Governor Kathy Hochul takes aim at schools with excess funds. Why Valley Stream superintendents aren't on board.

Every year when school budget season rolls around, school boards are tasked with a simple, but difficult problem: cover the cost of running their schools with the money they have.

In recent years, the pressure has been on to make school budget revenues go far enough to hit multiple financial goals even as other forms of funding, like pandemic aid, dry up.

The Takeaway 

• State officials, including Governor Kathy Hochul, are scrutinizing schools with large unrestricted reserve funds, suggesting that excess reserves in more affluent districts could be used to support underfunded schools or returned to taxpayers.
• Stakeholders are weighing whether or not to revise the state aid distribution formula to consider surplus reserve levels: something Valley Stream superintendents are vehemently against. 
• Some experts call for a comprehensive overhaul of the outdated state funding formula, emphasizing the need for updated, need-based criteria. 

Valley Stream School districts have largely succeeded in keeping existing programs funded, restoring languishing infrastructure, staying under the tax cap, and setting aside cash for rainy days.

But Albany is pushing for greater scrutiny of school districts sitting on too much savings in the form of unrestricted reserve funds. Nineteen school districts on Long Island, according to recent media reports, were found with reserves at amounts exceeding the legal cap. But the problem is a longstanding one, and there is no current penalty in place to discourage it.

Should excess funds be redirected to aid struggling districts?

Under state law, school districts are limited to holding no more than 4 percent of their annual spending in unrestricted reserves. Generally, unrestricted reserve funds are used during unforeseen downturns or emergencies: a sudden spike in student enrollment, unexpected shortfalls or delays in state funding, or abrupt critical failures in infrastructure.

Gov. Kathy Hochul held up an overflow of these reserves in some districts as a symptom of a larger problem: the jarring disparities in funding between poor school districts struggling with too little funding and their better-off counterparts who appear to have too much.

“We can’t continue to have large sums of money sitting in school district reserves when that money could be used in helping students in low-income neighborhoods, or students of color, or for return to taxpayers,” she said.

As stakeholders meet to hash out reforms to include in the state’s new formula for distributing financial aid to districts, a question remains as to whether school districts’ surplus funds over 4 percent should be factored into the equation. 

Tying surplus reserves with state aid? Valley Stream educators say no.

Valley Stream superintendents say such a proposal would be a mistake — and a costly one. Not only are they stiffly opposed to siphoning funding away from school districts with surplus reserves over the allowable limit but consider unrestricted reserves a separate issue from the equitable dispersal of state aid.

“We know that New York faces a delicate balancing act of maintaining equitable funding for its school districts while managing tax considerations,” said Valley Stream Central High School superintendent Wayne Loper. “We do not believe that district reserve levels should be a part of that formula or criteria in determining the level of state aid any individual district should receive.”

“There must be an understanding that reserves have strict regulations on how the reserve funds can be spent,” said District 24 superintendent Unal Karakas. “As such, it should not be factored into the Foundation Aid Formula.”

Pointing an accusing finger at districts who flout the reserve limit may have produced the opposite effect Albany had intended. Administrators of those districts have argued the current limit hamstrings their districts’ ability to support themselves and needs to be raised. Valley Stream administrators fully echo their concerns.

“The current reserve allocation cap of 4 percent for school districts is far below the threshold established for other government entities, including our state government,” said District 13 superintendent Judith LaRocca.

“Unlike the higher threshold for these other municipal entities, the 4 percent cap on school districts impedes our ability to prepare for unforeseen emergencies effectively.”

Walloped by inflation, additional necessary spending on special education, and rising transportation costs recently, LaRocca says her district hasn’t replenished its reserves for some time, making it more vulnerable to unanticipated financial shocks.

By calling attention to these surplus reserves, argued Michael Rebell, a prominent civil rights attorney and executive director of the Center for Educational Equity at Teachers College, the governor is trying to find “an irrelevant excuse for cutting state formula funding wherever she can.”

“Districts should be encouraged to maintain surplus reserves if they can. It creates stability,” said Rebell. “The more wealthy districts are obviously in a more ideal position to do it.”

Decades ago, Rebell led a legal battle to ensure a need-based funding formula system in New York to ensure students’ constitutional right to “a sound basic education,” particularly among poorer districts.

Why education experts push for a change to funding formula

Rebell says the 2007 formula is a holdover from another time. It accounts for students’ needs using outdated calculations and metrics so hopelessly out of touch with present reality that it is not only obsolete but also unconstitutional.

“Statistics, for example, used for counting the number of poverty students is based on the 2000 census,” said Rebell.

Since then, major disruptions like large demographic changes, the inflow of migrant students, and post-pandemic challenges have completely transformed education.

Governor Hochul has tapped the Rockefeller Institute of Government, an Albany-based think tank, to recommend ways to tweak formula elements. Rebell, however, argues only a complete overhaul of the formula with a new baseline criterion for determining need will suffice.

Without basing funding decisions on up-to-date, objective, need-based criteria, Rebell fears a return to an old paradigm of backroom politics: one where decisions on what to add or cut from school funding are done behind closed doors, away from public scrutiny, and increasingly subject to the pressure of special interest groups.

“What the Rockefeller Institute of Government has been assigned to do is a patchwork job, to make proposals consistent with the state’s financial interests,” he said. “It is not looking at what kids need, which is what the Constitution requires.”

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