Cassadaga Valley budget practices called into question

SINCLAIRVILLE – When it comes to the budgeting process, Cassadaga Valley Central School district officials could have acted in a more fiscally responsible manner – according to the Office of the New York State Comptroller.

A report of examination from the comptroller’s office on Cassadaga Valley’s financial condition said – through a combination of maintaining excessive and/or unnecessary reserves and ongoing budgeting practices that have generated repeated surpluses – district officials and the board of education have “withheld significant funds from productive use, levied unnecessarily high taxes and compromised the transparency of district finances to taxpayers.”

The report contains information from an audit of the district’s financial condition and use of fund balance and reserve funds from the period of July 1, 2008 through Aug. 5, 2013. Over the five-year period, the report found said district officials consistently overestimated expenditures in the general fund by a total of $6.3 million. Due to the overestimation, the report said the board appropriated $5.8 million of fund balance as a funding source in the general fund budgets, which was an unnecessary maneuver.

“The district has experienced operating surpluses in the general fund for four of the last five years, totaling $1,100,434, leading to unexpended surplus fund balance exceeding the statutory limit of 4 percent of the ensuing year’s operations for the last two fiscal years,” the report said.

Also reported in the audit was the consistent overestimation of certain expenditure groups, such as $1.9 million in employee benefits, $1.05 million in programs for handicapped children, $990,000 in transportation, $620,000 in utilities and $530,000 in debt service. Overall, the report stated that actual revenues exceeded actual expenditures by $871,658 over the five-year period.

A response to the comptroller’s office was drafted by S. Carl Perry, Cassadaga Valley board president, who said a clarification behind the numbers found in the report was necessary.

“At the outset, it is important to recognize that the board and the administration have at all times acted in the best interests of the district and its taxpayers with regard to the budgeting process,” Perry said in his response. “The analysis in the audit report has the benefit of after-the-fact hindsight, which clearly does not reflect the reality faced by the district during the budgetary process over the past several years.”

Perry said the district acted responsibly in the budget process despite facing “multiple unknowns” such as: lack of employment contracts with most employees for multiple years, unknown special education placements based on the transient nature of many of its students, escalating pension and insurance costs, lack of reliable state aid numbers and severe cuts to state aid.

“We would like to clarify that the $6.3 million that represents the difference is not $6.3 million that the district has on hand, the difference was utilized repeatedly in the subsequent yearly budgets,” Perry said.

The reserve balance in the district’s unemployment insurance reserve fund was reported to be $242,333. While the district incurred average unemployment insurance costs of approximately $17,000 since 2008-09, those expenditures were not charged to the reserve fund, but were instead paid from general fund appropriations, which were funded through the annual tax levy, the report said. If unemployment costs were to continue to average at $17,000 per year, the current reserve balance would last for 14 years – the reasonableness of which the audit report questioned.

“The audit report also appears to question the district’s use of appropriations funded through the tax levy to pay for items for which reserve monies may also be used,” Perry said. “The district is not aware of any statutory limit on the duration over which monies can remain in these types of reserves, and the district’s utilization of these reserves is fully consistent with the fact that such reserves are intended to serve as ‘savings accounts’ to hold monies for future needs.”

In light of its findings, the comptroller’s office made recommendations for district officials to consider when preparing future budgets. The recommendations included: the development of realistic expenditure and fund balance estimates for the annual general fund budget; the development of comprehensive policies related to the establishment and use of reserve funds; reviewing all reserves to determine if the amounts reserved are necessary, reasonable and in compliance with statutory requirements; and the development of a plan for the use of the surplus balances in the reserve funds identified in the report in a manner that is beneficial to taxpayers, such as increasing other necessary reserves, paying off debt, financing one-time expenses and reducing district property taxes.