August 25, 2023
Dear Chatham Central School District Community,
The State Comptroller’s office spent several months at Chatham Central School District reviewing our procedures, processes, and policies as part of their regular auditing of school districts in NYS. As we expected, the audit did not uncover any instances of fraud or malfeasance with our practices. The audit’s recommendations focus on the District’s management of fund balance and reserves, a topic on which the District and the Comptroller’s office have a difference of opinion. It is our position that the District’s use of fund balance and reserves is appropriate and benefits taxpayers and students for the long term. The District and our external auditors respectfully disagree with the Comptroller’s opinion that the District holds too much money in reserves. We believe our reserves are appropriately funded and are essential for long-term planning and the future financial stability of the District.
Our District must budget for expenses that are subject to change and beyond our control. The Board of Education’s philosophy is to leave enough flexibility in the budget to meet any worst-case financial demands which may arise during the school year. Any contingent money that goes unspent is applied to reduce the taxpayers’ burden the following year or is placed in a reserve account to offset expenses in future years. As a result, Chatham has avoided drastic cuts to our educational program and, year after year, kept tax increases at or below the limit set by the NYS property tax cap. The District has also been able to use reserves to offset capital project costs associated with improving our buildings.
The Comptroller’s claim that taxpayers paid higher than necessary taxes fails to take into account that the District’s current revenue is not sufficiently sustainable and that the District projects that its reserves will be severely impacted over the next ten years. Also, a significant amount of capital project work needs to be completed to maintain and upgrade our buildings. Because State aid and the NYS property tax cap have not kept pace with cost increases in recent years, the District has utilized fund balance and reserves in the budget to reduce property tax increases over the past several years. Furthermore, the risks of economic recession, high inflation, and a stock market downturn make strong financial planning with reserves essential to address any negative impact the financial climate may have on educational opportunities for our students. As has been seen throughout the State, school districts that have not had adequate reserves have been forced to make drastic cuts to programs and services and/or levy tax increases that exceed the New York State property tax cap.
Our reserve plan and long-term fiscal planning have also benefited the District by allowing us to receive an upgrade in the Moody’s Investors bond rating from Aa3 to Aa2, first realized for the capital project approved by voters in 2018. This rating upgrade was based on strong financial reserves and the solid fiscal management the District has demonstrated. It has resulted in over a million dollars in savings on interest costs for the taxpayer so far. The District will be issuing debt next year for our upcoming capital project and is looking to maintain the current Aa2 rating. The District estimates $3 million in savings over the life of the new bonds due to the combination of interest expense avoidance associated with utilizing capital reserves and this strong credit rating.
We want to reiterate that the Board of Education and administration are transparent with the public regarding the budget and finances of the District. We have regularly addressed our use of fund balance and reserves at numerous public and community meetings over the past decade. Our District attempts to keep the public continually informed through Board meetings, budget presentations, town hall meetings, and long-term planning sessions. This information regarding the District’s long-range plans and use of reserves is formally adopted each year, posted on our website, and provided in an annual budget newsletter.
The Board of Education adopts a motion at the end of each year which requires that any balance in unrestricted fund balance over the State allowed 4% goes into specific reserve funds, typically replenishing funds spent during the year. This mechanism prevents the District from exceeding the allowable amount in unrestricted fund balance. The Comptroller’s report mistakenly assumes that appropriated fund balance would never be needed, and that the appropriated money would be placed in the unrestricted fund balance account, which is not the case. Furthermore, the District appropriates the money to reduce taxpayer burden the following year, and the money would be needed in the event of worst-case scenarios.
The District has reviewed the Comptroller’s findings and recommendations of this audit and will take corrective action in certain areas. The audit provides us with strategies to review our reserve targets in our reserves plan and consider reestablishing another capital reserve for future capital projects. While we respect the Comptroller’s opinions as to appropriate reserve levels, we strongly feel that our approach has and will continue to provide the best possible education for our students in a fiscally responsible manner that is beneficial to our taxpayers.
Our District’s full response to the Comptroller’s recommendations is included in the Comptroller’s audit report, which is posted to our website at chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://core-docs.s3.amazonaws.com/documents/asset/uploaded_file/2281/Chatham/3448759/chatham-central-school-district-2023-11.pdf
Sincerely,
Sal DeAngelo
Superintendent of Schools