Long Island school districts grapple with reserve cap
School districts across Nassau County, including those on the North Shore, are grappling with state-imposed restrictions on cash reserves, even as they strive to balance fiscal responsibility with the need for emergency funds.
The issue has gained attention following a state report highlighting 19 Long Island districts that have accumulated cash reserves exceeding the legal limit of 4 percent of their budgets.
Among the districts named were Brentwood, Freeport, and Lawrence, which reported reserves as high as 15.5 percent of their budgets. These districts face increasing scrutiny from Albany. However, others, like North Shore, Glen Cove, Locust Valley, and Oyster Bay-East Norwich Central School Districts, have managed to stay below the 4 percent cap.
Under state law, school districts are limited to holding no more than 4 percent of their annual spending in unrestricted reserves, commonly referred to as rainy day funds. These reserves provide a financial cushion for unexpected economic downturns or emergencies. Many district leaders argue, however, that the 4 percent limit is outdated and insufficient, particularly in the face of rising costs and unpredictable financial challenges.
The North Shore Central School District reported its unrestricted reserves just below the cap, at 3.99 percent of its $120 million budget, while the Oyster Bay-East Norwich and Glen Cove Central School Districts reported those reserves at exactly 4 percent.
Chris Zublionis, superintendent of North Shore, explained the broader system of reserve funds, noting that the 4 percent cap applies specifically to unassigned fund balances.
“There are other reserve funds separate from the unassigned fund balance, like a capital reserve, teachers’ retirement reserve, and employees’ retirement reserve,” Zublionis said. “These are created by districts in line with state law for specific purposes.”
He also emphasized that the unassigned fund balance is typically used for unforeseen emergencies that could restrict daily operations, such as repairing a building damaged by storms.
“You want to keep it at a point where it could be used if you had an emergency that could get in the way of running the schools,” he said.
The Locust Valley Central School District reported unrestricted reserves of just over $3.75 million, which was exactly 4 percent of its $96 million budget for the 2023-24 school year. Superintendent Kristen Turnow emphasized the district’s commitment to maintaining its reserves within the legal limit while also planning for future needs.
“We’ve always stayed under the 4 percent cap, and we’ve done so because it’s the law,” Turnow said. “But it’s a balancing act. We have to ensure that we’re saving appropriately for things that could break or for emergencies because we don’t want to turn around and ask our taxpayers for more money due to poor planning.”
Turnow highlighted the challenges of managing district finances under the current restrictions, likening it to homeowners saving for necessary repairs.
“You know the roof is going to need replacing in 10 years, so you start saving for it now,” she said. “But in New York, school districts are only allowed to set aside 4 percent for those future expenses, and that makes it difficult to plan for large, necessary projects.”
Locust Valley has consistently kept its reserves just under the limit, with slight variations each year. The district’s total reserves, including restricted and assigned funds, amount to slightly more than $27.75 million, which is allocated for specific needs such as school construction and annual budget appropriations.
School leaders across the state have called for greater flexibility in managing reserves, especially as costs continue to rise and the need for emergency funds becomes more pressing. In response to recent scrutiny, Gov. Kathy Hochul suggested that districts with excessive reserves should face penalties, but none are currently in place.
The governor’s position has sparked debate among school officials, many of whom argue that the state itself maintains reserves well above the percentage limit imposed on school districts. Turnow echoed that concern, noting that while the state’s rationale is to prevent over-taxation, the limitations can hinder a district’s ability to effectively plan.
“It’s frustrating that New York state doesn’t operate on the same principles they impose on school districts,” Turnow said. “We’re trying to be responsible and plan for the future, but we’re constrained by these limits.”
The issue of school reserves is expected to be a focal point in upcoming state hearings, with the Rockefeller Institute of Government conducting a $2 million state-funded analysis of school funding. The study, set to conclude by December, will explore whether the cap on unrestricted reserves should be adjusted to allow districts more flexibility in managing their finances.
Zublionis offered a broader perspective, noting that while the 4 percent limit might work under certain conditions, the real issue lies in the broader financial landscape facing school districts, particularly with the challenge of funding reserves amidst rising costs.
“As budgets get tighter, it’s harder to fund these reserves because we don’t have excess funds to put in them as much,” he said. “You want to balance everything, and having more foundation aid would allow us to put less pressure on the taxpayers, but also continue to look at our operations and maintain what we have.”
He cautioned against over-reliance on reserves, pointing out that once they are depleted, they are gone.
“It’s not a long-term solution to just say, ‘Go to your reserves.’ That might help for a season, but once that season happens, it’s gone,” Zublionis said. “You want to have the reserves in existence and continue to fund them so that they’re there to ensure the district against any kind of emergency or anything that would happen.”
