Comptroller faults Medina School District over big reserve funds

By Tom Rivers, Editor Posted 25 August 2014 at 12:00 am

MEDINA – A report from the State Comptroller’s Office faults the Medina Central School District for not properly creating some reserve funds and for missing its budget by $15 million over five years.

The district overtaxed residents to help create the excess funds, according to the Comptroller’s report. Most of the $15 million in surpluses was funneled to reserve funds.

The district has 10 reserve funds, and some of the funds were created without voter approvals and carry balances far greater than the demand for those funds, according to the report. (Click here to see the document.)

The district pushed to build bigger reserves to help shield local taxpayers from cuts in state aid, Superintendent Jeff Evoy wrote in an August 12 letter to Jeffrey Mazula, chief examiner of Local Government and School Accountability.

The district has closed a school (Towne Primary School), reduced teachers and staff, and is working with neighboring Lyndonville on shared programs, Evoy wrote in his letter.

That has helped reduce the district’s operating costs and helped the district build its reserves. In 2006-07, Medina carried less than a 4 percent fund balance with no reserves, Evoy said.

“Since then, the District has improved reserves while addressing issues of declining enrollment and corresponding decreases in State Aid,” he wrote in his letter to the Comptroller’s Office. “The District now finds itself in a better fiscal position than it did a half a decade ago.”

He noted Medina did not raise taxes for four straight years, cut them by 1 percent in 2013-14 and just approved a 2 percent cut for 2014-15.

The Real Property Tax Law limits unexpended surplus funds to no more than 4 percent of the ensuing fiscal year’s budget, or approximately $1.4 million for Medina, which has a $33.8 million annual budget, according to the Comptroller’s report.

The district exceeded that level and directed surplus funds to reserves, boosting the funds from a balance of $1.2 million five years ago to $12.5 million. Comptroller’s officials said the district built the reserves with tax levies that were higher than necessary.

The Comptroller’s report says Medina should develop more realistic revenue and expenditure estimates for the annual budget and should closely monitor activity so it mirrors the budget.

Other recommendations include:

1. Review the Local Government Management Guide on reserve funds

2. Establish a reserve fund policy

3. Ensure that the repair reserve is reasonably funded, obtain voter approval to validate the moneys in the reserve and consult with legal counsel if needed

4. Establish the liability reserve for permissible purposes and reduce the reserve balance to a more reasonable level

5. Reduce the unemployment reserve and the retirement contribution reserve balances to more reasonable levels that reflect more realistic future expenditure needs

6. Use money in the debt reserve to pay related debt

7. Evaluate potential tax claims to determine the appropriate amounts that will be needed in the tax certiorari reserve to settle potential tax claims and return other moneys to unexpended surplus funds in the general fund

Evoy told Mazula from the Comptroller’s office that Medina would review the recommendations. Evoy also said the district was “prudent” to build up its reserves, and used $750,000 in one reserve to pay down debt.

The district will consult with its auditors and attorney to ensure the proper creation, funding and usage of reserves, Evoy said.

“As is the case in so many other school districts, Medina has struggled in the last six years trying to meet the fiscal challenges it has confronted,” Evoy wrote in response to the report. “These challenges have been addressed in positive ways which has enabled us to plan effectively for the future. Your audit report offers additional guidance and recommendations which will further assist our efforts.”