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Schools’ 4-Percent Rule

Wed, 02/07/2024 - 18:03


The New York State comptroller’s office recently designated the Springs School District as susceptible to fiscal stress. The reason was that the district’s “unassigned, unrestricted fund balance” is dangerously low: .28 percent of the prior year’s budget. The state comptroller generally likes to see at least 1 percent in this account — usually coming from end-of-year budget surpluses that are viewed as a cushion for unexpected expenses — but not more than 4 percent.

It should be noted that schools and municipalities get basically a reprimand — an audit report, a newspaper headline — if they exceed the limit. But in a small district like Springs, which pays tuition to send its high school students to East Hampton, finances can be hit hard if new students arrive midyear or urgent repairs are needed. Both of those situations have come up recently in Springs. If the comptroller had allowed it to hold on to a little more than 4 percent in its surplus account, Springs may have had a larger cushion for those unanticipated expenses.

Another example is the even smaller district of Wainscott. It is on an austerity plan after its school budget was voted down twice last year. Wainscott once had a surplus of more than 50 percent, which it spent down over about a decade by using it to offset what otherwise would have been budget increases. Last year, thanks to an unusual burst of school enrollment, it faced a deficit of almost $1 million. The 4-percent rule, and the comptroller’s directive to spend down the excess, worked against Wainscott in the long run.

Given that the state’s other dominant financial tool, the cap on tax-levy increases that’s often called the “2-percent tax cap,” has been effective in reining in big, unchecked spending increases by schools and other municipal entities, it may be time to revisit the comptroller’s rule, which we view as potentially harmful to small and rural school districts.

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