FALCONER – Neither the Falconer Central School board nor the state Comptroller’s Office are changing their mind when it comes to the size of Falconer’s fund balance.

According to a recently released audit by the state Comptroller’s Office, Falconer’s Board of Education and district officials did not properly manage fund balances and reserves. Similar audits done in 2009 and 2016 have identified similar concerns, and the audit claims district officials did not implement corrective action, resulting in the district levying more real property taxes than needed, a significant accumulation of the surplus fund balance in excess of the statutory limit, and missed opportunities to lower real property taxes.

“The continued practice of overestimating appropriations and appropriating fund balance that will not be used to finance operations as a means to accumulate surplus funds in excess of the legal limit or to provide a funding source for capital projects without voter approval is misleading and continues to further diminish the transparency of the District’s budgeting process and the reliability of the Board and District officials,” the audit said.

The audit also states that Board and District officials allowed surplus fund balance to exceed the statutory limit as of June 30, 2023 by 20 percentage points, or $6.1 million, consistently overestimated budgetary appropriations by an annual average of $3.7 million, or 17 percent, and could not demonstrate that three reserves with balances totaling more than $4 million were properly maintained or reasonably funded.

The audit goes on to say that they were told by the superintendent and two board members that the two previous audit reports were understood and that both reports contained recommendations that the district adopt budgets with realistic budget estimates, but that they were also told that they were comfortable with the district’s current budgeting practices, including overestimating appropriations that result in operating surpluses, because they are concerned about future levels of State aid and the consistency of the District’s real property tax levy.

“One board member told us that regardless of the legal limitation on fund balance, he believes it is good practice to have at least one third of operational costs in surplus fund balance for unexpected expenditures,” the audit said.

Stephen Penhollow, Falconer Central School superintendent, said that the district’s budget practices remain the same each year, and is always determined by the amount of state aid the school is expected to receive. He added that state aid has not increased at all in the last few years and had only increased a little bit in the last 10 years.

“During budget season we wait and see how much aid we will be approved for,” Penhollow said. “We have been shorted on that over the last 10 years, and the state has only fully funded state aid for schools last year with the current format.”

Penhollow mentioned that there was also a court case involved in the state that required the state to fully fund state aid, and that the governor has since chosen to reduce that.

Falconer’s budget process involves looking at contractual expenditures, projects, and contractual agreements, along with the ever-changing needs of students.

“There is no typical way we create a budget,” Penhollow said. “We can hope, but things can significantly change as the process goes along. A big piece of that is waiting for foundation aid, which sometimes we don’t find out what that is until after our budget has been approved and voted on by the community.”

This past year, Penhollow said the governor is meant to have her state budget approved by April but hardly ever is approved by that time, including last year when it was delayed because of disagreements with the Hold Harmless Agreement.

In Falconer’s response to the audit, they said the board is always focused on protecting against financial difficulties of the past while looking to the future, and cited that they are one of the most fiscally responsible schools in the state.

“Our district has consistently ranked in the top fifteen percent of state public schools for fiscal responsibility and per-pupil spending while still maintaining the highest quality of educational opportunities for our students,” the response said. “Therefore, the district budgets conservatively to ensure stability. Public schools are affected by the financial constraints imposed by both the property tax cap and Foundation Aid. The property tax cap limits the district’s capacity to generate funds through property taxes, in addition to not increasing or providing reductions that have lasting compounding effects on future tax cap calculations. Falconer Central School’s tax levy has been at a zero percent increase on our community and remained the same for the last five years and has increased by $125,000 over the last ten years. In addition, the Board of Education has consistently proposed District construction projects that have provided a zero percent tax increase impact on our community.”

The audit and office of the state comptroller recommends that the district; develops and adopts a plan to reduce surplus fund balance to comply with the statutory limit. Surplus funds can be used for reducing District property taxes, funding one-time expenditures, funding needed reserves, and paying off debt. They also recommend that the district develop and adopt budgets that include reasonable estimates for appropriations and the amount of fund balance that will be appropriated and used to fund operations, discontinue the practice of appropriating a fund balance that is not needed or used to fund operations, update the adopted written reserve fund policy to be more comprehensive and require officials to document the rationale and objective of each reserve, funding levels and conditions under which reserves will be used and replenished, prepare and review the annual reserve fund report as required by policy to determine whether the amounts reserved are necessary and reasonable and take appropriate action to reduce overfunded reserves to reasonable levels; and liquidate and discontinue reserve funds that are no longer needed or whose purpose has been achieved, in accordance with applicable statutes, and return all funds being improperly held in the debt reserve and tax certiorari reserves to the general fund surplus fund balance.

The next step for the school is to look at these recommendations and go from there.

“We will do what we’ve always done, provide a fiscally responsible education for our students,” Penhollow said. “Being in the top 15% of fiscally responsible schools in the state means we are also in the bottom 15% of spending. We spend about $18,000 per pupil, where some schools spend $60,000. We work to be the most economically efficient and feel our budget process is open and transparent, and will continue to provide a high quality education to our students.”

Additionally, Penhollow said the district will not put up a project they feel they cannot pay for and that they work to limit their tax impact on the community.

“We have a diligent and hardworking Board of Education that always puts students first,” Penhollow said. “The second thing we look at is our responsibility to the community to provide a high quality education.”