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Monday, August 15, 2011

UPDATED: "Healthy" fund balance & HRBRRD back taxes

Question: I understand that Mr. Tomlinson has suggested that the Board use the $475,000 coming to B-P from the Hudson River-Black River Regulating District be used to replenish the fund balance. My question, in "good economical times," what was considered a "healthy" fund balance? What is the fund balance now? Also, Northville will be using some of the back taxes to cut the tax levy for their residents. Since these owed taxes were one of the issues, among others, brought up in the past to justify the hefty tax increases in the district, would the Board be as considerate as Northville, and pass on a cut to their taxpayers as well?

Answer: People have different opinions about what constitutes a "healthy" fund balance. Most of the bond rating agencies – Moody’s, Standard & Poors, and Fitch – recommend a fund balance between 7 and 13 percent of a municipality’s total budget. Other agencies recommend maintaining enough fund balance to cover up to three months’ worth of expenses, which would amount to 25 percent of a municipality's total budget – for B-P, this would be $7.25 million. In general, 5 percent is considered the absolute minimum.

However, New York State law restricts a school district’s undesignated, unreserved fund balance to 4 percent of its total budget. In Broadalbin-Perth’s case, 4 percent of the 2011-12 school budget would be approximately $1.16 million. However, the district estimates that it had $600,000-$700,000 in unallocated fund balance at the end of the fiscal year, which is a little more than 2 percent of its total budget. (Exact numbers will be available after the district’s annual audit.)

What’s the significance of a school district’s fund balance? In addition to making the district financially vulnerable in cases of emergencies, maintaining a fund balance below the 4 percent legal limit can also hurt the district’s bond rating. In simple terms, a school district’s bond rating can be compared to an individual’s credit rating. Our bond rating affects our ability to secure favorable interest rates when borrowing money to pay for capital expenditures, such as building renovations or the purchase of school buses. The lower our bond rating, the higher interest rates we tend to pay, and the more these items cost over the long run.

That being said, historically, Broadalbin-Perth boards of education have decided they did not want to hold any more taxpayer money in reserves than absolutely necessary. This is why B-P currently has a fund balance that is below the legal limit and far below what is considered "healthy."
- answered by Marco Zumbolo, School Business Administrator

The Board of Education will decide what to do with the back taxes from the Hudson River-Black River Regulating District once the district receives those funds.
- answered by Ed Szumowski, Board of Education President

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