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AUDIT SEES THREAT OF DEFICIT FROM DROP IN SURPLUS

The threat of a budget deficit is looming over the Lancaster Central School District, the result of a drop in the district's surplus from $1.8 million last year to "almost nothing" as of June 30, district auditors said Wednesday.

Of last year's surplus, $400,000 was used for purchases and $1.4 million went to offset the current budget's effect on the tax rate, said Wayne Drescher, senior manager with Deloitte & Touche, the district's auditing firm.

Only $23,000 was left at the end of the fiscal year in June, Drescher said.

"If you think of $23,000 in relation to their total budget, which is about $45 million, that's almost nothing," Drescher said. "So basically the district is in bad shape."

If the district needs to draw on surplus funds this year for any unexpected expenses, Drescher said, it would wind up with a budget deficit.

"That would only make it worse for the future," he said. "Let's say you're in a deficit this year: then you have to increase taxes not only to cover that year's deficit but also in consideration of the next year's operations."

Plus, Drescher said, a deficit could hurt the district's bond rating, "and that would make borrowing money more expensive."

Superintendent Joseph R. Girardi said there is "no question" that taxes for residents will go up next year.

The district is already committed to increased expenses, he said, including those associated with all-day kindergarten programs and the new school currently under construction for fifth and sixth graders.

"With all the things that are coming down, the fact that we're a growing district and we're going to have to hire staff all over the place, plus we don't have any idea what our state aid will be, we could be in deep trouble," Girardi said. "This picture is about as bad as I've ever seen."

Girardi said that money from the surplus was used mostly to keep taxes at "a reasonable level" in this year's contingency budget, which saw taxes increase 7 percent for Lancaster residents, to $17.53 per $1,000 of assessed valuation. An original budget package was defeated by voters in June.

State law says that school districts can carry over up to 2 percent of their total budgets from year to year as fund balances, a rule that would mean Lancaster could carry over up to about $900,000 in undesignated funds, Drescher said.

In the 10 years that he has audited the district, Drescher said, the district has usually carried over between $400,000 and $800,000 from one year to the next.

The district has two ways to pull back from the brink of a deficit, Drescher has told the School Board, which will begin planning next year's budget later this month: either cut spending for in next year's budget or increase property taxes for residents.

If cost-cutting is not an option, as district officials have said, then a big tax bite may be in the cards, Drescher said. Last year the district took in about $21 million in real property tax payments by residents.

"For example, if they had to raise another $1.4 million, that's like increasing property taxes by 6 percent, without even considering that costs are going up," Drescher said. "It's not an easy position."

Both Girardi and Drescher agree that Lancaster's growth boom is affecting district finances.

"Enrollment goes up every year," Girardi said, citing a student population that rose to 5,331 from 5,145 in the past two years.

"The people that have been moving in are generally younger," Drescher said. "And they also have children -- children that are ready for school."

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