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December 4, 2008

DiNapoli: Inaccurate Budgeting Leaves Lockport CSD with $9 Million Surplus That Could Have Reduced Tax Levy

Surplus Should Be Used to Reduce Tax Rate

Over five years the Lockport City School District overestimated expenses and underestimated revenues by $9.4 million, which resulted in surpluses that could have been used to significantly reduce the district’s property tax rate, according to an audit released today by State Comptroller Thomas P. DiNapoli.

“Everyone wants to save for a rainy day but it is unacceptable for school districts to hold money at the expense of local taxpayers,” DiNapoli said. “The Lockport City School District needs to eliminate unnecessary reserve funds and use the surplus money to reduce the district’s property tax burden.”

The audit, which covered July 2006 to May 2008, found that the district increased the tax levy by 11 percent in the 2002-03 fiscal year. In that same year, the district created five new reserve funds and significantly increased the amount of funds in a sixth reserve. District officials could not provide an explanation as to why the reserve funds were created or why they are still needed. The district may have created the reserve funds to retain fund balance that could have been used to reduce the annual tax levy.

No money has been used from any of the five reserve funds that were created in 2002-03. The district has consistently appropriated money and levied taxes in the general fund for these expenses. The reserve funds include:

  • workers’ compensation, which started in 2002-03 with $400,000 and with interest has grown to $463,200 in June 2007;
  • unemployment insurance, which started with $75,000 and with interest and an additional allocation has grown to $115,100;
  • insurance, which started with $750,000 and with interest has grown to $866,200;
  • tax certiorari, which started with $400,000 and with interest and additional allocations has grown to $698,831; and
  • employee benefit accrued liability, which started with $2 million and with interest and additional allocations has grown to $3.6 million.

In 2004-05 the district started to use the sixth reserve fund to pay for debt service but the balance in the reserve in June 2007 was still $2.28 million. In addition to the aggregate amount of $9.4 million in these reserve funds, the district has an additional $2 million in its unreserved fund balance as of June 2007.

DiNapoli’s audit also identified numerous concerns with the district’s transportation contractors and consultant including that the district failed to properly monitor these contracts. The district hired a transportation consultant to monitor its transportation contracts. However, the consultant shared the same headquarters and has the same president as one of the district’s two transportation contractors; this direct relationship makes the consultant an inappropriate monitor of the transportation contractors.

In addition, the audit found the district did not establish proper checks and balances over the trust and agency funds.

DiNapoli’s office recommends that district officials:

  • develop realistic revenue and expense estimates and use fund balance to reduce taxes;
  • review all reserves and reduce their amounts to reasonable balances;
  • prepare multi-year financial plans; and
  • appoint a district official who is free from the influence of the transportation contractors to oversee the district’s transportation services.

District officials generally agreed with the audit’s recommendations and committed to taking corrective action. Click here to view the audit.

School District Accountability
In order to improve accountability of the state’s schools, DiNapoli’s office will audit all of New York’s 834 school districts, Board of Cooperative Educational Services (BOCES) and charter schools by 2010. The State Comptroller’s office has completed 530 school audits and approximately 200 school audits are currently underway.


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