East Islip, Shelter Island districts rapped by state auditors for hefty cash reserves
East Islip Superintendent John Dolan, in response to a state audit, said the district is developing a five-year plan to help with budget decisions in the future. Credit: Johnny Milano
East Islip and Shelter Island have joined a growing list of school districts rapped by state auditors for amassing cash reserves beyond what's legally allowed.
Stockpiled school funds, long a simmering issue on Long Island, have taken on added significance, as the state moves toward a decision on whether to cut school aid. Gov. Andrew M. Cuomo has warned he may do so, due to tax-revenue losses triggered by the COVID-19 pandemic, unless Washington provides more relief money.
In East Islip's case. state auditors found that district reserves rose from $9.2 million in July, 2015, to $22.1 million in June 2019 — a 141% increase over four years. East Islip's total annual budget is about $120 million.
The state Comptroller's Office reported that East Islip built cash surpluses, known as fund balances, largely by overestimating costs of employee benefits at an average $2.2 million a year. If the district continued down this road, auditors advised, "property taxes will continue to be higher than needed to fund operations."
In a response, leaders of the 3,660-student district said they acted "prudently on behalf of the taxpayers" and were developing a five-year plan to help make budget decisions in the future. The statement was signed by John Dolan, the district superintendent, and William Carpluk, the school board president.
In regard to Shelter Island, which is far smaller than East Islip, the state zeroed in on the district's failure to improve budgeting practices and pare back on reserves, even after it was told to do so in a 2014 audit. Auditors reported that the district overestimated expenses by more than $685,000 annually over four years, and left a $1.7 million surplus unspent.
The district's annual budget is about $11,935,000.
Brian Doelger, superintendent of Shelter Island schools, acknowledged "a tremendous amount" of administrative turnover in his district, but added he hoped for greater stability moving forward. Credit: Veronique Louis
“Board members and officials stated they are aware of and comfortable with the fund balance amount and the fact that it does not comply with statute,” the Comptroller’s Office declared.
A state audit report characterized Shelter Island’s administrative office as a sort of revolving door, noting the district went through four superintendents since September 2014. Moreover, the district of about 210 students employed three different business officials since September 2015.
Brian Doelger, who took over as superintendent in August, acknowledged “a tremendous amount” of administrative turnover, but added that he hoped for greater stability moving forward. Doelger went on to say that small districts often had difficulty projecting expenses in advance. The reason, he said, was that the arrival of a single high-cost student — for example, someone with a disability — “has the potential to throw our budget into financial disarray.”
East Islip and Shelter Island are among more than 30 districts cited by state audits for unallowable surpluses since 2014.
Many educators respond that "rainy day" funds are essential for keeping schools running, especially in time of financial crisis. On Monday, Cuomo's budget division released a report saying the state might cut aid to localities, including school districts by $8.2 billion, as early as mid-May.
East Islip cited that risk in defending its handling of reserve funds.
Dolan, for example, spoke of "efforts to build efficient reserves, critical in offsetting shifts in state aid revenue, a shift which we will potentially experience this budget season."
At issue is a provision of New York State Real Property Tax Law, which limits surplus funds districts can bank to 4% of the following year’s budget. This applies only to unallocated reserves, not to funds set aside for specific purposes such as school construction or contributions to employee retirement funds.
In recent years, the state has loosened restrictions somewhat — for example, by raising the limit from 3% to 4%. Last year, lawmakers for the first time allowed districts to start setting money aside in new reserve funds designated for contributions to the teacher-retirement system.
To keep watch over such arrangements, the Comptroller's Office can examine districts' financial records and issue reports, including any evidence of incompetence or legal violations, The agency can refer criminal behavior to law enforcement authorities for prosecution, but cannot penalize districts for exceeding the 4% fund-balance limit.
Some conservatives believe New York has not done enough to curb financial excesses, even though the state maintains one of the strictest tax-cap laws in the country. Andrea Vecchio, a taxpayer activist in East Islip, told Newsday the latest audit left her with a sense of “deep down anger.”
“We’ve been saying this for years and years, and nothing gets done,” Vecchio said. “They keep taxing us, and people here are suffering because they can’t work.”
John Hildebrand is Newsday's senior education writer and has covered school news and policy issues affecting Long Island for more than 40 years.
