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On June 30, the Granville Central School District finished the 2010-11 school year with a surplus of roughly $4 million.

By law, a school district is allowed to keep an unreserved fund balance that equals 4 percent of the upcoming year's budget. For Granville, the maximum it can have is about $1 million, yet its fund balance at the end of the school year was $5.1 million.

That amounted to 21 percent of the budget.

School districts can keep up a fund balance to help with cash flow, unexpected costs and shortfalls. The state's Real Property Tax Law requires that districts use any surplus toward reducing property taxes.

Some school districts end the year with fund balances below the 4 percent limit, but others exceed it. Large fund balances have raised questions at some districts why taxes were increasing despite the surplus, and whether the money could have been used to avoid cuts to jobs and programs.

In June, districts like Abraham Wing School, Glens Falls and Warrensburg reported surpluses, but they used the money to reduce their tax levies or plan on using it to reduce future levies.

At Hudson Falls, the school district had a surplus for three straight years after inaccurate estimates of expenses and revenues became routine, according to a state audit.

As districts deal with rising costs, along with a new tax cap that will limit revenue and the prospect of more cuts in state aid, some school officials say the allowable limit on fund balances is no longer enough.

Some districts are padding their rainy day funds so they can use the revenue to pay future expenses.

"I envision this fund balance slowly being depleted over the next four years, and we are going to use it to control taxes during those four years," said Catherine Somich, the Granville district's business manager.

In 2010-11, expenses in Granville were under budget. Positions that were budgeted were not filled. Money was saved through competitive bidding on purchases such as fuel, and the cost of salaries for teachers did not increase because there was no contract settlement, all of which led to the surplus, Somich said.

The district has been trying to increase the size of its fund balance since 2007. That year, the state Department of Education warned Granville that it was in fiscal distress because of a low fund balance.

Somich said she joined the district in 2008, when the fund balance was $393,000. Over the next two years, it climbed to $600,000 and then $2.5 million.

But over the last three years, the district did not increase the tax levy until the 2011-12 budget. This year, the tax levy is rising 1.5 percent, Somich said.

Last year, Granville was hit with a state aid cut of nearly $900,000, almost as much as the amount it's allowed to keep in the fund balance. Jobs were also cut, Somich said.

It's difficult to operate with a fund balance that must be no higher than 4 percent of the budget when state aid is being reduced, she said. State aid covers 65 percent of the Granville budget.

"It forces you to put some aside in your fund balance," Somich said. "What happens after you cut so much and you can't cut any more and must still provide quality education?"

The Abraham Wing School in Glens Falls finished the last school year (2010-11) with a fund balance of $621,642, which equals 16 percent of the budget. By law, it was allowed to keep no more than $155,370.

At the same time, the district raised its tax levy for this year by 4.8 percent, one of the largest increases in the area.

Superintendent Ella Collins said the district will need the extra funds because she expects state aid won't increase for next year.

"A 4 percent fund balance is insufficient," she said. "We have excessive increases in costs, retirements, pensions."

Collins said the surplus piled up because of expenses that came in below budget.

The district has had high fund balances before.

The state Department of Education warned Abraham Wing in 2009-10 that its fund balance was too high. That year, the surplus was $493,149.

The district was required to submit a corrective action plan explaining the surplus would go toward reducing the tax levy over the next two to three years. The district submitted the plan to the state in July.

The state Comptroller's Office recently found that the Hudson Falls district generated a $5.1 million surplus from 2007 to 2010.

The comptroller's report, released Friday, showed the district routinely overestimated expenses and underestimated revenue, even though it had data available to create more accurate estimates. The bad estimates, and the resulting surplus, allowed the district to overfund a reserve for employee benefits.

Warrensburg had a $332,000 surplus at the end of June, causing a debate among school board members on how to use it. The board voted to use $150,000 to avoid raising the tax levy this year.

The Glens Falls City School District finished the 2010-11 school year with $4.5 million in its fund balance, which equals 11 percent of the budget.

The most it can have is $1.6 million.

The surplus will be used to offset taxes in the next few years, said Stephen Meier, director of business.

Meier said the district had expected to spend more than $2.4 million on assessment challenges. But after the complaints were settled, the district found it had spent only $415,000, leaving $2 million.

The district was expecting a fund balance totaling 5 percent of the budget. Glens Falls has exceeded the 4 percent limit in the last couple of years, Meier said.

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