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October 21, 2008

 

Audit: $407 Million in Taxpayer Money Stranded in School Reserve Funds Statewide

DiNapoli Cites Opportunity for Property Tax Relief
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More than $400 million of local taxpayer money is sitting unused and inaccessible in school districts’ reserve accounts across the state, according to an audit released today by State Comptroller Thomas P. DiNapoli. School districts statewide set aside about $407 million more than necessary to pay for leave time accruals for departing school district employees.

“School districts may have thought they were planning prudently for long-term costs,” DiNapoli said. “But they actually were stranding more than $400 million that could have been used to reduce property taxes. The districts had good but misguided intentions.

“We’re in a fiscal crisis. Every dime counts and $407 million counts an awful lot, especially when all levels of government are trying to bring property taxes under control. This is taxpayer money that’s just stuck in these accounts. It should be unstuck and used to provide property tax relief, mitigate the impact of lower state aid payments, or pay one-time expenses.”

An analysis of school district data that is reported annually to the State Comptroller’s office found that 251 school districts cumulatively set aside an estimated $407 million more than necessary in reserve funds to pay for employee benefits accrued liabilities. Once this money is placed in an employee benefits accrued liability reserve (EBALR), it legally only can be used for that purpose. The excess reserve funds are “stranded” in EBALR.

Under General Municipal Law, EBALR funds can only be used for employees’ accumulated leave benefits that are paid directly to employees when they no longer work for the school district and administrative costs associated with these payments. School districts cannot use EBALR funds to pay for FICA, Medicare taxes or other post-employment benefits, such as health insurance or life insurance.

DiNapoli noted that legislation is needed to allow school districts to use the excess EBALR funds to potentially lower property taxes or to avoid expensive borrowing by paying for one-time expenses.

DiNapoli’s analysis projected the cumulative EBALR liability for the 251 school districts statewide at approximately $199 million. The 251 districts set aside $605.8 million in EBALR funds, which is $406.8 million, or 204 percent, more than necessary.

DiNapoli’s audit also found the 19 audited school districts increased their EBALR funds by $100 million from June 2003 to June 2007, while they raised taxes by about $243 million in the same period. In addition, auditors noted that five school districts reported EBALR balances that were $10 million more than their reported liabilities.

The audit found the reasons school districts set aside excess funds in EBALRs varied, including they:

  • did not properly calculate how much money is needed to pay staff for compensated leave benefits;
  • transferred surplus funds at year-end into the EBALR fund; and
  • did not use EBALR funds to pay for the leave benefits paid out.

DiNapoli recommends that district officials determine how the surplus EBALR funds could be used more productively to benefit taxpayers and pay compensated leave benefits to employees from the district’s EBALR and not from operating funds. The audit also noted legislation would be needed to allow school districts to use the funds for other post-employee benefits, as recommended by the State Comptroller’s office in the past.

Click here for a list of the school districts examined.

Click here for a copy of the audit.

Click here for an audio feed from DiNapoli.

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 490 school audits and approximately 200 school audits are currently underway.


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