Kehoe addresses board on audit, tax cap law
District issued 'Clean' opinion
Chief Business and Financial Officer Judith E. Kehoe advised that the District has a healthy short-term financial future, but advises close fiscal monitoring as we head into the first year of the state’s so-called 2 percent tax cap in a period of continuing economic uncertainty.
Kehoe presented the results of an independent audit for a 12-month period that ended June 30,2011, to the Board of Education at its Oct. 5 meeting. The audit was performed by the firm of Cusack & Company CPA’s, PC, who was selected last year through a competitive process.
The district’s Audit Committee reviewed the scope of the audit and recommended the board accept the audit. The scope of the audit covered basic financial statements and a general review of internal controls, federal awards and Extraclassroom Activity Funds (ECAs). ECAs are managed by students and their advisors and are subject to district approval.
The district was issued a “Clean” opinion on all (no exceptions to report), as well as a “Management Letter,” with suggestions for improvement.
Kehoe highlighted that the undesignated fund balance was within the statutory 4 percent limitation and that the tax reduction reserve had been liquidated as per the district’s fiscal plan.
Kehoe noted the district was able to pare down the undesignated fund balance below the state-mandated maximum by using more than $2 million to offset this year’s budget deficit. It is worth noting, however, that when Standard & Poor's issued the district’s superb AA bond rating in the fall of 2010, it cited the district’s strong fiscal reserves as a positive factor in its favor.
Despite the favorable audit, Kehoe warned that upcoming budget cycles will “require close monitoring of results and on-going expenditure restraint,” due to a $1.4 million shortfall in actual revenues as compared to what was budgeted for this year, and a $2.4 million shortfall in actual revenue compared to last year’s.
Kehoe also took the opportunity to briefly outline the provisions of the state’s so-called 2 percent tax cap law.
Although the new law has been referred to as a “2 percent tax cap,” it does not in fact restrict any proposed tax levy increase to 2 percent, Kehoe noted. Instead, it requires at least a 60 percent voter approval for school budgets that include tax levy increases beyond a certain amount. That amount, called the “tax levy limit,” will be based on an eight-part formula outlined in the law and will vary by district. The “tax levy limit” must then be submitted to the state Office of the Comptroller by March 1 but, Kehoe pointed out, may not necessarily be the final levy amount as proposed in the May 15 budget vote.
“At the end of the day, because of those pieces, the tax levy limit might not actually be two percent,” Kehoe said. “Also, even though our tax levy limit will be a set percent, people’s tax rates will differ between different communities due to changes in equalization rates and STAR benefit amounts. Confusion will be the bottom line for a lot of people.”
If a budget fails under this new tax cap law, Kehoe said, the district has two options: Put it up for another vote in June or adopt a contingency budget where the tax levy is the same as the prior year (resulting in a 0 percent tax levy increase). If the second vote on a proposed budget was held and failed, the district would again revert to 0 percent growth in the levy, which would likely trigger even more drastic program reductions.
A copy of Kehoe’s audit presentation can be found here [PDF]. A full copy of the audit will be posted when it becomes available.