’t have extra money left in.”

 

The district has 90 days to draft a corrective action plan to address the comptroller’s concerns, according to Katulak.

 

“That [correction action plan] will go to the district audit committee and they’ll make a decision if they recommend to accept that report to the school board and sent back to the comptroller,” Katulak said. “That’s where we’re at now.”

 

Calling the $8 million figure “overstated,” Katulak and Frank wrote that the report’s criticisms are based on the assumption that “the district deliberately overfunded the budget. In fact, the district’s actions were not the result of any premeditated plan...the actions were taken in response to an unplanned surplus.”

 

The letter went on to state that 75 percent ($4.8 million) of the $6.3 million surplus funded the capital reserve, which was authorized by school vote in May to avoid a bond in repairing school facilities. Twenty-five percent of the surplus went towards increasing the retirement contribution reserve during the audit period.

 

“The district received voter authorization for the capital reserve to be funded from unexpected appropriations and excess revenue,” Katulak and Frank wrote.

 

Responding to the letter, the comptroller’s office said in the report, “over the five-year period, the board transferred unexpended fund balance, resulting from annual operating surpluses, to its reserve funds aggregating over $8.9 million. Therefore, the district’s claim that “approximately 75 percent” of the operating surplus of $6.3 million was used to fund the capital reserve fund is inaccurate.”