School districts have set aside about $407 million too much in special accounts to pay for departing employees’ unused leave time, according to a report released Tuesday by state Comptroller Thomas DiNapoli.

“School districts may have thought they were planning prudently for long-term costs,” DiNapoli said in a statement. “But they actually were stranding more than $400 million that could have been used to reduce property taxes. The districts had good but misguided intentions.”

New York has more than 800 school districts, 421 of which have special accounts set up to pay employees for unused time. Of those, 251 set aside an estimated $407 million more than was necessary to cover the cost for the accrued time, DiNapoli’s office found. Their total liabilities were $154.3 million, but the combined total of their funds was $605.8 million.

The Comptroller’s Office audited 19 districts, including ones in Chemung, Rockland and Erie counties. The agency found that school systems increased balances in their special accounts by $100 million and raised property taxes by $243 million between June 2003 and June 2007. Horseheads School District in Chemung County increased funding for the account by $11.8 million from 2002-03 to 2006-07, and the property-tax levy went up $7.5 million during that time.

School districts generally believed they were being fiscally prudent in setting aside the money, the comptroller said. However, they were putting money into those accounts that was for other kinds of post-employment benefits, such as health and life insurance, which DiNapoli said is not allowed under current law. Some transferred surplus money into their accounts. Others did not use money that had been set aside to pay for leave, instead taking money from their operating budgets, the report found.

A major reason that districts improperly transferred money to the special reserve fund was to keep their unreserved fund balance below the statutory limit of 4 percent of the next year’s appropriations.

Timothy Kremer, executive director of the state School Boards Association, said school officials were working off advice from independent auditors, attorneys and others that they needed to be prepared for post-employment benefits in the short-term and long-term. There is a large bubble of people who will be retiring in the near future, he said.

“I believe they were trying to put money aside for the right reason,” Kremer said.

“Basically people are putting money into accounts where it seems as if they exceeded their authority,” Kremer said.

DiNapoli recommended that lawmakers pass legislation to require that districts remove excess money from the special accounts. The money could go toward property-tax relief, capital projects or other post-employment benefits, for example, he said.

State law does not permit districts to put money for other post-employment benefits in a special reserve fund. DiNapoli said he offered two different proposals this year on how to change the law for districts and municipalities, but the Legislature has not approved them.

Other findings in the 19 audited school districts:

(open star) Ten have not used the funds at all.

(open star) Eleven failed to keep interest income in the special accounts. Many used the money to pay for ongoing operations.

(open star) Five just transferred surplus funds at year-end into the reserve, rather than using surplus funds to finance non-recurring expenses or reduce debt. Horseheads School District in Chemung County was one of them. The practice is allowable, the audit said. However, “it demonstrates and unplanned approach to determining the most appropriate reserve fund balance necessary.”

(open star) Ten used general-fund money rather than money in the reserve account to pay for unused-leave benefits. Horseheads uses money from its operating budget to pay for unused leave time when an employee leaves. The district has $11.8 million in the special account, but it paid $169,000 to employees for accrued leave time in 2006-07 from its operating budget.

(open star) At least 15 included money from the reserve account to pay for employer-provided retiree health insurance or other costs that are not allowed.

(open star) Eight said they were advised by their independent auditors to use the special reserve fund for costs other than compensated absences.

(open star) One district, South Orangetown in Rockland County, used a different approach to calculating liability for unused leave time and its reserve fund balance was more conservative.

Source: Press Connects