Fund Balance Retention and Why You Should Vote NO

When you establish a pot of money for unexpected expenses you inevitably end up guaranteeing the unexpected.  Ever notice that?

On March 12th, Timberlane voters are going to be asked to let the district retain some budget surplus in a fund for future over-expenditures.  On the basis of vagueness alone, Article 6 should be defeated. On the basis of need, it should also be defeated.

The potential surplus fund could be GIANT

I believe the district’s intention is to carry a portion of just one year’s surplus in the contingency fund, but you will notice that the language of the warrant article is completely vague on this point. The fund could be understood to be cumulative year after year. Approving this article could lead to a huge contingency fund that outstrips any reasonable need. (The referenced RSAs are reproduced at the end of this note.)

Article 6:  Shall the Timberlane Regional School District vote to authorize, indefinitely until rescinded, the retention of year-end unassigned general funds in an amount not to exceed, in any fiscal year, 2.5 percent of the current fiscal year’s net assessment, for the purpose of having funds on hand to use as a revenue source for emergency expenditures and over-expenditures under RSA 32:11, or to be used as a revenue source to reduce the tax rate, all in accordance with 198:4-b, II?

Whoever wrote the enabling legislation, intentionally or unintentionally, left it open to the interpretation of future school boards as to whether the fund is cumulative or not.

How each year’s amount is calculated

In 2011-2012 Timberlane’s net assessment was $52,711,205.  Two and a half percent of this is $1.32 million.  Keep in mind that the surplus from 2010-2011 year was $2.2 million.  As things stand now, surpluses are returned to the taxpayers in the following budget year by way of lowering the tax impact of next year’s budget. If you allow the creation of this surplus retention fund, the district could sock away as much as $1.3 million, money that may or may not be returned to the taxpayers.  Just imagine how large this fund could become if it accumulated year after year.

It isn’t needed

The district has a capital reserve fund for  the purpose of  “school building construction, reconstruction, capital improvement and land purchase.”  Major emergency expenditures, such as a new roof, septic system, boiler, etc., all fall under capital improvements.  I have not heard a case for sizable emergency expenditures that fall outside the scope of the already existing capital reserve fund.

This contingency fund is not needed and the authorizing language is so vague as to authorize more than voters would reasonably want to approve.

___________________________________________________________________________

RESOURCES:

Timberlane Warrant articles and budget    You will see Article 6 has one “No” vote from the budget committee.  That was from your humble correspondent.

Here are the relevant RSAs

Section 198:4-b   Contingency Fund. –

I. A school district annually by an article in the warrant, or the governing body of a city upon recommendation of the school board, when the operation of the schools is by a department of the city, may establish a contingency fund to meet the cost of unanticipated expenses that may arise during the year. A detailed report of all expenditures from the contingency fund shall be made annually by the school board and published with their report.
II. Notwithstanding any other provision of law, a school district by a vote of the legislative body may authorize, indefinitely until specific rescission, the school district to retain year-end unassigned general funds in an amount not to exceed, in any fiscal year, 2.5 percent of the current fiscal year’s net assessment pursuant to RSA 198:5, for the purpose of having funds on hand to use as a revenue source for emergency expenditures and over-expenditures under RSA 32:11, or to be used as a revenue source to reduce the tax rate.
III. The legislative body of the city of Manchester, upon recommendation of the school committee, may authorize, indefinitely until specific rescission, the school district to retain year-end unassigned general funds.

32:11 Emergency Expenditures and Overexpenditures. – When an unusual circumstance arises during the year which makes it necessary to expend money in excess of an appropriation which may result in an overexpenditure of the total amount appropriated for all purposes at the meeting or when no appropriation has been made, the selectmen or village district commissioners, upon application to the commissioner of revenue administration or the school board upon application to the commissioner of education, may be given authority to make such expenditure, provided that:
I. Such application shall be made prior to the making of such expenditure. No such authority shall be granted until a majority of the budget committee, if any, has approved the application in writing. If there is no budget committee, the governing body shall hold a public hearing on the request, with notice as provided in RSA 91-A:2.
II. The commissioner of revenue administration or the commissioner of education may accept and approve an application after expenditure if caused by a sudden or unexpected emergency, in which case paragraph I shall not apply.

III. Neither the commissioner of revenue administration nor the commissioner of education shall approve such expenditure unless the governing body designates the source of revenue to be used. Neither commissioner shall have the authority to increase the town or district’s tax rate in order to fund such expenditure.

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3 Comments

Filed under 2013 TRSD Warrant Articles, Budget Committee

3 responses to “Fund Balance Retention and Why You Should Vote NO

  1. Judy Graham

    * Fund would not legally be able to accumulate. Two and a half percent is the annual limit. If the budget decreases the two and a half percent does as well.

    • Thank you for this reply, Judy. From my reading of the enabling legislation, I can’t see how it can be said definitively that the fund can’t accumulate, though I am happy to hear you say that.

  2. Mark Acciard

    As the budget committee member who wrote the police detail revolving fund wording in Atkinson, I can tell you that whenever ESTABLISHING these funds it is of the utmost importance to get the funding type, limits, and details, as well as EXACTLY what the fund can be spent on, and where any surplus funds go, EXACTLY CORRECT, because once established it can not be changed, and the admin will drive a truck through any vagueness or loopholes.

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