Audit: City district needs to improve budget practices

A state audit says the Dunkirk City School District consistently overestimated appropriations by an average of $3.7 million, and leading to annual surpluses of $1.2 million.

In response, the school district said they budgeted for surplus funds in key operating categories to offset impacts from the potential reduction or loss of an annual $4 million PILOT payment from NRG.

The New York State Comptroller released an audit report Thursday detailing the district’s financial management practices. The audit delved into the district’s financials between July 2013 and May 2017.

In the audit, the comptroller compared budgeted appropriations and estimated revenues with actual operating results from 2013-14 through 2015-16. The audit report stated that appropriations during that time were overestimated by almost $11 million, or an average of $3.7 million, each year. The most significant budget appropriations consistently overestimated included employee benefits, instructional salaries, special education, tuition and utilities.

The report said budgetary practices that overestimate appropriations each year result in higher than necessary tax levies. Superintendent Dr. James Tracy disputed the claim in a response letter, stating the tax levy from the beginning and end of the audit was relatively flat, $9.50 million in 2011-12 and $9.55 million in 2016-17.

As for the surplus funds, Tracy noted that the accounts highlighted by the comptroller confirmed the district’s strategic decision in regard to the uncertain future of PILOT payments from NRG. Tracy wrote that the surplus funds were tracked and controlled accordingly. Tracy also noted that the PILOT payment for 2016-17 was reduced to $612,848 and will drop to $205,597 in 2018.

“In our judgment, this should not be a basis for criticism for budgetary risk management strategies,” Tracy stated.

The comptroller’s report also examined the district’s fund balance, for which a portion can be retained for cash flow needs or unexpected expenditures. Districts may also establish reserve funds to restrict reasonable portions of fund balance for specific purposes.

When fund balance is appropriated, the report states the district should incur a planned operating deficit. However, the report states the board and district officials overestimated appropriations from 2013-14 through 2015-16 and realized annual operating surpluses averaging $1.2 million. The board appropriated fund balance totaling $9.7 million, or an average of $3.2 million, over the three fiscal years.

“The district realized operating surpluses during the same period and did not need to use any of the appropriated fund balance to finance operations,” the report stated. “When unused appropriated fund balance was added back, the district’s recalculated unrestricted fund balance exceeded the statutory limit.”

According to the report, the appropriated fund balance in 2015-16 was intended to cover the anticipated loss of state transition aid relative to a discontinued PILOT payment. However, state aid was received and the appropriated fund balance wasn’t needed. Tracy wrote in response that the district’s use of fund balance was to offset the possibility of deficit operations. The average fund balance deployed to protect the budget was $3.2 million annually over fiscal year 2014-16 to accurately approximate the eventual PILOT loss.

Tracy said had the PILOT been canceled as threatened prior to 2017, the district would have utilized the bulk of the appropriated fund balance and generated no surplus. Tracy also said the district rejects the assertion that $9.7 million of excess fund balanced was appropriated.

“As fund balanced was not utilized, the rollover of the same $3.2 million annual fund balance appropriation insulated the district from the risk of PILOT loss and allowed for ongoing operations to continue unrestricted,” he wrote. “Surpluses realized over this term averaged $1.2 million annually, well within normal operating limits for school districts.”

As for reserve funds, the comptroller said unemployment insurance, retirement contribution and tax certiorari reserves appear to be overfunded. Tracy wrote that the district funded the reserves to provide future offsets to a “potentially significant revenue loss and used all available legal and properly approved methods.”

The comptroller recommended the board and district adopt budgets that reflect the district’s operating needs based on historical trends or other identified analysis. The report also recommended they review all reserves to determine if the amounts are necessary and reasonable.

As for surplus funds, the comptroller recommended the district use them for funding one-time expenditures, reducing district property taxes or funding needed reserves.


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