HILLTOWNS — Berne-Knox-Westerlo’s salad days appear to be coming to an end as the rural district faces a potential drop in Foundation Aid under the governor’s proposed executive budget, and deals with an unflattering designation from the Office of the State Comptroller. 

On Thursday, the comptroller’s office released its stress-monitoring reports on school districts, with BKW determined to be under moderate financial stress owing mostly to its unassigned fund balance levels.

Sixteen districts, out of over 700 statewide, are designated as having some level of fiscal stress: Three are labeled as having “significant” stress, the fourth is BKW with “moderate” stress, and 12 are labeled as “susceptible to fiscal stress.” Only one other district in Albany County has been designated: The Green Island Union Free School District is designated as “susceptible to fiscal stress.”

BKW’s score on stress factors based on last year’s financial information was 51.7 out of 100. No designation is given to districts with a score between zero and 25 points; schools with a score between 25 and 45 are deemed susceptible; schools between 45 and 65 are considered moderately stressed; and schools above 65 are considered significantly stressed. 

Berne-Knox-Westerlo had — in Superintendent Timothy Mundell’s words — “strategically worked down” its unassigned fund balance after the fund had exceeded the state-set limit, which is 4 percent of the following year’s budget.

Last summer, the board of education disbursed the unassigned fund balance between the other reserve categories, but cost increases in some areas like health and prescription insurance left the district “pretty tight,” Mundell said at the board of education’s Jan. 29 meeting. 

The comptroller’s report shows that, although the district had more than $5 million in reserve overall, the unassigned account was overdrawn by about $328,000, netting it 25 points. 

Relatedly, BKW ran at an operating deficit of about 2.4 percent for the first time since at least 2021, giving the district another 6.7 points.

The remaining 20 points came from the district’s cash position. The 2022 report had given the district the same number of points in this category. 

Mundell said the district is working toward savings and monitoring areas of overrun. 

“This will be a one-time thing,” he said. “We think we fixed the underlying structural issues that are associated with that, and I believe we’ll be back to no designation next year.”

Mundell told The Enterprise after publication that the district’s finance official, Stacy King-McElhiney, would respond to questions about the designation in the coming days.

In 2014, Guilderland Central School District received a “susceptible” rating, also for reasons related to unassigned fund balance. Even though the district had denied that the score was reflective of the financial reality, it still had an impact on the district’s bond rating, which took several years to rebound.

Aid reduction 

Of seemingly greater concern for the district, however, is the potential loss of Foundation Aid since the governor proposes to remove a key clause that has allowed BKW to enjoy robust state aid packages despite declining enrollment.

Known as “hold harmless,” the clause ensured that BKW and other districts would always get at least as much Foundation Aid as they had the year prior, regardless of the circumstances.

A quarter-century ago, in 1997-98, BKW spent $9,592 per pupil while the statewide average was $9,810. In 2022-23, BKW spent about $28,000 per pupil while the state average was about $24,000.

While BKW’s state aid has increased over the years, its student enrollment has declined. With 655 current students — grades range in size from 40 third-graders to 61 tenth-graders — the rural district now has about half as many students as it did a quarter-century ago.

If Governor Kathy Hochul is successful in having that provision removed, it would result in a $624,000 loss — 8.8 percent — for BKW in the next budget cycle. 

“That $624,000 reduction is a real, hard-dollar reduction,” Mundell said. “It’s not a reduction of an anticipated increase. It’s a real-dollar reduction, and the word on the street is the other $624,000 will come out next year, so this will be a two-year phase-in of the reduced Foundation Aid.” 

Mundell said he spoke at the Assembly Minority Conference about the impact the change would have on districts like BKW, and “we all agreed this was a rural equity issue and that it marginalizes rural students and rural communities simply because of their ZIP code and the way they’re seen as wealthy.”

Community wealth, he explained, is based on property values under the state’s formulation. Property values in the Hilltowns have gone up, he said, but there remains a low number of taxable properties in the district because most zones require at least a five-acre lot, unlike suburban areas where the higher density means more taxpayers. 

“In the governor’s eyes, apparently we’re wealthy because of this formula and what she reads,” Mundell said. 

Having gone to other advocacy events in the past week, Mundell said it has been “very eye-opening” to meet with legislators and “hear the bipartisanship on this issue and the determination to reject the executive proposal and all the changes made to the way Foundation Aid formula is run.”

While he said the district will have to build a budget with the worst-case scenario in mind, he signaled that he’s optimistic about the work yet to be done legislatively. 

“It’s a process and we’ll get through it,” Mundell said. “We have to be advocates for rural school districts and rural students who are thriving, really, with what we’ve done with the money here in Berne and I’m sure in every other rural district throughout the state.”