Comptroller says taxpayer money is stranded in employee benefit reserves

By Zach Simeone

Across the state, 251 school districts have set aside a total of close to $407 million in employee benefit reserves that is currently unused and inaccessible, according to the New York State comptroller’s office.

The only district in Albany County listed as having too much in its reserves is Berne-Knox-Westerlo.

“The state’s in trouble fiscally,” said BKW’s business administrator Timothy Holmes, “but to me this is kind of blown out of proportion.” He believes that reserves are important for the health of the district.

At a press conference Tuesday morning, New York State Comptroller Thomas DiNapoli expressed his support for legislation that would allow school districts to use the excess funds to lower property taxes, avoid expensive borrowing, and give money back to the taxpayers.

The money in these employee benefits accrued liability reserves, or EBALRs, goes towards post-employment pay for accrued and unused sick leave, holiday leave, vacation leave, time allowance granted in lieu of overtime compensation, and other forms of leave time.

Also on Tuesday, the comptroller released a series of data pertaining to the money in these funds. The data covered 251 districts in New York State.

The administration at BKW, which held close to $400,000 of excess capital in its EBALR fund last year, says that this money is not as frozen as suggested in the comptroller’s release, and that having these reserves is essential.

In 2007, the 251 districts set aside $605.8 million in EBALR funds, 204 percent more than the $199 million the schools were actually liable for, according to the data collected by DiNapoli’s office.

“We looked at all school districts in the state, and we found that 440 had established the EBALR funds,” said Emily DeSantis, spokeswoman for the comptroller.

BKW was the only district in Albany County to be mentioned on the comptroller’s list of districts with over-funded employee benefit reserves. The district’s reserves had accrued a total $554,828 in 2007, which is $376,303 more than the $178,525 that was needed that year.

Under general municipal law, “EBALR funds can only be used for employees’ accumulated leave benefits that are paid directly to employees when they no longer work for the school district and administrative costs associated with these payments,” says the comptroller’s release.

EBALR funds cannot be used to pay for payroll taxes, Medicare taxes, or post-employment health insurance and life insurance, the release says.

The 32-page audit released by the comptroller essentially echoes his comments at the press conference: “EBALR monies in excess of the fund’s liabilities can be transferred only to specific reserve funds. They cannot be used to pay for district operating expenses other than those associated with compensated absences.”

DeSantis, though, said that the law is a bit more flexible than is stated here.

“If the school district has a capital reserve account, they can transfer the money into that account,” said DeSantis. Capital reserve accounts are for projects like building renovations.

“There is a provision that it can be transferred to that one fund, but nowhere else, and that’s only if there is such a fund,” she said.

The last released opinion from the office of the state comptroller on EBALR funds does not address the transfer of these funds to other accounts.

BKW reaction

Administrators at BKW aren’t entirely convinced that this money is as inaccessible as the comptroller’s office suggests.

Superintendent Steven Schrade said this week that the administration is discussing ideas for other potential uses of that money.

“What the board recommends is that an amount, to be determined, be transferred either to the transportation reserve, from where we purchase our buses, or to the capital reserve, which is used for building projects,” Schrade said. “So, that’s our initial thoughts about it,” he said.

“We’re still trying to make sure we have the right figures, and we want to be sure we understand what it is that the comptroller is saying about the fund before we make any solid recommendations,” said Schrade.

Holmes, BKW’s business administrator, thinks that the situation has been exaggerated by the comptroller’s report, shows the district in a “bad light,” and fails to illustrate the importance of reserves to the financial health of the district.

“My understanding is, we can move excess funds into other reserves, if need be,” said Holmes. “They're showing a report from 2007 with a reserve above the compensated absences. But there's a lot of confusion on the employee liability reserve as far as what exactly can be funded in there,” he said.

Holmes went on, “We’re audited every year by an external auditor, and we also went through a state auditor, and neither one of them said our employee liability balance was a problem. Then, all of a sudden, this report comes out,” he said.

He said that the money is not being wasted, nor is the district overtaxing people. “Fiscally, you have to have some reserves,” said Holmes. “You want to be fiscally strong, and reserves are a key to being fiscally strong. If there is a problem, you have some options at your disposal with reserves,” he said.

Holmes went on to say that the district’s options for use of the employee liability reserve are very limited. “The only thing you can do currently is use the funds to pay for some employee benefits when people retire, mainly vacation accruals,” he said.

Schrade said that this issue will probably be discussed at the next regular school board meeting. “But,” he concluded, “there’s really no emergency.”

Other local

school districts

The amount that the Guilderland School District keeps in its EBALR doesn’t meet its expenses.

“We’re underfunded,” said Neil Sanders, Guilderland’s assistant superintendent for business. “Our liability is greater than our reserve…We have 1,100 employees.”

In 2007, Guilderland had $783,306 in its EBALR, and paid out $2.2 million for compensated absences.

In 2008, Guilderland had $809,967 in the reserve, and the liability again totaled over $2 million.

“You’re not supposed to reserve more than your potential liability, and we don’t,” said Sanders, adding that he had confirmed Guilderland’s procedures with its auditors, The Bonadio Group.

Sanders said that this is true of all of Guilderland’s reserves. “We’re within the requirements for all of them,” he said.

In addition to the EBALR, Guilderland has six reserves — for workers’ compensation, for unemployment, for repairs, for retirement contributions, for tax certiorari, and a capital reserve for an improvement project.

“Every time we have extra in the fund balance, we look at [placing the excess in] reserves,” said Sanders.

Earlier this month, when the school board considered a million-dollar surplus over the state-set limit for its fund balance, the board decided not to put the surplus into reserves but rather, in light of the state’s fiscal crisis, to keep it available in case the district needed it.

“There is some confusion around the employee benefits accrued liability reserve,” said Sanders, “in terms of interpretation.” Guilderland’s approach matches the state comptroller’s: “We use it only for compensated absences as opposed to post-retirement benefits,” said Sanders.

Voorheesville does not have an EBALR, said Assistant Superintendent for Business Sarita Winchell. “I always look at the need and purpose for a reserve,” she said, “and felt we already met that purpose.”

She noted that funds in the reserve cannot be used for health insurance or workers’ compensation, which, she said, “We pay as we go.”

Voorheesville tracks its accrued benefits as part of its assets and liability statement “under compensated absences,” said Winchell.

— Melissa Hale-Spencer wrote the sections on Guilderland and Voorheesville.