CCSD details Corrective Action Plan for excess fund balance

August 31, 2022
by EMILY STOLL
Editor

Clarence Central School District has created a Corrective Action Plan to allocate its excess fund balance into appropriate reserve funds, following a state audit released in July.
According to auditors, CCSD had overestimated expenses, and its unappropriated fund balance of $9.2 million was 10% of the upcoming year’s budget, which exceeded New York state’s requirement to limit fund balance to 4%. The district says that this is because its reserve funds were very low compared to districts with similar wealth ratios, programs and types of communities – instead CCSD kept more of that money in its fund balance, one thing the Corrective Action Plan, or CAP, aims to change.
“The reserves are your rainy day funds,” said Patricia Grupka, assistant superintendent for finance and operations, when presenting the CAP during Monday night’s school board meeting. “If you have an emergency capital project, if you have an emergency repair, if [teacher retirement system] costs go through the roof, if you have a liability claim, this is where your funds should come from.” Reserve funds are similar to savings accounts, but the money in them is earmarked for specific purposes. Essentially, these accounts allow a district to avoid overestimating the less stable, less predictable areas of its budget with less of a risk that unexpected costs – for example, high-cost health insurance claims or a new student who requires an expensive out-ofdistrict placement – will cause budgetary struggles.
“I think what we’re seeing here is kind of a strategic shift … in how the district manages the savings account, in essence, just to maybe oversimplify it,” said Board President Michael Fuchs. “This board over time has taken the approach to keep more money in the unallocated fund balance as opposed to the specific reserves.”
Grupka discussed several reserves for CCSD during the meeting, including the following:
• Repair reserve: This fund covers certain types of repairs to equipment and capital improvements. It can be used in an emergency with no authorization, and the district can then apply for an emergency project to seek a refund from the state. Once spent, it must • be replaced within three years. It contained $1.2 million that the district intended to use toward athletic field repairs, however, Grupka said that amount would cover the cost to fix one field at most. During its Aug. 29 meeting, the board increased the fund by $1 million.
• Employee retirement reserve and reserve sub-fund: These funds are utilized when the employer contribution to the employees’ and teachers’ retirement systems must exceed the tax cap. Employer contributions are a variable rate that fluctuates with the market. As of June, these reserves contained $677,000 in the employees fund and $520,000 in the teachers sub-fund.
• Tax certiorari reserve: This fund is used to pay off settlements when a large facility challenges its taxes, as these cases can take multiple years to settle and may involve back-taxes. It contains a bit less than $517,000 as of June.
• Employee benefit accrued liability: This fund pays toward unused sick, personal and holiday leave; vacation time; and other employee benefits that are paid out at separation. Due to the large number of recent retirements, half of the approximate $663,500 currently in the fund will be utilized this year.
• Insurance liability reserve: This covers losses and claims for litigation not covered by insurance, as well as expert or professional services in connection with the investigation, adjustment or settlement of claims, actions or judgments. It is capped at 3% of budget and, as of June, contains $1.5 million.

• Reserve for bonded debt: This pays or buys certain bonds that have reached at least five years of maturity, and it helps to save on interest payments. It currently contains about $1.2 million that must be spent on debt by 2027.
• Capital reserve: This funds future capital projects. It could allow the district to complete more capital work at once, as the district has traditionally waited until the debt from one capital project ends before beginning a new one in order to avoid a spike in taxes. It is one of the only reserves that requires voter approval to establish and fund. Grupka recommended that voters be presented with the choice in May to create a capital reserve and fund it with $2.5 million.
• Health insurance reserve: This fund covers health insurance costs beyond what is budgeted. According to Grupka, health insurance is one budget area where a few high-cost claims can drive up expenses. A health insurance reserve could allow the district to budget for its average or middle-range health insurance expenses instead of budgeting for the most expensive possible scenario. In its Aug. 29 meeting, the board created this reserve and funded it with $3 million.
Any of these reserves, except for the capital reserve, could be liquidated by the board and returned to the general fund if needed. Superintendent Matt Frahm added that, if voters approve a capital reserve and its funding, the district would not have to set aside the entire $2.5 million immediately – it could be put into the fund over a period of a few years.
The audit had two other recommendations besides reduction of fund balance. One was to develop budgets that have reasonable fund balance appropriations and reflect the purchases needed – for example, Grupka said, the district should budget for the technology needs of incoming students, the replacement of worn-out athletic equipment and other necessities instead of waiting until the end of the year to see what money is left over. The second recommendation was to analyze fiscal year-end encumbrances, making sure that the district is buying what is listed on its purchase orders.
Grupka will make a five-year plan for the budget’s capital expenses and projects and reserves, and she has asked the district’s technology, athletic, music and facilities departments to make five-year plans as well. Additionally, a purchase manual has been created, and there has already been a meeting to discuss policy and procedure with staff involved in purchasing. Appropriations reports will be done each month, reviewing regular purchases such as gas, electric and others, as well as how funds are being spent down.
CCSD pointed to the pandemic as one factor that has made budgeting difficult in recent years. At the start of the pandemic, districts expected state aid to be cut back, but various types of unexpected aid like federal stimulus money have been distributed in response to the pandemic. Schools had also budgeted for regular programs that were canceled when COVID hit, and unexpected needs cropped up in areas like technology when classes originally became remote. Labor shortages have also contributed to over-budgeting, as districts have budgeted for jobs that they posted but have not been able to fill.
The next Clarence Central School District Board of Education meeting will begin with an executive session, and the public portion of the meeting will start at 6:30 p.m. Tuesday, Sept. 20.

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