Northport Superintendent Clarifies Reserves

Superintendent Marylou McDermott sought to clarify the amount of money being held in the district's reserves and different reserves utilized at Monday's BOE meeting in response to comments from some members of the public. A PDF of the presentation is attached to this article.

The restricted reserves, which can only be used for their designated purposes, total $15.5 million and are broken out as follows:

• The Capital Reserve, used for maintenance of buildings: $1.1 million

• EBALR (Employee Benefit Accrued Liability
  Reserve), covers termination pay at retirement: $4.5 million

• ERS (Employees’ Retirement System), used for pension costs for current employees: $6.3 million

• Workers’ Compensation, used for claims and lawsuits: $2.6 million

• Insurance: $49,000

• Unemployment, used for layoffs: $959,000

McDermott highlighted the need for prudent financial planning, noting that the restricted reserves are funded whenever the district is successful in underspending,  either through reducing or eliminating costs throughout the year.

A comparison of nearby districts showed Northport in line or lower than many in terms of the percentage of reserves being held in the overall budget. For instance, at the end of the 2010 school year, 8.61 percent ($12 million) of Northport’s $151 budget was held in reserve. In comparison, the Half Hollow Hills School District held 12.92 percent in reserve. In Smithtown, that number was 16.56 percent. According to the data, the New York State average is 11.7 percent.

McDermott used Moody’s recent downgrade of Suffolk County’s Bond
rating from Aa2 to A1, in part due to dwindling reserves, to bolster the need to fund the District’s reserves.

Northport’s assigned fund balance totals $4.1 million. Of that amount, $3.5 million is used as a revenue source to lower the tax levy. The balance of $600,000 covers purchase order encumbrances.

The unassigned, or “rainy day,” fund balance is used for contingency purposes.  The legal limit is 4 percent of a district’s budget. The district comes in at 3.99 percent, or roughly $6 million. Such costs might include an increased student population, emergency maintenance, mid-year state aid cuts, additional Special Ed costs, unanticipated medical support costs for students, unfunded mandates, and acts of nature such as hurricanes.

Northport’s total Fund Balance, including assigned, unassigned, and restricted reserves, totals $25 million.

McDermott also addressed the charges of perceived underspending by the District, and clarified some of the reasons. For instance, the District underspent $9.7 million of its adopted 2010-2011 budget of $147 million. Part of that amount was attributed to ARRA funds of $1.5 million; $1 million from a reduction of 12.5 FTE who retired and were not replaced; and the $3.5 million used to lower the tax levy.

As for long term planning, the superintendent said the goal is to gradually reduce the Assigned Fund Balance over time and increase the Capital Reserve.

Resident Fred Trudwig requested a breakdown of how the unassigned fund balance has been used. Assistant Superintendent for Business Kathleen Molander said it is only used if there is no other way to pay for the expenses, and would have to be Board-approved. She couldn’t recall using the fund in the past five or six years.

In response to Trudwig’s request for a breakdown of EBALR funds, Molander said it’s a reserve account that is separate from the budget, as required by the auditors. Compensated absences such as vacation are not tied to a line item; they are linked to actual staff members.

Dr. Nina Dorata took exception to the District’s highlighting of only the restricted reserves, noting that if the District had taken into account the entire Fund Balance, the percent would have been 17 percent, not 8.61.

She also noted that the $25 million total doesn’t include the current year’s budget status. “I think it would be more informative if we included what was projected.”