12 Long Island school districts have too much money in reserve, audits say. A think tank has proposed solutions
A dozen school districts on Long Island are among the more than 80 statewide that have been flagged in recent years for stockpiling cash reserves deemed unnecessary or even exceeding the state’s statutory limit, a Newsday review found.
These districts' financial practices have caught the attention of top officials in Albany. Earlier this month, in a report primarily focused on revamping the state's school aid formula, advisors to Gov. Kathy Hochul also put forward recommendations to address this issue.
Those recommendations, proposed by the Albany-based Rockefeller Institute of Government think tank, deal specifically with districts whose year-end budget surpluses, known as fund balances, were higher than allowed. Currently, fund balances must equal no more than 4% of a district's operating budget.
Critics argue that additional money could be used toward property tax relief or paying down debt. But supporters have countered that the extra money allows districts to better plan for the long term and cover unexpected costs.
“I think the districts feel that the 4% max that’s now out there is, number one, not particularly enforced by the state, and number two, puts the districts in the position of kind of hiding the money in their drawer, as opposed to being more open about what they’re doing financially,” Bob Megna, a financial policy expert and president of the Rockefeller Institute of Government, told Newsday.
The institute’s recommendations, at least some of which could be included in Hochul's state budget proposal next month, call for two potential solutions to the issue of excess fund balances. One deals with districts covered under the state’s “save harmless” provisions, which are rules that guarantee districts won't lose aid money if their enrollment declines.
These districts could stand to lose state aid, as they would be required under the recommendations to use their additional surplus to offset what they receive in financial assistance.
Districts not covered by the “save harmless” provisions would be allowed to maintain surpluses of up to 10% if they had a plan to spend down the money within five years. That plan would have to be approved by local voters and the state.
Bob Vecchio, executive director of the Nassau-Suffolk School Boards Association, said that board members have long supported lifting the 4% cap, which most consider too low. But he also raised concerns about the institute's recommendations.
"Almost 40% of districts in the state are on 'save harmless' at this point," Vecchio said. "So many would be allowed 10% and many wouldn't — and by the way, there are a lot of strings attached."
Fred Gorman, a longtime taxpayer advocate on the Island, denounced the idea of raising the ceiling to 10%.
“That’s the same thing as raising taxes,” said Gorman, who lives in Nesconset. “Districts have no need for 10%. I guarantee you that, if they get 10%, then teachers will get raises of 6.5%.”
About one-third of the school districts in the state had fund balances over the permitted 4% limit in the 2022-2023 school year, according to the Rockefeller Institute's report.
While the amount of those reserves likely fluctuates from year to year, Newsday's review of 83 state audit reports found that cash surpluses cited by the Comptroller’s Office over the past five years totaled more than $500 million in districts statewide, and more than $160 million in Nassau and Suffolk counties.
The Long Island districts cited were Freeport, Merrick, Long Beach and Mineola in Nassau County, and Bayport-Blue Point, Connetquot, East Islip, East Moriches, Oysterponds, Shelter Island, Southampton and West Islip in Suffolk.
Auditors reported that many districts consistently overestimated expenses, producing surpluses that were rolled over year after year without being spent. There is currently no penalty for doing so.
In Freeport, which enrolls about 6,200 students, a comptroller's report released in November stated that year-end fund balances of up to $26.2 million consistently exceeded state limits over a four-year period. In June 2023, for example, the surplus was equivalent to 12.2% of the district's budget — more than three times the allowable amount.
Auditors also noted that Freeport had been criticized for similar financial practices in an earlier report issued in December 2016.
In response, Freeport’s superintendent, Fia Davis, sent a six-page letter to the Comptroller’s Office on Sept. 20 defending her district’s record. She pointed out that raises in local taxes had been kept relatively low and that the district had been commended by bond-rating companies for maintaining strong reserves. She also argued that Freeport needed to keep extra cash on hand, because it served a large transient student population that fluctuated in size and made planning difficult.
“While the District acknowledges the finding in the Draft Audit Report, we respectfully differ with the findings when considering the vast needs of the Freeport Public Schools, which is a high-need low-wealth District,” the schools chief wrote. “We all have been influenced in our planning by the unpredictability of life in a pandemic, and during national educational turmoil.”
In a statement emailed to Newsday on Thursday, Davis said she supported the Rockefeller Institute's recommendation to allow some districts a 10% fund balance.
"As stated in my response to the comptroller, the current 4% limit is detrimental to our ability to properly save as a high-needs district," she wrote.
Another Long Island district that was recently audited was Merrick, which enrolls about 1,600 students. Results of that district's audit were posted in September.
In their report, auditors said the district overestimated expenses over a four-year period, for a total of $6.9 million. As a result, Merrick during the 2022-23 school year had a year-end surplus equivalent to 8% of its operating budget — double the allowable limit.
In response, Superintendent Dominick Palma said his district since 2016 had been taking steps to reduce its year-end surpluses — a point confirmed by state auditors. Those surpluses dropped from 19% of the district's budget in 2015 to 5.1% in 2024, according to the district.
In a statement to Newsday, Palma endorsed the proposal to increase the state's year-end fund-balance limit to 10%.
"This will enable districts to improve long-term fiscal stability while supporting our educational goals," he wrote.
A dozen school districts on Long Island are among the more than 80 statewide that have been flagged in recent years for stockpiling cash reserves deemed unnecessary or even exceeding the state’s statutory limit, a Newsday review found.
These districts' financial practices have caught the attention of top officials in Albany. Earlier this month, in a report primarily focused on revamping the state's school aid formula, advisors to Gov. Kathy Hochul also put forward recommendations to address this issue.
Those recommendations, proposed by the Albany-based Rockefeller Institute of Government think tank, deal specifically with districts whose year-end budget surpluses, known as fund balances, were higher than allowed. Currently, fund balances must equal no more than 4% of a district's operating budget.
Critics argue that additional money could be used toward property tax relief or paying down debt. But supporters have countered that the extra money allows districts to better plan for the long term and cover unexpected costs.
WHAT NEWSDAY FOUND
- A Newsday review determined that a dozen school districts on Long Island have been flagged in recent years for stockpiling cash reserves deemed unnecessary or even exceeding the state’s statutory limit.
- Critics argue that money could be applied toward property tax relief or paying down debt, but supporters say the reserves allow districts to better plan for the long term and cover unexpected costs.
- An Albany-based think tank has proposed solutions to address the issue.
“I think the districts feel that the 4% max that’s now out there is, number one, not particularly enforced by the state, and number two, puts the districts in the position of kind of hiding the money in their drawer, as opposed to being more open about what they’re doing financially,” Bob Megna, a financial policy expert and president of the Rockefeller Institute of Government, told Newsday.
Robert Megna of the Rockefeller Institute of Goverment Credit: Bryan Smith
Solutions proposed
The institute’s recommendations, at least some of which could be included in Hochul's state budget proposal next month, call for two potential solutions to the issue of excess fund balances. One deals with districts covered under the state’s “save harmless” provisions, which are rules that guarantee districts won't lose aid money if their enrollment declines.
These districts could stand to lose state aid, as they would be required under the recommendations to use their additional surplus to offset what they receive in financial assistance.
Districts not covered by the “save harmless” provisions would be allowed to maintain surpluses of up to 10% if they had a plan to spend down the money within five years. That plan would have to be approved by local voters and the state.
Bob Vecchio, executive director of the Nassau-Suffolk School Boards Association, said that board members have long supported lifting the 4% cap, which most consider too low. But he also raised concerns about the institute's recommendations.
"Almost 40% of districts in the state are on 'save harmless' at this point," Vecchio said. "So many would be allowed 10% and many wouldn't — and by the way, there are a lot of strings attached."
Bob Vecchio Credit: James Escher
Fred Gorman, a longtime taxpayer advocate on the Island, denounced the idea of raising the ceiling to 10%.
“That’s the same thing as raising taxes,” said Gorman, who lives in Nesconset. “Districts have no need for 10%. I guarantee you that, if they get 10%, then teachers will get raises of 6.5%.”
Surpluses defended
About one-third of the school districts in the state had fund balances over the permitted 4% limit in the 2022-2023 school year, according to the Rockefeller Institute's report.
While the amount of those reserves likely fluctuates from year to year, Newsday's review of 83 state audit reports found that cash surpluses cited by the Comptroller’s Office over the past five years totaled more than $500 million in districts statewide, and more than $160 million in Nassau and Suffolk counties.
The Long Island districts cited were Freeport, Merrick, Long Beach and Mineola in Nassau County, and Bayport-Blue Point, Connetquot, East Islip, East Moriches, Oysterponds, Shelter Island, Southampton and West Islip in Suffolk.
Auditors reported that many districts consistently overestimated expenses, producing surpluses that were rolled over year after year without being spent. There is currently no penalty for doing so.
In Freeport, which enrolls about 6,200 students, a comptroller's report released in November stated that year-end fund balances of up to $26.2 million consistently exceeded state limits over a four-year period. In June 2023, for example, the surplus was equivalent to 12.2% of the district's budget — more than three times the allowable amount.
Auditors also noted that Freeport had been criticized for similar financial practices in an earlier report issued in December 2016.
In response, Freeport’s superintendent, Fia Davis, sent a six-page letter to the Comptroller’s Office on Sept. 20 defending her district’s record. She pointed out that raises in local taxes had been kept relatively low and that the district had been commended by bond-rating companies for maintaining strong reserves. She also argued that Freeport needed to keep extra cash on hand, because it served a large transient student population that fluctuated in size and made planning difficult.
“While the District acknowledges the finding in the Draft Audit Report, we respectfully differ with the findings when considering the vast needs of the Freeport Public Schools, which is a high-need low-wealth District,” the schools chief wrote. “We all have been influenced in our planning by the unpredictability of life in a pandemic, and during national educational turmoil.”
Freeport Schools Superintendent Fia Davis during meeting at Freeport High School on Dec. 11. Credit: John Roca
In a statement emailed to Newsday on Thursday, Davis said she supported the Rockefeller Institute's recommendation to allow some districts a 10% fund balance.
"As stated in my response to the comptroller, the current 4% limit is detrimental to our ability to properly save as a high-needs district," she wrote.
Support for savings increase
Another Long Island district that was recently audited was Merrick, which enrolls about 1,600 students. Results of that district's audit were posted in September.
In their report, auditors said the district overestimated expenses over a four-year period, for a total of $6.9 million. As a result, Merrick during the 2022-23 school year had a year-end surplus equivalent to 8% of its operating budget — double the allowable limit.
Merrick Schools Superintendent Dominick Palma Credit: Newsday/Alejandra Villa Loarca
In response, Superintendent Dominick Palma said his district since 2016 had been taking steps to reduce its year-end surpluses — a point confirmed by state auditors. Those surpluses dropped from 19% of the district's budget in 2015 to 5.1% in 2024, according to the district.
In a statement to Newsday, Palma endorsed the proposal to increase the state's year-end fund-balance limit to 10%.
"This will enable districts to improve long-term fiscal stability while supporting our educational goals," he wrote.
John Hildebrand is Newsday's senior education writer and has covered school news and policy issues affecting Long Island for more than 40 years.
