Introduction: What is the purpose of reserve funds?
Reserve funds, like other savings plans, are mechanisms for accumulating cash for future capital outlays and other allowable purposes. The practice of planning ahead and systematically saving for capital acquisitions and other contingencies is considered prudent management. Savings for future capital needs can reduce or eliminate interest and other costs associated with debt issuances. Similarly, certain reserve funds can be utilized to help protect the budget against known risks (a potential lawsuit) or unknown risks (a major ice storm). Most reserve funds are established to provide resources for an intended future use. While reserves help protect the budget and come into play to meet certain expenses, responsible use of reserves also means they are not part of the annual budget process in the sense that they should not be used to fund recurring general operating expenses such as salaries or supply needs.
Each statute that authorizes a reserve fund sets forth a particular underlying purpose for the fund. For example, provisions of the General Municipal Law (the GML) and the Education Law allow municipalities and school districts to establish capital reserves for future equipment purposes and capital improvements. Establishing and funding allowable reserve funds for a clear purpose can help smooth out spikes in the annual budget and in the real property tax levy.
Above Information Adapted from: Office of the New York State Comptroller-Local Management Guide for Reserves, http://www.osc.state.ny.us/localgov/pubs/lgmg/reservefunds.pdf
Reserve for Encumbrances
The reserve for encumbrances allows the district to carry over purchase orders at the end of a fiscal year into the next fiscal year if the obligation was not met in the fiscal year the purchase order was established.
Capital Reserve Funds – 2016 and 2024
Capital Reserve Funds are used to pay the cost of any object or purpose for which bonds may be issued. Voter authorization is required for both the establishment of the reserve and for payments from the reserve. The form of the required legal notice for the vote on establishing the reserve and the form of the proposition to be placed on the ballot are set forth in §3651 of the Education Law. The reserve is intended to reduce the impact to district residents of capital projects. A Capital Reserve was approved by voter referendum on May 17, 2016, with a term of 10 years and a maximum funding level of $20,000,000. This reserve has been instrumental in mitigating the tax impact of the two current Capital Projects (2021, $79 million and 2024, $47 million). These funds lower the amount that needs to be borrowed and help drive state Building Aid to help support the project and offset the local cost. Recognizing that the district was reaching its contribution limit of $20 million for the 2016 reserve, in May 2024, the Board of Education proposed, and voters approved, the creation of a new Capital Reserve with a funding term of 10 years and a maximum contribution level of $25 million.
Insurance Reserve Fund
The Insurance Reserve was established by the Board of Education on June 21, 2010, with a maximum funding of $250,000. This reserve is used to pay for property loss and liability claims incurred.
Employee Benefit Accrued Liability Fund
The governing board of any school district, by resolution, may establish a reserve for the purpose of funding the monetary value of accrued but unused sick leave, personal leave, vacation time, and any other forms of payment of accrued but unliquidated time earned by employees. The Employee Benefit Accrued Liability (EBAL) Reserve was established prior to 1998.
Retirement Contribution Reserve
The governing board of a school district, by resolution, may establish a reserve for the purpose of financing retirement contributions made to the NY State and Local Employees’ Retirement System (ERS). Employer contributions for the Teachers’ Retirement System are not allowed under this reserve. The retirement contribution reserve was established by the Board of Education on June 21, 2010, at a maximum funding level of $500,000. Contribution rates for ERS vary based on economic conditions, particularly stock market performance, and this reserve can help protect the budget from significant changes (increases) in those rates.
Teachers’ Retirement System Contribution Reserve Sub-Fund
The governing board of a school district, by resolution, may establish a reserve for the purpose of financing retirement contributions made to the NY State Teachers’ Employees’ Retirement System (TRS). This reserve fund is a sub-fund of the ERS Contribution Reserve. Each year districts are allowed to fund the reserve up to 2% of TRS salaries paid in the prior year. Similar to ERS, contribution rates for TRS vary based on economic conditions, particularly stock market performance and this reserve can help protect the budget from significant changes (increases) in those rates.
Unemployment Reserve
This reserve is designed to pay the cost of reimbursement to the State Unemployment Insurance Fund for payments made to claimants where the school district uses the benefit reimbursement method (General Municipal Law, §6-m). The unemployment reserve was established by the Board of Education prior to 1998. The unemployment reserve is used to pay for unemployment claims in excess of budgeted amounts for this expense.
Tax Certiorari Reserve
The tax certiorari reserve was established by the Board of Education prior to 1998. This reserve is used to pay settlements on tax certiorari cases, which are essentially challenges to property assessment levels. The allowable amount in this reserve is limited to a reasonable amount based on pending tax certiorari cases.
Workers’ Compensation Reserve
The Workers’ Compensation Reserve was established by the Board of Education prior to 1998. This reserve is used to pay for expenses related to Workers’ Compensation including medical and indemnity claims and self-insurance administrative costs (General Municipal Law, §6j). The District is self-funded for Workers’ Compensation.
Unassigned Fund Balance
Unassigned fund balance is limited to 4% of the subsequent year’s budget.
Assigned Fund Balance
Assigned fund balance is funds set aside to reduce the tax levy that supports the following year’s budget.