District Reserve Funds
Establishing and funding reserves is essential in maintaining a sound financial plan for any school district. While strict adherence to state law is required to ensure reserves are legal and appropriate, adequately funded reserves are vital to the school district's long-term health and fiscal stability.
A reserve fund acts as a savings account, allowing school districts in New York State to set aside money for future use. 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 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 help mitigate the need to cut services, raise taxes, and protect the budget against known or unknown risks.
By establishing a reserve fund, districts plan 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 help mitigate the need to cut services, raise taxes, and protect the budget against known or unknown risks.
New York State Law mandates expenditures to be no greater than the budget that voters approve each May. As a result, districts must exercise fiscal prudence to ensure unanticipated expenditures do not result in mid-year budget cuts that may impact students. This practice often results in a 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, a healthier fund balance and reserve funds lead to a higher bond rating. The higher the bond rating, the less it costs a district to borrow money for capital projects.
Benefits of Reserve Funds
- Save for future needs
- Maintain a stable operating budget
- Maintain a stable tax levy
- Boost the district’s overall fiscal strength
- Supplement the limitations of fund balance*
* Fund balance is money left at the end of the fiscal year when actual revenues taken in exceed actual expenditures. An “unassigned” fund balance provides cash flow that can be used for a variety of needs, unlike reserve funds, which are targeted for specific purposes. New York State limits school districts’ unassigned fund balances to 4 percent of the subsequent year's budget.
EMPLOYEE-RELATED RESERVES
Education is a people business. Salaries and benefits for teachers and support staff typically comprise over 70 percent of a district’s annual budget. Employee-related reserve funds help guard against fluctuations in these costs.
Education is a people business. Salaries and benefits for teachers and support staff typically comprise over 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 self-insurers may establish this reserve to pay for Worker's Compensation and benefits, including related medical/hospital expenses for employees injured on the job.
Unemployment Insurance Payment Reserve Fund – School districts must 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 on which they sit, is one of taxpayers' most significant investments in their communities. Property-related reserve funds help districts plan for and provide healthy, safe, and energy-efficient learning facilities more cost-effectively. They also help districts guard against cost fluctuations when unexpected issues arise.
Capital Reserve Fund – This reserve pays 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 contains a specific use, a set time frame, and a dollar limit.
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 toward debt service payments on outstanding obligations (BANS/Bonds). It is funded by proceeds from the sale of district real property with outstanding debt, as well as any premiums from issuing debt, interest received on funds from debt issuance for capital projects, and the 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 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.
OTHER RESERVES
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.
Oakfield-Alabama Reserve Fund Plans:
Reserve information from New York State Education Department - Office of Education Management Services