Comptroller faults Albion district for building reserve $17 million beyond statutory limit

By Tom Rivers, Editor Posted 22 March 2022 at 9:11 pm

ALBION – An audit form the State Comptroller’s Office is critical of Albion Central School for building a reserve or fund balance that is $17 million beyond the statutory limit.

The comptroller’s office said the district routinely underspent its budgets by $5 million to $6 million during the school years of 2017-18 to 2020-21.

The comptroller’s audit, released publicly today, said the board the district officials “did not adopt realistic budgets and did not properly manage fund balance and reserves.

The audit’s key findings for the school district also include:

  • Overestimated appropriations by a total of $24 million from 2017-18 through 2020-21.
  • Overfunded and did not properly use the retirement contribution reserve fund. That post-employment benefit reserve was overfunded by $11 million. That fund needs $4.8 million, but Albion has $15.8 million retained in this reserve, which is sufficient to cover more than six years of the retirement expenditures
  • Could not explain how the Finance Committee participated in the budgeting process or identify what reports the Committee receives or how they are reviewed.
  • The District’s budgeting practice of overestimating appropriations resulted in the District levying more real property taxes than needed and resulted in the accumulation of surplus fund balance in excess of the statutory limit by $17.3 million or 47 percentage points.

In a letter to the comptroller’s office dated Feb. 14, Board of Education President Kathy Harling said the district has only increased taxes by 0.14 percent since 2012, and has built up reserves to protect from swings in state aid. (The district hasn’t increased taxes in 13 of the past 15 years and has the lowest tax rate among the five school districts in Orleans County.)

Harling said the state covers about 80 percent of the district’s budget. Albion has also used some of the funds to pay off debt, saving millions of dollars in interest payments, she said.

“The Board of Education is committed to improving its operations and looks forward to comparable successes over the next decade,” she wrote in the letter.

She said the board accepts the report and will work to identify strategies to reduce costs and “strengthen controls in order to safeguard assets.” Implementing a corrective plan is consistent with the district values — “committed to continuous growth and improvement,” she said. “On behalf of our District, I extend our appreciation to you for your insight and recommendations.”

The district’s budget for 2020-21 was $36.8 million. The statutory limit for the fund balance is 4 percent of the budget or about $1.5 million. Albion, however, had a fund balance of $18.8 million – $17.3 million too much, the comptroller’s office said.

“Although the average tax levy increase was less than 1 percent per year during the audit period, the Board and District officials overestimated appropriations and levied taxes that were higher than necessary, which resulted in the accumulation of significant surplus fund balance,” the report states from the comptroller’s office.

The comptroller’s office identified 13 appropriation line items that were each overestimated by more than $300,000 in the four fiscal years, totaling more than $16 million.

Of these 13 line items with large variances, six appropriations (teachers’ salaries kindergarten through grade 12, hospital and medical insurance, teachers’ retirement contribution, contract transportation, operation of plant, and tuition) each had a four-year total budget variance of more than $1.5 million, according to the audit.

School officials responded to comptroller’s staff that the district budgeted for more teachers than were needed, and some teachers announced their retirements at the end of the school, after the budget was approved. They were then replaced with teachers typically at the lower end of the pay scale.

Fewer staff and teachers at lower pay also resulted in less expense for hospital and medical insurance, and teachers’ retirement contribution estimates, which are based on a certain percentage of salaries.

The transportation appropriation was overestimated by a total of $2.1 million and operation of plant by more than $1.7 million. District officials told auditors that Albion budgeted conservatively for the transportation line item to allow for significant unforeseen transportation or repair expenditures.

Albion school officials told comptroller staff that they were concerned that significantly cutting the tax levy – which is $8,449,094 for the 2021-22 school year – would not be sustainable long-term because the tax cap limits increases to about 2 percent a year. If taxes were cut in half, the district worries it wouldn’t be able to increases taxes to previous levels once the fund balance and reserve balances were paid down.

“However, district officials would be able to exceed the tax cap limit, if ever necessary, with voter authorization for a tax cap override,” the comptroller’s report said. “Additionally, when considering significant tax cuts, the Board and officials should consider that the surplus fund balance was accumulated over many years. Rather than significant one-time tax levy reductions, officials could consider incremental decreases and maintain the real property tax levy at a level which would reduce the surplus fund balance gradually.”