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
What follows is a brief description of current district reserve funds and the balance of each as of June 30, 2020. In times when the district is able to operate with a surplus, decisions are typically made at the end of each year about changes in reserve funding levels.
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.
Balance at June 30, 2020: $584,497
Capital Reserve Fund
The Capital Reserve Fund is used to pay the cost of any object or purpose for which bonds may be issued. The Capital Reserve was approved by voter referendum on May 17, 2016. The term of the reserve is 10 years with a maximum funding level of $20,000,000. The funds in this reserve will be used to lower the amount of a future borrowing associated with the approved capital project.
Balance at June 30, 2020: $7,723,868
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.
Balance at June 30, 2020: $253,843
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.
Balance at June 30, 2020: $357,784
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.
Balance June 30, 2020: $405,184
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.
Balance at June 30, 2020: $653,725
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.
Balance at June 30, 2020: $58,494
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.
Balance at June 30, 2020: $649,087
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.
Balance at June 30, 2020: $284,359
Unassigned Fund Balance
Unassigned fund balance is limited to 4% of the subsequent year’s budget. Beginning June 30, 2015 through last year, the District was able to maintain unassigned fund balance at the maximum 4% level. The balance at June 30, 2020 represents 3.49% of the 2020-21 budget.
Balance at June 30, 2020: $3,170,136
Assigned Fund Balance
Assigned fund balance is funds set aside to reduce the tax levy that supports the following year’s budget. Between the 2014 and 2015 budget years, the district was able to reduce assigned fund balance by 63%.
Balance at June 30, 2020: $4,191,986
Note: The proposed 2021-22 school budget reduces reliance on assigned fund balance by 35% to $2,728,416.