District Reserve Funds

The establishments and funding of reserves is an important consideration in the maintenance of a sound financial plan for any school district.  While strict adherence to state law is required to ensure reserves are both legal and appropriate, adequately funded reserves are vital to the long-term health and fiscal stability of the school district.

 

A reserve fund acts as a savings account, allowing school districts in New York state to set aside money for use in the future. There are various types of school district reserve funds. Some are used for short-term needs or to balance a school budget, while others help districts finance long-term projects and expenses.

 

Reasons to Create Reserves
By establishing a reserve fund, districts plan ahead and save incrementally for the future. This helps mitigate the financial impact of major, non-recurring or unforeseen expenditures on a school district’s annual operating budget.  In uncertain economic times, reserve funds can also provide budgetary options that can help mitigate the need to cut services or to raise taxes and protects the budget against known risks or unknown risks.

 

New York State Law mandates that expenditures can be no greater than the budget approved by voters each May and, as a result, districts must practice fiscal prudence to ensure that unanticipated expenditures do not result in mid-year budget cuts that may impact students.  This practice oftentimes results in surplus fund balance at the end of the fiscal year that can be used to fund reserves.

 

The status of a district’s reserve funds can also affect its bond rating. Generally, having a healthier fund balance* and reserve funds lead to a higher bond rating. The higher a bond rating, the less it costs a district to borrow money for things such as capital projects.

 

 

EMPLOYEE-RELATED RESERVES
Education is a people business. In fact, salaries and benefits for teachers and support staff typically make up more than 70 percent of a district’s annual budget. Employee-related reserve funds help guard against fluctuations in these costs.

 

Retirement Contribution Reserve Fund (ERS)– Allows districts to save money to meet future pension obligations for staff who are members of the New York State and Local Employees Retirement System (ERS). Pension contributions for school districts can vary dramatically from year to year. This reserve helps provide stability for districts when budgeting for retirement costs.

 

Retirement Contribution Reserve Fund (TRS) – Allows districts to save money to meet future pension obligations for staff who are members of the New York State Teachers Retirement System (TRS). Pension contributions for school districts can vary dramatically from year to year. This reserve helps provide stability for districts when budgeting for retirement costs.

Employee Benefits Accrued Liability Reserve (EBALR) Fund – Reimbursement for unused sick leave, personal leave, holiday leave and vacation time is often owed to employees who leave their jobs. This reserve fund helps districts meet these financial obligations.

Workers Compensation Reserve Fund – Districts that qualify as a self-insurer may establish this reserve to pay for Workers Compensation and benefits, including related medical/hospital expenses for employees injured on the job.

Unemployment Insurance Payment Reserve Fund – School districts are obligated to pay 100 percent of all unemployment claims granted by the New York State Department of Labor. This reserve can help qualified districts cover the costs of paying benefits to former employees.

PROPERTY-RELATED RESERVES
School property, including buildings and the land they sit on, is one of the most significant investments taxpayers make in their communities. Property-related reserve funds help districts plan for and provide healthy, safe and energy-efficient learning facilities in a more cost-effective manner. They also help districts guard against cost fluctuations when unexpected issues arise.

 

Capital Reserve Fund – This reserve is used to pay for future capital improvements to district facilities and sites. Voter approval is required to establish, fund and use these reserves. A proposition to use these funds must be specific to a set of projects and dollar amounts.

Repair Reserve Fund – This reserve is used to pay for repairs and maintenance expenses that are not usual, or regularly occurring, maintenance expenses.

Mandatory Debt Service Reserve Fund – This reserve is used to cover debt service payments on outstanding obligations (BANS/Bonds).  This reserve is funded with proceeds from the the sale of district real property funded with outstanding debt as well as any premiums from issuing debt, interest received on funds from debt issuance for capital projects, and remaining balances of projects not fully spent.

Tax Reduction Reserve Fund – Funds from the sale of real property that are not required to be used to pay outstanding debt can be placed in this reserve and used for tax reduction purposes for a period of up to 10 years.

Insurance Reserve Fund, Property Loss and Liability Reserve Fund – These reserves are used to pay for costs related to liability claims and other types of losses.

 

Tax Certiorari Reserve Fund – Taxpayers can challenge their school property tax assessments. This reserve helps districts pay claims that exceed the budgeted appropriations for tax refunds or those claims that result in unusually large settlements.