Long Beach schools' budgeting practices led to higher-than-needed tax levies, state audit finds
An audit found the Long Beach School District’s reported surplus fund balance exceeded 4%, the legal limit, in three of the four school years reviewed. It was issued by the office of state Comptroller Thomas P. DiNapoli, above. Credit: Jeff Bachner
A state audit found that the Long Beach school district’s budgeting practices led to higher-than-necessary tax levies with a surplus fund balance exceeding the statutory limit, findings that district officials said were due to Superstorm Sandy reimbursement and the pandemic.
The district’s reported surplus fund balance exceeded 4%, which is the legal limit, in three of the four school years the auditors reviewed from 2018-19 through 2021-2022, according to a report issued last week by state Comptroller Thomas P. DiNapoli’s office.
The state office serves as a fiscal watchdog to the operations of local school districts.
“Had the Board and District officials developed and adopted more reasonable budgets, they could have considered using these excess funds to fund one-time expenditures or needed reserves, pay off debt or reduce the tax levy,” auditors wrote.
Long Beach officials disagreed with certain aspects of the state’s findings.
District Superintendent Jennifer Gallagher wrote in a response to the audit that the district kept more than 4% in its unrestricted fund balance for years following Superstorm Sandy at the advice of its external auditors.
In the aftermath of the 2012 storm, the district had higher amounts in that fund to shield it from the financial risk of unreimbursed storm restoration expenditures.
“We risked not receiving FEMA reimbursements of approximately $5 million,” Gallagher wrote in a statement to Newsday Friday. “If FEMA failed to reimburse those funds (which was certainly a possibility at that time), it would have put the district in financial jeopardy.”
The state, however, said district officials do not have the discretion to disregard the statutory fund balance limit and that it had more than enough funds to avoid any financial burden.
After the district received the FEMA reimbursement, Gallagher said, the district reduced the rate to 4%, where it has been for the last two years.
State auditors said officials must apply any surplus fund balance that was higher than the 4% limit to reduce the upcoming year’s real property tax levy or appropriately fund needed reserves.
In Long Beach schools, real property tax levies remained the same, meaning a 0% increase, in 2021-22 and 2022-23. The district had a 1.5% increase in 2023-24 and for 2024-25.
To the state’s disagreement that the district used surplus to fund capital projects, such as repairing faulty steam pipes, instead of lowering tax levies, district officials said those projects were much needed.
“Funding capital projects is legally permissible and allows the district to address facility emergencies when they occur, much as a homeowner does for their home,” Gallagher wrote. “While keeping taxes as low as possible is certainly a high priority for us, we also have to be sure to keep our facilities safe and well-maintained for our students.”
The district also cited the uncertainty the pandemic years created for district’s budgets.
State auditors also wrote that district officials "did not present the District’s spending plans in a transparent manner." The district transferred a total of $17.3 million of the general fund’s excess fund balance to the capital projects fund at the end of two of the four fiscal years they reviewed, but this was not clearly stated in annual budget documents for voter approval.
Gallagher objected to “the characterization of any of our budget practices as nontransparent.”
“We present the budget to the community in great detail at Board of Education meetings from January through April each year, and inform the public of budget details in mailings to every resident,” she wrote.
The auditors, however, said the 2022-23 budget notices mailed to the taxpayers and the audited financial statements reported appropriated fund balance as a total of $5,364,646.
“It was not transparent to the voters that $4,285,400 was to fund capital projects,” the report said.
A Newsday analysis published last month showed 19 school districts across Long Island accumulated cash reserves that are beyond legal limits in 2023-24. Long Beach was not one of them.
Dandan Zou covers education for Newsday. Previously, she worked for a community newspaper in Maryland and a personal finance magazine in Washington, D.C.
