The Fleecing of Commack School District Taxpayers

For the past three-years (at a minimum) the Commack Union Free School District (the “District”) has been duping its taxpayers out of millions of dollars by intentionally over-estimating anticipated expenditures in its budget.  In other words, the District has been deceiving its residents by falsely claiming it needs more tax money from them than it knows is actually needed to maintain school operations and services.  

In short, the District has been wrongfully padding its budget at the expense of the taxpayers.  By intentionally over estimating its annual expenditures, the District’s budget practices amount to a perpetual creation of an illegal unofficial reserve fund to pay for unbudgeted contingency expenses - at the taxpayer's expense.  NY Real Property Tax Law § 1318 limits the amount of unexpended (i.e., surplus) funds that school districts can legally retain for unexpected contingent expenses (i.e. unplanned costs) to 4% of the next year’s budget appropriations – in Commack’s case that’s nearly $7 Million. 

However, the funds available for such contingent expenses are supposed to be stored and disclosed in the District’s unrestricted reserve fund – not hidden within inflated budget line items and obscured from the public or their scrutiny.  I obviously do not agree with this practice.  

Despite my raising of this issue at the March 13 Board meeting the District's administration and majority of my fellow Board members appear recalcitrant and intent on continuing this scam in next years budget.  In my opinion, this practice constitutes civil fraud, as well as potential claims for civil conspiracy to commit fraud, aiding and abetting fraud, and possibly civil RICO.  While they may not bring such claims, I am confident that at a minimum the offices of the NYS Attorney General and NYS Comptroller would be highly critical of the practice.  

According to its Audit Statements, the District has under expended its budget (i.e., had the surpluses) in each of the past three fiscal years:

FY  2012/13  =  $9.8M (see p. 12 at https://drive.google.com/file/d/0B3cbjRc1NY_pekxvU0FyYmpSTFk/edit?usp=sharing);  

FY  2011/12  =  $5.8M (see p. 11 at https://drive.google.com/file/d/0B3cbjRc1NY_pNGtka0RCWWxEdTA/edit?usp=sharing); and

FY  2010/11  = $6.0M (see p. 12 at https://drive.google.com/file/d/0B3cbjRc1NY_pVGdkeTBLTnhYclE/edit?usp=sharing).  

During  this  same period, the District’s  unassigned (i.e., unrestricted) reserve fund balances were at or near its legal limits - 3.8% (2012/13), 4.0% (2011/12)  and  3.26%  (2010/11) – see P. 11-12 of Audit Statements.  While the surpluses, for the most part, were applied to reduce the subsequent years tax levy, the end resulting harm is nevertheless the same.  Ultimately, the District’s actions result in the knowingly unnecessary over taxation of Commack taxpayers beyond what is actually required to maintain the District’s operations from year to year.  

The District does not deny but rather admits engaging in this practice in order to have extra contingency fund available.  (See video of March 13 budget meeting at 29:00 min mark: https://www.youtube.com/watch?v=6_U1WufhDwU   While the District’s professed reasons for this practice may be well intended, it is nevertheless an “end justifies the means” approach that disregard’s the District’s obligation to comply with the law and to refrain from unnecessarily burdening its taxpayers.  The attached document (a proverbial Exhibit A) clearly evidences the District’s intention to pad this upcoming year’s budget (FY 2014/15) to the tune of $4.5 Million, by inflating the various line items referenced therein. https://drive.google.com/file/d/0B3cbjRc1NY_pTGNrX0ZReFV0TXc/edit?usp=sharing  

However, there is no authority for a school board to include in its budget what would amount to an “unofficial reserve fund” to pay for previously unbudgeted expenses.  See Appeal of Clark, 37 Educ. Dep’t Rep. 386 (1998).  This practice is illegal insofar as it is plainly designed as a means to do an end run around the 4% limit for contingent funds imposed by NY’s Real Property Tax Law.  Notably, the District’s budget for FY 2014/15 proposes an increase of $4,504,843 or 2.5%.  https://www.commack.k12.ny.us/budget14/3-13-14.pdf  

Accordingly, but for the $4.5 Million in falsely inflated line items, next year's budget increase for Commack taxpayer’s would actually be 0% - whilst still maintaining its unrestricted fund balance close to the 4% legal maximum.

The improper padding of the District’s budget is especially unconscionable considering the current economy and fact that many district residents are still struggling to stay in their homes and make ends meet each month, particularly the elderly and less affluent.  Yet, the District dares to ask its taxpayers for more money than it knows it actually needs? 

The District’s building in of a rolling multi-million dollar surplus into each year’s budget also has additional detrimental effects on Commack’s taxpayers.   First, it makes the tax levy artificially high (b/c amount stated isn't actually needed).  Secondly, by regularly appropriating these multi-million dollar surpluses, budget-to-budget increases only appear to be in palpable limits (b/c surplus funds are applied to reduce the following year’s tax levy).  In addition, the practice is also short sighted because it undermines the District’s integrity and credibility in the eyes of the community, as well as undermining contract negotiations with its employees (not to mention their morale).

Such shenanigans are by no means limited to Commack, as other districts have been found to have engaged in improper budgeting practices, albeit by various other methods – an example can be seen in the recent audit of Central Islip School District by the NYS Comptroller’s Office. https://drive.google.com/file/d/0B3cbjRc1NY_pS05NWUpjeVFvQW8/edit?usp=sharing As noted therein, “Accurate (budget) estimates help ensure that the real property taxes levied are not greater than necessary.”

Any members of the community who take no issue with this practice are confused and/or misguided. They either fail or refuse to recognize that there is a difference between creating a budget based upon a good faith estimate of anticipated expenses (and inadvertently winding up with a surplus) and creating a budget that purposefully overestimates anticipated expenses (in order to have surplus funds available in excess of legal limits).  The difference is the former is proper, while the latter is intentionally deceptive and violates the law.

While I have been criticized for speaking out I am compelled to do so by the oath of my office, as well as my conscience.  My critics can do as they see fit when they take an oath of office and risk facing potential personal liability for their conduct - until then their opinion is empty rhetoric and irrelevant.  It has also been incorrectly stated that I am in favor of depleting the District’s reserves, but nothing could be further from the truth.  I firmly believe that to the extent possible (i.e., without having to cut services and/or programs) the District’s unrestricted reserve fund should be maintained at the highest legal limits. 

In sum, it is the Board’s responsibility to provide adequate oversight and management of the District’s budget, and as fiduciaries we are obligated to abide by law and to protect the interests of District and its taxpayers.  While I cannot undo what has been done in formulating prior years’ budgets, I will not be silent or complicit in the District continuing practice of defrauding its taxpayers.  Thus, I will not vote in favor of any budget that contains intentionally false estimates of anticipated expenses.  

I urge the Community to attend the District’s next budget meeting tomorrow (4/3) at 8:00 pm at CHS.