Comptroller Faults Montauk School's Financial Practices

New York State Comptroller Thomas F. DiNapoli on Wednesday released an audit criticizing the Montauk School District for financial practices that allegedly included overestimating its budget, keeping surpluses that exceed state limits, overfilling some reserve funds, and failing to create long-term financial and capital plans.

According to the comptroller's report, which examined financial records between July 1, 2012, and Dec. 31, 2015, Montauk's unassigned fund balance, or the amount it has left over in its operating budget at the end of a given school year, varied between 4.3 and 6.8 percent of the following year's school budget. State law caps a school district's unassigned fund balance at 4 percent. Auditors added back leftover money from budgeted items that hadn't been spent, and found Montauk's fund balances looked more like 9 to 11 percent.

The report says Montauk overestimated its budget by a cumulative $1.1 million between the 2012-13 and 2014-15 school years, and says Montauk planned to use $2.8 million in fund balance over those three years but did not actually use approximately 94 percent of that sum.

The comptroller also said Montauk has too much money in a reserve fund dedicated to workers compensation costs and kept almost $1 million more than it needed in a capital project fund.

"As a result of these budgeting practices . . . the property tax levy was higher than necessary," the report read. "The board needs to improve its budget process and ensure it adopts reasonable budgets and appropriately maintains restricted funds to effectively manage the district's financial condition."

In an email to The Star, Jack Perna, the Montauk School District superintendent, said the comptroller's report does not recognize the challenges that East End school districts specifically face, such as small school sizes, the tuition system, and populations of students that move in and out of districts frequently due to difficult housing situations.

"I feel the comptroller does not take that into account as much as they can," Mr. Perna said.

In a response letter to the comptroller, Mr. Perna explained why the state arrived at some of its conclusions.

The state had identified $830,000 in Montauk's budget that it said "would not be needed," but Mr. Perna explained it would, in fact, be needed. He said it will be used to replace the portable classroom buildings the district had originally installed in 1973.

"The project became bigger than simply replacing classrooms," Mr. Perna said. "We are still awaiting drawings to be submitted to [the state's Education Department] for approval. That money will be needed and we intend to get this project done as soon as possible."

He said the decision to over-fund the workers compensation reserve was made in anticipation of the district's shift away from the East End Health Plan toward the New York State Health Insurance Plan, a popular health care plan among school districts. The district will need to compensate the East End Health Plan when it withdraws from that plan, which is more expensive than the new health care system, Mr. Perna said. The surplus showed up because the switch has been delayed due to the ongoing contract negotiations with the Montauk Teachers Association, Mr. Perna said.

Other surplus moneys flagged by the state were intended to cover tuition costs, Mr. Perna said. Those costs can shift dramatically if high-school-age students move into the district, which only serves students in kindergarten through eighth grade and sends its older students to East Hampton High School on a per-student tuition basis.

Mr. Perna disagreed that the district lacked a long-term capital plan, and pointed out the district had lowered its tax levy this year by applying leftover money to its budget, therefore reducing the amount of money the taxpayers would have to contribute. He said the district would use excess money to further reduce property taxes again in the future, and said the district would begin using the comptroller's template for financial planning.

Mr. Perna pledged in his response to the state that "we will certainly be sure to keep within the statutory limit" regarding fund balances.

"Our future budgets will not have an unrestricted fund balance which will result in the surpluses far exceeding our needs," he said. "We do and will continue to review our reserve funds annually so that they are in line with what we feel the district will need according to our five-year facility and financial plans."