At the same time the WW-P school board has been criticized for spending too much, it has also been criticized for saving too much. Resident Quentin Walsh and PIACS supporters are among the most vocal opponents of the district’s use of its surplus.
So why not use the money from the surplus toward tax relief? The issue also came up in West Windsor during the 2009 mayoral race, but the argument did not work for Councilman Charles Morgan, who ran on a platform that urged the township to use surplus to offset its budget.
The verdict is still out on whether that criticism can help defeat the WW-P budget. School Board officials counter by saying they have already used money from the surplus as tax relief. In a letter to the editor (see page 3), members of the board’s finance committee break down the key issues behind the surplus.
In WW-P’s case, the general fund balance at the end of June, 2010, was slightly less than $20 million, school officials said. “Encumbrances make up about $1 million of that amount,” they said in the letter. “This is money the district has already spent, but because of billing and payment cycles has not been paid as of June 30, 2010. It is exactly like paying your June credit card expenses in July.”
After that, there is about $8 million that is set aside into the district’s capital reserve funds — funds used for capital expenses, maintenance and emergencies.
The remaining $11 million is the surplus. “The unrestricted portion of it is, in effect, the working capital for the district — money available to pay day-to-day bills and smooth over any short-term timing problems between income and expenses,” officials stated. “By law, a school district cannot retain more than about 2 percent of its annual budget in this category. For WW-P, with an annual budget of over $150 million, it is approximately $3 million, or about one week’s worth expenses.”
The remaining $8 million, officials said, will be used for tax relief. Almost $6 million was used in the current 2010-’11 budget, and $2 million more will be used to offset a portion of the tax levy in the upcoming year.
Meanwhile, officials at the New Jersey School Boards Association say that surplus and capital reserves are crucial to a school board’s financial stability. Mike Yaple, a spokesman, said that while he is not particularly familiar with the WW-P budget and its finances, the association has seen the issue come up time and time again. The surplus has been a “moving target” in recent years, he said.
A school district’s budget, and its surplus, are subject to multiple layers of oversight. The state Department of Education must approve local school budgets through county superintendents before they are put on the ballot. “They have a great amount of authority to reject budgets,” he said.
“The Commissioner of Education has held for years that a minimum of 3 percent surplus for unforeseen contingencies is reasonable and necessary,” added Yaple.
A state law enacted in 2004, however, cut the maximum surplus allowed to no more than 2 percent of the total budget. Schools today still operate under the 2 percent cap. So, it is simple — the district cannot legally carry more than 2 percent of surplus in its budget.
Still, Yaple said that the NJSBA fought against the new law because of the importance of surplus. “We found it would bring some unintended consequences. For instance, school districts are given ratings by bond-rating agencies, but if their budgets were considered to be less stable because of a lack of surplus, it could downgrade their ratings, or they would have to pay higher interest rates.”
Yaple said that the surplus is built into every budget to protect the community against unforeseen expenses. “In recent years, we’ve seen it with massive spikes in fuel and utility costs,” he said. “We’ve seen it with sharp increases in health insurance costs.”
The surplus can also be used when students with costly special needs join the school system in the middle of the school year.
When it comes to a school board’s capital reserve account — money for equipment, construction, and other items that have a multi-year life — there are no requirements by the state to set aside that money for reserves.
However, the state does impose caps on the total amounts, and that is done on an individual basis through the “Long Range Facilities Plan” that each district must submit to the state Department of Education, said Yaple. “The LRFP describes the district’s current buildings, its needs, and its anticipated growth,” he said.
“A capital reserve account is more like a savings account,” Yaple added. “School boards can put money into the capital reserve account for future construction projects, repairs and maintenance, or to augment projects. The capital reserve provides the benefit in that the school district can perform repairs and other work (roof repairs, replacing windows) and not be required to borrow money long-term.”
A capital reserve account is not part of surplus, Yaple added. The WW-P district currently owns about $200 million worth of buildings and equipment and has approximately $6.3 million in capital reserves. “In the budget being presented to the voters on April 27, $4.1 million of that amount will be used to support funding of designated capital projects,” school officials explained in the letter.
School officials explained that the capital reserve account allows the district to accumulate funds for major expenses that would otherwise have to be funded in a single year’s budget or through a separate debt issue. “This is much like a homeowner putting aside money each year knowing that a roof replacement is in the near future,” they said.
School Board President Hemant Marathe said, for example, that the capital reserve was helpful to WW-P at the end of 2009, when the state solicited applications from school districts for grant money for school projects.
“A lot of districts could not apply because they could not guarantee their 60 percent share of the grants,” Marathe said. “We had the money in reserves, which we would have used anyway for these projects. It’s not like we did a project that is unnecessary.”
Because of the grants, the taxpayers were able to get 40 percent return on each dollar. “WW-P got one of the highest grant amounts in the state because we had good capital reserves that we could use, and these were required anyway. So, the taxpayer paid 60 cents, and got $1 worth anyway.”
