19 Long Island school districts beyond legal limits on cash reserves, according to state records

Nineteen school districts across Long Island accumulated cash reserves that are beyond legal limits and subject to growing scrutiny from Albany, a Newsday review of state records finds. 

Excessive funds in question are unrestricted reserves, commonly known as “rainy day” funds, which by law are restricted to 4% of local budgets. Systems with the largest unrestricted surpluses include Brentwood with $87 million, equivalent to 15.5% of its budget; Freeport with $20.6 million, or 8.6%; and Lawrence, $7.5 million, or 7.3%.

A group of smaller districts in the Island’s East End were notable for the size of their reserves in percentage terms, though dollar amounts were relatively low. Oysterponds reported a $1.4 million surplus, equivalent to 26.7% of its budget; East Quogue, $5.1 million, or 17.7%; and Remsenburg-Speonk, $2.4 million, or 15.1%.

Financial data used in the review came from New York State Property Tax Report Cards released in May by the state Department of Education. The reports included estimates by 121 districts in Nassau and Suffolk counties of reserves they expected to hold by the close of the 2023-24 school year on June 30.

The great majority of the region’s districts — 102 — reported they expected to keep within the 4% limit. New Suffolk, Sagaponack and Wainscott were excluded from reports due to their small size.

Along with unrestricted reserves, the report card also provides numbers on restricted reserves — money set aside for specific purposes such as school construction — and “assigned” reserves appropriated for annual budgets. Combined reserves Islandwide totaled nearly $3.25 billion in 2023-24, equivalent to 21% of budgeted spending. The $3.25 billion figure was up 3.7% from the previous year. 

No penalties for hefty reserves

In recent months, Gov. Kathy Hochul has scolded districts with excessive unrestricted cash and suggested some sort of financial penalty for those that do not comply. Currently, the state sets no penalties.

In response, many of the Island’s school leaders have asserted that state limits imposed on districts are overly restrictive and should be adjusted to help schools cope with inflationary cost increases. Some officials add the state needs to be more flexible in allowing them enough reserve money to deal with special circumstances such as sudden surges in enrollment.

In Lawrence, Superintendent Ann Pedersen said her district's reserves had helped keep taxes low in response to community concerns, while also maintaining academic programs. The district enrolls about 2,140 students in southwest Nassau County.

“The four percent absolute, ‘one-size-fits-all’ cap on reserves is unrealistic,” Pedersen said in a statement.

Cheryl Pedisich, interim schools chief in Riverhead, which reported reserves of $9.6 million or 5%, also described the state's limit as unrealistic.

Denise Sullivan, the schools chief in Remsenburg-Speonk, said reserves there helped protect against the possibility of being overwhelmed by unexpected jumps in tuition costs. Like many small East End districts, Remsenburg-Speonk educates elementary students in its own school, while paying tuition in order to send older students to secondary schools in neighboring districts.

Similar points were raised by administrators in East Quogue and Quogue.

Sullivan recalled what happened during the COVID-19 pandemic, when enrollments jumped as many families that had lived in New York City decided to move year-round to summer homes in the Hamptons. Currently, Remsenburg-Speonk pays $24,763 in tuition for each of its students enrolled in regular classes in a neighboring system, and $74,628 for students enrolled in special education.

“Half of my students attend middle school and high school in other districts, and I have no control over that,” Sullivan said during a phone interview.

Remsenburg-Speonk is located in Southampton Town, with a total of 277 resident students attending either the local school or those in other districts.

Funding formula being studied

Later this month, the issue of school reserve funds and related topics will be spotlighted at a regional hearing on the Island. Hochul has assigned the Rockefeller Institute of Government, an Albany-based think tank, to conduct a $2 million state-funded analysis of state school funding and come up with recommendations for change by December.

As part of its study, the institute will hold five public hearings across the state. The Long Island session is to run from 2 to 5:30 p.m. on July 30 at Weldon E. Howitt Middle School, 70 Van Cott Ave., Farmingdale.

One question to be examined is whether districts’ surplus funds in excess of 4% should be included in the state's formulaic calculations of how its financial aid is distributed among districts. Any such move could potentially result in aid losses for targeted systems. 

Hochul outlined her position at an April 15 news conference. The session focused on the state’s recently adopted annual budget, which included funding for the Rockefeller Institute study.

“As we speak, some school districts have considerable cash reserves that exceed the amount they’re allowed to have by law,” the governor said. “So our schools in working-class communities are limited to no reserves; others are doing just fine. So, now’s the right time to take this on and begin to fix the way we fund schools to make sure it’s equitable, fair and doing the right thing."

Hochul added, “We can’t continue to have large sums of money sitting in school district reserves, when that money could be used in helping students in low-income neighborhoods, or students of color, or for return to taxpayers.”

In response, education leaders on the Island pointed out the governor herself has boasted of raising state reserves to 15% of the overall budget as an essential hedge against financial setbacks. Several education organizations, including the Nassau-Suffolk School Boards Association, have long called for lifting the 4% limit.

Some outside experts support the idea of expanded reserves. The Government Finance Officers Association, a national group based in Chicago, recommends districts maintain unrestricted cash balances of no less than two months’ operating expenses, or about 16%.

“We believe school districts should have the same ability to have unassigned fund balances as all other municipalities, including New York State, that currently has over 15% in this category,” Robert Vecchio, executive director of the school boards group, said in a statement to Newsday.

“We continue to call on our State officials to allow greater flexibility in the restrictive 4% limit,” Vecchio added. “We believe that it is inappropriate and counterproductive for the state to ‘penalize’ school districts that manage their budgets well and, as a result, have a healthy fund balance.”

Justin Cobis, the Oysterponds superintendent, agreed. “It’s frustrating that New York State doesn’t operate on the same principles they impose on school districts,” he said.

Oysterponds enrolls about 100 students on the Island’s North Fork.

Cobis added expanded reserves serve as a financial buffer in small districts such as his, where the enrollment of a single student with disabilities requiring expensive therapy can put a big dent in budgets.

Other districts surveyed by Newsday cited a variety of reasons for reports of reserves over the allowed limit.

Spending money, but 'cautiously'

Brentwood interim Superintendent Wanda Ortiz-Rivera attributed her district’s surplus to an “unprecedented” flow of state and federal financial assistance over the past three years. She added the money was being spent “cautiously and efficiently” to enrich opportunities for students and to update the district’s aging physical plant. Brentwood is the Island’s largest, with more than 18,000 students.

Floral Park-Bellerose, with a percentage of 4.07% that was slightly over the limit, indicated reserves were needed to help cope with a phaseout of federal stimulus money. 

Mount Sinai described its 4.12% figure as a preliminary estimate, adding it ultimately should drop to 4%.

Southampton said its reported 4.13% stemmed from a typographical error and should have been 4%. 

Island Park, with an 11.7% reserve, said much of the money came from a financial settlement with LIPA and was being transferred to a special fund authorized by the state.

Hampton Bays, with 10.9%, said much of its money is being used to pay off a bond issue early in a move that will reduce costs and lower the figure to 4% next year.

Merrick, with 8.01%, said it expected to reduce that figure by the end of the fiscal year, though it did not yet know by how much.

Cold Spring Harbor’s 9.82% figure reflects an unusual situation. Last year, the district agreed to pay a combined $14 million to settle federal lawsuits filed by two former students who alleged they were sexually abused by their now-deceased teachers more than 40 years ago.

Funds to pay the settlement came partly from a liability reserve, but also from unrestricted reserves, because the liability money alone was not enough to cover costs, an official said. One payment of $4.5 million was made in September; another of $9.5 million in June.

“It was a one-time necessity,” Superintendent Jill Gierasch said. “We’re not ignoring the limitations of the 4% requirement. We were just being fiscally and legally responsible in meeting our obligations.”