Q&A: What is a Reserve Fund?

Q&A: Budget Facts – What is a Reserve Fund?

Dear North Shore Parents, Community Members, and Faculty,

Q. Dr. G., can you tell us again what a Reserve Fund is?
A. Yes. Reserves are important and are among the most frequently asked question that I receive. Each district has them and each district has a different approach to how they are formed, funded, and utilized. Some districts have more in reserves and some have less. That said, a reserve fund is like a savings account set aside by a school district to save money over time to pay for necessary projects or expenses that we anticipate/need. If a school district has funds at the end of a school year, NY State outlines the laws and regulations for using these funds. State Education Law permits the district to keep up to 4% of the subsequent year’s budget in unassigned fund balance. Any additional amount remaining may either be returned to the public or assigned to an approved reserve fund. We do both. The returned amount is in the form of an offset to the future year’s tax levy. In each of the past several years, over a million dollars of fund balance has been returned to our residents.

Q. Dr. G., while some schools districts have more money in reserves than North Shore and some have less, is there a recommended amount of funds that we should keep in our reserves? 
A. North Shore does not have 34 million in reserves and cash balances (more than 30% of the budget) as mentioned in a recent mailer. The auditors suggest we keep 2-3 months of our operating costs in reserves or 20-25% of our current budget. As per the 6/30/20 audited financial statements, our reserves total $25,951,851 or approximately 23% of the General Fund’s 2020-21 Budget. North Shore has consistently utilized reserves as an important, prudent means of protecting the financial stability of the schools for the future – as past generations have kept them strong for today. They shield us against the impact of unforeseen events like stock market crashes (affecting mandated retirement obligations) or major infrastructure failures (that cannot be absorbed by the budget). It results in higher bond ratings that reduce interest costs. It also allows the district to respond to unforeseen costs without interruption in service.

Q. Dr. G, are there different types of Reserve Funds? If so, what are they?
A. Yes. There are many different types of reserves that State Education Law authorizes a school district to establish. They include Restricted Funds and Unrestricted Funds: 

Restricted Funds
Restricted reserves can only be used for specific purposes. They help us to plan against existing liabilities in all facets of our operations. They include Workers’ Compensation (Self-funded insurance funds that provide monies to protect injured workers), ERS (Employee Retirement System), TRS (Teachers Retirement System), or Capital Projects Funds (monies for construction or acquisitions for infrastructure and capital facilities. These are voted on by our community), which may only be withdrawn for specific, legally defined purposes. These funds may not be used now to fund upcoming projects identified in Proposition 2, the Establishment of a Capital Reserve.

Unrestricted Funds
Unrestricted funds are essentially monies that we would only use in the most serious of circumstances. The Board can utilize them at their discretion when the district is faced with an emergency or unexpected circumstance when time is of the essence and there is no time to plan ahead.
The following funds remain in our Unrestricted Reserve:
Unrestricted Reserve:   $4,247,485
Assigned LIPA Funds: $1,156,954
Total: $5,404,439

We realize that the topic of district reserves is complex. Please join us if you have any questions regarding our reserves or any other budget question at the final TENTTalk on Thursday, May 13, at 6:30 pm, at the Central Office, 112 Franklin Avenue, Sea Cliff. For more information regarding the district reserves and current and past budget information, please visit the Budget/Financial section of the school website at http://www.northshoreschools.org/boe/Budget.html  Our three independent auditors consistently praise North Shore as the gold standard of district financial operations. We have perfect fiscal stress ratings from the NYS Comptroller and the second highest credit rating (Aa1) by Moody’s Investors Service.
Please remember to vote on Tuesday, May 18, 2021 in the North Shore High School Gym from 7 am -10 pm.
Have a good night.
All the best,

Dr. Peter Giarrizzo
Superintendent of Schools