Northport-East Northport Schools Board of Education Dr. Marylou McDermott Superintendent of Schools Kathleen Molander Assistant Superintendent for Business

Philosophy of Budgeting Conserving Today and Protecting Tomorrow The District begins the budgeting process by projecting student enrollment and examining prior year’s expenditures The District reduces spending and manages its budget aggressively, wherever possible, while still maintaining and/or enhancing District programs When the District is successful in under-spending, the savings realized are used to lower the tax levy and fund the reserves

The District’s Record Adopted budgets for 6 years with tax levies under 2% Prudently utilized reserves when appropriate Replenished reserves when feasible Maintained staff and programs Maintained class size Enhanced programs (AIS, Balanced Literacy, Go Math, Labs) Improved or enhanced facilities Infused Technology (Smart Boards, netbooks) Reduced positions through attrition Executed Energy Performance Contract

Our Moody’s Aa2 ratings have been consistent over the years, and Moody’s Investors Service has repeatedly commended the District for its use of funds and financial flexibility. That translates to lower borrowing costs. Moody’s Investors Service

The NYS Comptroller’s Audit makes no mention of the LIPA/National Grid Tax Cert or the ongoing challenges of the tax cap. These omissions seem odd, since we believe it is critical to have this context in place when making decisions about building our budgets and funding our reserves. The future matters!

In other words, Our Philosophy of Budgeting Takes Into Account our Local Needs and as noted by Moody’s is Acknowledged for Its Strength The Comptroller’s Audit Does Not Consider Our Local Needs and Concerns

NYS Audit Concerns… … That overestimation of expenditures occurred from …That the district has an ‘assigned fund balance’ while operating in a surplus … That the balance in the Retirement Contribution Reserve is too high

The NYS Audit Stated the District Overestimated Expenditures in: Special Education Benefits Debt Service There are sound reasons: Significant cost fluctuation can occur after budget adoption Additional students enrolled in after the budget was adopted; $700,000 in unanticipated expense Infusion of one-time Federal grant money in was used to pay special education staff, which generated a surplus in the general fund

The NYS Audit Stated the District Overestimated Expenditures in: Special Education Benefits Debt Service There are sound reasons: Health benefit increases not announced until January of following year This is six months into our fiscal year Estimates are highly conservative and often will result in overestimation of actual expenditures.

The NYS Audit Stated the District Overestimated Expenditures in: Special Education Benefits Debt Service There are sound reasons: Negotiations spanned multiple fiscal years and budget cycles Anticipated settlement monies were budgeted in benefit and debt service codes Preserves the integrity of negotiations

The assigned fund balance is monies generated in the current budget to apply to the following year’s budget to lower the tax levy. The District has had an assigned fund balance for more than 30 years. Only a handful of the 126 districts on Long Island do not have an assigned fund balance. The District has reduced its assigned fund balance by $950,000 over the last two years. The administration will continue to recommend to the Board that the assigned fund balance be further reduced. Assigned Fund Balance

Assigned Fund Balance $3,160,000$3,500,000 $3,775,000$3,300,000 ↓↓↓↓↓ Give it back by lowering the tax levy Lowered tax levy increase in to 1.85% Lowered tax levy increase in to 1.39% Lowered tax levy increase in to 1.77% Lowered tax levy increase in to 1.39% Lowered tax levy increase in to 1.98% Under-spending Used to Lower the Tax Levy the Following Year

Calculation of Tax Levy Operating Budget$159,109,341 Less: Assigned Fund Balance($2,825,000) Less: Appropriation of Reserve Funds ($2,550,000) Less: State Aid($12,606,469) Less Other Sources of Revenue ($2,504,705) Tax Levy$138,623,167 % Increase in Tax Levy1.99%

District% Increase District A16.78% District B15.99% District C15.57% District D14.43% District E13.45% District F13.19% District G8.82% Northport- East Northport 6.56% Town of Huntington Total Tax Levy Percentage Increase to

Audit Recommendations District’s Response The Board should develop procedures to ensure it adopts more realistic budgets to avoid raising more real property taxes than necessary. The District tax levy has been under 2% for the last six years, and since 2010, the District has work diligently to reduce overestimated budget expenditure codes. In fact, the District has run at an operating deficit for the past two years. The Board should discontinue the practice of adopting budgets that result in the appropriation of unexpended surplus funds that are not needed to fund District operations. The District has reduced its assigned fund balance by close to $1 million over the last two years. The administration will continue to recommend further reduction to the Board of Education in the years to come. The Board should develop a formal plan indicating how reserves will be funded, how much will be reserved and when reserves will be used. The District currently has a procedure for funding reserves that will be formalized into a plan and submitted to the Board of Education for approval.

Audit Recommendations District’s Response The Board should ensure that budgets presented to the voters for approval are transparent and inform residents of their intent to increase reserves by including an appropriation that quantifies such increase. The District budgets include line-by-line justifications, and print / electronic copies of all budget documents are available on the District web site. With regard to including a “reserves appropriation” in the budget, the District has sought guidance from the State on how to legally accomplish this. We are still awaiting a response. The Board should reconsider the funding limit established for the retirement contribution reserve fund to reflect a balance that is in line with the actual retirement contribution expenditure trends. We believe there is no provision in the law that establishes a limit on funding this reserve. We have asked for clarification from the Comptroller but have not received a response. Furthermore, the District’s reserves in are less than the averages in New York State, Nassau and Suffolk.

June 2010 – reserve funded4,405, – interest earned23,597 June 2011 – reserve funded3,600, appropriation of reserve to lower tax levy (1,750,000) – interest earned24,254 June 2012 – reserve funded671, appropriation of reserve to lower tax levy (1,800,000) – interest earned14,099 June 2013 – reserve funded1,050,000 Funding/Use of Retirement Contribution Reserve

appropriation of reserve to lower tax levy (1,800,000) – interest earned10,181 June 2014 – reserve funded372, appropriation of reserve to lower tax levy (1,800,000) June 2014 – actual balance4,820,531 June 2015 – projected balance3,020,531 Continued…

$2.8 million in assigned fund balance (to reduce the next year’s tax levy) All but a handful of districts use the assigned fund balance each year, which lowers the tax levy. We have begun reducing this amount and plan to continue to do so. $10.8 million in restricted reserves to help reduce the tax levy each year These are monies from surplus that are legally set aside into reserve accounts for specific purposes. Taxpayers benefit each year by having a portion of these funds returned to them through lowering the tax levy, helping preserve programs and keeping the tax levy steady. $1.2 million in two separate capital (facilities) reserve funds, also restricted These two capital reserves, authorized by voters, are used to fund a variety of facility projects on an ongoing basis.

RESERVE DESCRIPTION What is it for? Actual June 30, 2012 Actual June 30, 2013 Actual June 30, 2014 EBALR (Employee Benefit Accrued Liability Reserve) Non-medical employee benefits upon leaving employment $4,162,845$3,777,403$3,390,782 ERS (Employee Retirement System) Non-teacher pension contributions $6,973,851$6,237,950$4,820,531 UNEMPLOYMENT State-required unemployment insurance $962,521$965,144$895,063 WORKERS’ COMP. State-required Worker’s Comp contribution $2,637,464$2,143,288$1,647,058 INSURANCE Other insurances $49,182$49,316$49,429 TOTAL$14,785,863$13,173,101$10,802,863