Educational Institutions Client Update:

Reserve Funds
Charles I. Schachter 99 Garnsey Road Pittsford, NY 14534 585.419.88 !!!.harris"each.co#

Overview; Common Issues

!uthori"in# the For$ation o% &eser'e Fundin# Li$itations !llo(able )ources %or Fundin# E*penditures or +rans%ers ,ut o% Fund +rans%ers to ,ther &eser'e Funds Li-uidation

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Types of Reserve Funds

1.

Capital &eser'e Fund /Education La( )ection 0121/133 +a* Certiorari &eser'e Fund /Education La( )ection 0121/14a33 Liability &eser'e Fund /Education La( )ection 1506 /74c3 1620/43/c33 Property Loss &eser'e Fund /Education La( )ection 1506 /74c3 1620/43/c33 +a* &eduction &eser'e Fund /Education La( )ection 1104/013 and 1506/0533

2.

0.

4.

2.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Types of Reserve Funds (cont.

1.

Uncollected +a*es &eser'e Fund 8 )$all City )chool 9istricts /Education La( )ection 0121/14b33 Career Educational E-uip$ent &eser'e Fund 8 B,CE) /Education La( )ection 1620/43/ee33 &epair &eser'e Fund /:eneral ;unicipal La( )ection 14d3 <or=ers Co$pensation &eser'e Fund /:eneral ;unicipal La( )ection 14>3 ;andatory 9ebt )er'ice &eser'e Fund /:eneral ;unicipal La( )ection 14l3

5.

7.

6.

10.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Types of Reserve Funds (cont.

11.

Une$ploy$ent Insurance Pay$ent &eser'e Fund /:eneral ;unicipal La( )ection 14$3 Insurance &eser'e /:eneral ;unicipal La( )ection 14n3 E$ployee Bene%it !ccrued Liability &eser'e Fund /:eneral ;unicipal La( )ection 14p3 &etire$ent Contribution &eser'e Fund /:eneral ;unicipal La( )ection 14r3 E*cess +a* Le'y &eser'e

11.

11.

11.

12.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Ca$ital Reser%e &'nds (Education Law Section 3651(1))

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Capital Reserve Funds: !llowa"le #urposes

(llo!a"le P'r$oses) +o pay the cost o% any ?ob>ect or purpose@ %or (hich a school district could issue bonds under the Local Finance La(.

E*a$plesA
:eneral Purpose Capital &eser'e Fund )chool Bus &eser'e Fund +echnolo#y &eser'e Fund E-uip$ent &eser'e Fund

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Capital Reserve Funds: Creation

*o! Created) By 'oter appro'al. ;ust be appro'ed by a re%erendu$ appro'ed by the 'oters.

Both Botice o% Proposition and Proposition $ust stateA

Purposes o% %und Ulti$ate !$ount /%undin# li$it3 Probable +er$ )ources %ro$ (hich %unds (ould be obtained

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Capital Reserve Funds: E$penditures

+,$endit'res) ;ust be appro'ed by 'oter re%erendu$ statin# speci%ic purpose and a$ount o% e*penditureC

o%ten done a part o% a capital pro>ect re%erendu$ (here portion o% cost paid %or out o% e*penditure %ro$ reser'e %und (ith balance %inanced %ro$ bonds o% the district

SED rulingsA $ust be %or exact amount not an ?up to@ a$ount

Cannot authori"e e*penditure %ro$ %und in sa$e year as reser'e %und is established andDor %unded

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Capital Reserve Funds: Fundin% &imit and Term &imit

&'ndin- and .er# /i#its)

,nce either the %undin# li$it or the stated ter$ o% the reser'e set %orth in the ori#inal proposition creatin# the reser'e has been reached no %urther contributions can be $ade to the reser'eC ho(e'er the reser'e re$ains in e*istence and %urther e*penditures can be authori"ed %ro$ any re$ainin# balanceC !nother proposition could be appro'ed by the 'oters reauthori"in# the reser'e (ith a ne( ter$ andDor %undin# li$it

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Capital Reserve Funds: Transfers to Ot'er Funds

.ransfers to 0ther &'nds) !ll or part o% balance in %und $ay be trans%erred with voter approval to another reser'e %und %or$ed under Education La( )ection 0121 /e.#. another capital reser'e %und a ta* certiorari reser'e %und or a reser'e %or uncollected ta*es /s$all city school districts only33

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Capital Reserve Funds: &i(uidation

/i1'idation)

;ay be li-uidated with voter approval, i% the 'oters deter$ine the ori#inal purpose %or (hich the %und (as established is no lon#er needed. Balance applied %irst to pay do(n any outstandin# bonded indebtedness o% )chool 9istrict and then to reduce ta* le'y sub>ect to certain li$itations.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

.a, Certiorari Reser%e &'nds (Education Law Section 3651(1-a))

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Ta$ Certiorari Reserve Funds: #urpose and Creation

P'r$ose) +o pay >ud#$ents or clai$s /i.e. re%unds3 resultin# %ro$ ta* certiorari proceedin#s *o! Created)
By Board actionC Eoter appro'al not re-uired

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Ta$ Certiorari Reserve Funds: Fundin% &imitation and )ource of Funds

&'ndin- /i#itation) a$ount deposited into %und $ay not e*ceed the a$ount ?(hich $i#ht reasonably be dee$ed necessary to pay anticipated >ud#$ents or clai$s@ in ta* certiorari proceedin#s So'rce of &'nds) #enerally bud#etary appropriationsC so$eti$es trans%ers %ro$ other %unds

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Ta$ Certiorari Reserve Funds: E$penditures

+,$endit'res)

Eoter appro'al not re-uired ;ay only be applied to pay re%unds in proceedin#s co$$enced in the speci%ic year o% the deposit into the %und

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Ta$ Certiorari Reserve Funds: Transfers to Ot'er Funds

.ransfers to 0ther &'nds)

.o General &'nd
;oneys deposited into the reser'e %und $ust be returned to the :eneral Fund no later than Fuly 1 o% the %ourth %iscal year a%ter the deposit into the reser'e %und i% they are not used to pay re%unds arisin# out o% ta* certiorari proceedin#s %or the ta* role in the speci%ic year they (ere deposited andDor (ill not be ?reasonably required@ to pay such re%unds Funds (ill be dee$ed ?reasonably required@ i% a clai$ as not been %inally deter$ined or other(ise ter$inated or disposed o% a%ter e*haustion o% all appeals

.o 0ther Reser%e &'nds

!ll or part o% balance in %und $ay be trans%erred with voter approval to another reser'e %und %or$ed under Education La( )ection 0121 /e.#. a capital reser'e %und3

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Ta$ Certiorari Reserve Funds: &i(uidation

/i1'idation)

;ay be li-uidated with voter approval, i% 'oters deter$ine the ori#inal purpose %or (hich the %und (as established is no lon#er needed. Balance applied %irst to pay do(n any outstandin# bonded indebtedness o% )chool 9istrict and then to reduce ta* le'y sub>ect to certain li$itations

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

/ia"ility Reser%e &'nds and Pro$erty /oss Reser%e &'nds (Education Law Section 170 (!-c)" 1 50(#)(cc))

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

&ia"ility Reserve Funds and #roperty &oss Reserve Funds: #urpose and Creation

P'r$ose)

+o co'er property loss or other liability clai$s ;ust be t(o separate %undsA one to co'er property loss and the other to co'er liability clai$s

*o! Created)
Funded by Board actionC Eoter appro'al not re-uired

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

&ia"ility Reserve Funds and #roperty &oss Reserve Funds: Fundin% &imitations and )ource of Funds

&'ndin- /i#itations)
)chool 9istricts) ;ay not e*ceed the #reater o% 0G o% annual bud#et /e*clusi'e o% any planned balance presently authori"ed3 or H12 000 B,CE)A ;ay not e*ceed 0G o% annual bud#et Balance in reser'e $ay not be reduced belo( total a$ounts esti$ated to be necessary to co'er incurred but unsettled clai$s or suits includin# related e*penses other than by pay$ent o% losses %or (hich such a$ounts (ere established.

So'rce of &'nds) bud#etary appropriations

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

&ia"ility Reserve Funds and #roperty &oss Reserve Funds: Transfers to Ot'er Funds; Use of Une$pended *alances

)chool 9istricts
Pay$ents $ay not be $ade %or purposes other than those %or (hich the reser'e %und (as established unless approved by the votersC E*ceptionA school board $ay authori"e use o% the reser'e %und /other than a$ounts allocated %or unsettled clai$s or suits includin# related e*penses3 to pay pre$iu$s %or insurance policies purchased to insure subse-uent losses in areas pre'iously sel%4insured in the e'ent o% dissolution o% the sel%4insurance plan.

B,CE)

+he board $ay authori"e use o% the reser'e %und /other than a$ounts allocated %or unsettled clai$s or suits includin# e*penses in connection there(ith3 to pay pre$iu$s %or insurance policies purchased to insure subse-uent losses in areas pre'iously sel%4insured in the e'ent o% dissolution o% the sel%4insurance plan.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

+#$loyee 2enefit (ccr'ed /ia"ility Reser%e &'nd ($eneral %unicipal Law Section 6-p)

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Employee *enefit !ccrued &ia"ility Reserve Fund: #urpose

P'r$ose) +o pay %or any accrued ?e$ployee bene%it@ due an e$ployee upon ter$ination o% ser'ice. !lso can be used to %und the reasonable costs o% ad$inisterin# the reser'e %und and the cost o% e*pert or pro%essional ser'ices rendered in connection (ith the in'esti#ation ad>ust$ent or settle$ent o% clai$s actions or >ud#$ents relatin# to clai$s %or accrued e$ployee bene%its. ?Employee Benefit@ $eans the cash pay$ent o% the $onetary 'alue o% accrued and accu$ulated but unused and unpaid sic= lea'e personal lea'e holiday lea'e 'acation ti$e ti$e allo(ances #ranted in lieu o% o'erti$e co$pensation and any other %or$s o% pay$ent %or accrued but unli-uidated ti$e earned by e$ployees and payable upon ter$ination o% ser'ice.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Employee *enefit !ccrued &ia"ility Reserve Fund: Creation and )ource of Fundin%

*o! Created)
Funded by Board actionC Eoter appro'al not re-uired.

So'rce of &'ndin-) Bud#etary appropriations a$ounts trans%erred %ro$ other reser'e %unds authori"ed under the :eneral ;unicipal La( sub>ect to per$issi'e re%erendu$C other %unds le#ally appropriated.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Employee *enefit !ccrued &ia"ility Reserve Fund: E$penditures

+,$endit'res) Eoter appro'al not re-uired. Bo e*penditure shall be $ade %or any e$ployee bene%it %or (hich a reser'e %und has already been established. Ho(e'er i% the 9istrict pre'iously established a reser'e %und %or a type o% accrued e$ployee bene%it the Board $ay discontinue the other reser'e %und and trans%er any une*pended balance to the e$ployee bene%it accrued liability reser'e %und sub>ect to certain li$itations.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Employee *enefit !ccrued &ia"ility Reserve Fund: Transfers to Ot'er Funds; Use of Une$pended *alances

.ransfers to other f'nds3 4se of 4ne,$ended 2alances)

I% the Board deter$ines that such %und is no lon#er needed the re$ainin# balance $ay be trans%erred to certain other reser'e %unds /those authori"ed by the :eneral ;unicipal La( or under Education La( )ection 01213 but only to the e*tent that the $oneys in the e$ployee bene%it accrued liability reser'e %und e*ceed a su$ su%%icient to pay all liabilities incurred or accrued a#ainst the reser'e %und.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Employee *enefit !ccrued &ia"ility Reserve Fund: Transfers of E$cess Funds

.ransfers of +,cess &'nds d'rin- 5 15613 and 5 13614 &iscal Years)

Board can authori"e (ithdra(al %ro$ %und in an a$ount not to e*ceed the lesser ofA /i3 the dollar a$ount o% e*cess %undin# in such %und as deter$ined by the )tate Co$ptroller or /ii3 a$ount o% 9istrictIs re$ainin# #ap eli$ination ad>ust$ent calculated by )E9. Funds (ithdra(n $ay only be used %or ?$aintainin# educational pro#ra$in#@ durin# the applicable %iscal year that (ould ha'e other(ise been reduced as a result o% the #ap eli$ination ad>ust$ent.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

7oter ($$ro%al or 0ther Re1'ire#ents ($$lica"le to 7ario's .y$es of Reser%e &'nds

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

+oter !pproval or Ot'er Re(uirements !pplica"le to +arious Types of Reserve Funds

&or#ation of Reser%e Re1'irin- 7oter ($$ro%al

Capital &eser'e Fund

+,$endit're of f'nds for Intended P'r$ose of Reser%e re1'irin- 7oter ($$ro%al

Capital &eser'e Fund

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

+oter !pproval or Ot'er Re(uirements !pplica"le to +arious Types of Reserve Funds

.ransfers of 8oneys to other Reser%e &'nds re1'irin- 7oter ($$ro%al

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

Capital &eser'e Fund 8 $ust to other reser'e %unds established under Ed. La( 0121 /#enerally other capital reser'e %unds or ta* certiorari reser'e %unds3C +a* Certiorari &eser'e Fund 4 $ust to other reser'e %unds established under Ed. La( 0121 /#enerally capital reser'e %unds or ta* certiorari reser'e %unds3C Liability and Property Loss &eser'e Funds 8 e*penditures %or a purpose other than the purpose o% the %und 8 (ould include trans%er to another reser'e or to the :eneral FundC Uncollected +a*es &eser'e Fund /)$all City )chool 9istricts3 8 $ust be to other reser'e %unds established under Ed. La( 0121 /capital reser'e %unds or ta* certiorari reser'e %unds3.

+oter !pproval or Ot'er Re(uirements !pplica"le to +arious Types of Reserve Funds

.ransfers of Reser%e &'nd 2alance not Re1'irin7oter ($$ro%al

E$ployee Bene%it !ccrued Liability &eser'e Fund 4 upon a deter$ination by the Board that the %und is no lon#er needed the %und $ay be discontinued and $oneys $ay be trans%erred to any other reserve but only to the e*tent o% the e*cess o'er the a$ount su%%icient to pay all liabilities incurred or accrued a#ainst the reser'e %undC

)pecial rule %or trans%ers o% e*cess %und balance $ade in FJ 2012410 and FJ 2010424 %or ?$aintainin# educational pro#ra$in#@

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

+oter !pproval or Ot'er Re(uirements !pplica"le to +arious Types of Reserve Funds

.ransfers of Reser%e &'nd 2alance not Re1'irin7oter ($$ro%al 9cont.:

Insurance &eser'e Fund 4 upon a deter$ination by the Board that the %und is no lon#er needed the %und $ay be discontinued and $oneys $ay be trans%erred to any other reserve but only to the e*tent o% the e*cess o'er the a$ount su%%icient to pay all liabilities incurred or accrued a#ainst the reser'e %undC &etire$ent Contribution &eser'e Fund 8 a portion o% balance held in the %und $ay be trans%erred to another reserve fund established under Ed. Law Section 3 !" %ollo(in# a public hearin#C

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

+oter !pproval or Ot'er Re(uirements !pplica"le to +arious Types of Reserve Funds

.ransfers of Reser%e &'nd 2alance not Re1'irin7oter ($$ro%al 9cont.:

Une$ploy$ent Insurance Pay$ent &eser'e FundC <or=ersI Co$pensation &eser'e Fund

I% the balance in %und at end o% a %iscal year is in e*cess o% a$ount needed to satis%y e*istin# and pendin# clai$s the Board $ay (ithin 10 days o% end o% %iscal year elect to trans%er all or part o% such e*cess to another reserve fund formed under the #$L or Ed. Law Section 3 !", and%or to apply all or part of such e&cess to the budget appropriation for the ne&t succeeding fiscal yearC

I% the 9istrict ter$inates its election to beco$e liable %or pay$ents to the une$ploy$ent insurance %und in the case o% an Une$ploy$ent Insurance Pay$ent &eser'e Fund or ceases to be a sel% insurer in the case o% a <or=ersI Co$pensation &eser'e Fund $oneys re$ainin# in the %und in e*cess o% the a$ount su%%icient to pay all pendin# clai$s $ay be trans%erred to another reserve fund established under the #$L or under Ed. Law section 3 !". Educational Institutions Client Update

February 2014 Harris Beach PLLC 2014

+oter !pproval or Ot'er Re(uirements !pplica"le to +arious Types of Reserve Funds

.ransfers into a Reser%e &'nd 9fro# another Reser%e: 9additional conditions i#$osed:

&etire$ent Contribution &eser'e Fund 8 trans%ers %ro$ a repair reser'e or capital reser'e re-uire a public hearin# Une$ploy$ent Insurance &eser'e Fund 8 board resolution authori"in# trans%ers %ro$ another reser'e sub>ect to a per$issi'e re%erendu$

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014

+oter !pproval or Ot'er Re(uirements !pplica"le to +arious Types of Reserve Funds

.ransfers o't of Reser%e 8andated 2y /a!

+a* Certiorari &eser'e Fund 4 ;oneys deposited into the reser'e %und $ust be returned to the #eneral 'und no later than Fuly 1 o% the %ourth %iscal year a%ter the deposit into the reser'e %und i% they are not used to pay re%unds arisin# out o% ta* certiorari proceedin#s %or the ta* role in the speci%ic year they (ere deposited andDor (ill not be ?reasonably re-uired@ to pay such re%undsC E*cess +a* Le'y &eser'e 8 $ust be used to reduce ta* le'y in %ollo(in# %iscal year.

Educational Institutions Client Update February 2014 Harris Beach PLLC 2014