Clarifying Scarsdale School Budget Reserves

At the second budget forum on Wednesday night February 8th, the Scarsdale Board of Education and the administration got into a complex discussion about finances, focusing on budget reserves. Specifically, several Board members questioned how much the district should hold in reserve and whether or not these funds should be used to pay for the 2012-13 budget.

As many numbers were discussed, we spoke to Assistant Superintendent Linda Purvis to clarify what is currently being held in reserve and how these funds are used. It should be noted that New York State allows the district to retain a reserve of 4% of the entire school budget in an "unassigned reserve" which is available for unanticipated costs that may occur. For the 2011-12 school year that unassigned reserve totals $5,537,757.

In addition to the $5.5 million, there are a number of reserves that are designated for specific purposes. Here is an accounting of the funds held in reserve as of June 30, 2011 and why the funds were there:

Tax Certiorari: $2,026,429 is held as a reserve for outstanding legal claims against the district by those who grieve their property tax assessments. It represents an estimate of potential payments against actual claims filed with the Village Assessor and the District.

Debt Service: $440,777 - this represents the remaining balance of borrowed funds for capital projects. This money is invested and the interest is used to pay the district's debt service.

Health Insurance Reserve: $2,695,427 is held in reserve for health insurance claims. The district has a self-insured health plan and relies on a healthcare consultant to estimate this number.

Reserve for Retirement System Contributions: $903,135 is available to reduce the impact of future significant growth in mandated state retirement system contributions.

Repair Reserve: $435,127 is held for emergency repairs to the district's buildings, which include almost 1,000,0000 square feet of space. This reserve was established many years ago.

Reserve for Encumbrances: $2.268 mm was held to pay outstanding invoices for items ordered but not received during the 2011/12 school year. It is similar to an "accounts payable" line on a corporate balance sheet, and is therefore not really a hedge against uncertainty.

The June 30, 2011 balance sheet also shows an amount of $6,867,380 million that was previously designated by the Board of Education to fund the 2011-12 school budget. As of July 1, 2012 this number is no longer a "reserve."

So how does this total up? Of the $21 million shown on the June 30, 2011 balance sheet, the $6.8 million applied to the 2011-12 school budget was designated by the Board for the following year in order to offset a larger tax increase for residents. This is a practice that the Board has relied on for many years. The reserve for encumbrances of $2.6 million is a year-end accounting convention rather than a true reserve. This leaves approximately $12 million in actual reserves.

For the 2012-13 budget, the Board could decide to reduce the budgeted amounts for estimated items such as health insurance, heating oil, and repairs. They could also decide to only hold the required 4% in reserve. If so, residents may see lower tax increases in some years, and larger ones in years where costs rise unexpectedly. The Board will continue to discuss the issue of the use of reserves at subsequent meetings.

Your comments on the school budget are welcome - but please include your first and last name.