At least one school department in AOS 77 would have more money in its surplus fund balance than state law allows and three other departments could exceed the allowable amount, under the current proposed budgets for the next year. Some residents are questioning why school departments have such a large amount of unexpended funds, which they feel should be used to lessen the local property tax burden. However, school officials say those surplus funds are needed to meet increasing costs for salaries and to lessen the impact of fiscal cliffs that are expected within the next year or two.
      Eastport had nearly $1 million in its fund balance as of June 30, 2023, although that amount has not yet been confirmed by the auditor. Of the unaudited balance of $961,366, $300,000 is committed for the current school budget and $350,000 would be used in the draft budget for 2024-2025, leaving $311,366. Under state law, the allowable unassigned balance is currently 9% of the prior adopted budget, which is the 2023-2024 budget. With Eastport having a current budget of $3,365,747, the allowable amount is only $302,917. However, the amount remaining in the fund balance is nearly $8,450 more than the amount allowed under state law. The amount used from the fund balance for next year's budget, though, could change, since it is still being reviewed by the school committee.
      William Boone, president of the Eastport City Council, comments that if that much money is in the fund balance then "we should look at that as a way to keep taxes down. It's fiscally responsible, instead of raising taxes if you don't need to. Clearly they have enough [money] there." He also suggests that the school board should let the public know how much money is in the fund balance.
      Three municipalities where the school committees have not yet reviewed a draft budget also could have a fund balance higher than the allowable amount. With an estimated $60,000 from the fund balance being used for the 2024-2025 budget, Dennysville would have just over $2,000 more in its fund balance than is allowed. And in Baring, where $95,000 is being proposed to be used in the 2024-2025 budget, the amount remaining would be $11,897 more than permitted. In Crawford, with $50,000 estimated to be used in the 2024-2025 budget, the amount remaining in the fund balance would be $107,714 more than allowed. However, AOS 77 Superintendent MaryEllen Day points out that Crawford taxpayers have been required by the state to raise a certain amount of funds in order to receive the state subsidy, but the town does not have enough students to expend all of the funds. She says some of Crawford's school funding may now be placed in assigned fund balances so that the department is in compliance with state law.
      In Lubec, the draft budget for 2024?2025 proposes using $250,000 from the fund balance, leaving $228,992, which is just under the $234,718 allowed. The total unaudited fund balance as of June 30, 2023, was $728,992. For the other towns in the AOS, Perry would use $335,000 of its $867,775 fund balance in the 2024-2025 draft budget. It would have $141,308 remaining, with $182,008 permitted. For Pembroke, the draft budget calls for using $175,000 of its $548,577 fund balance. That would leave $99,048 in the fund balance, with $193,082 allowed. In Charlotte, the fund balance as of June 30, 2023, was $272,850. With $80,000 proposed for the 2024-2025 draft budget, there would be $67,338 remaining, with $70,973 allowed. And for Alexander, the draft budget proposes using $150,000 from the fund balance, leaving $70,618 of the $335,395 total, with $120,046 permitted.
      The allowable amount in the fund balances will soon be reduced, which means local budgets will have to use even more of their fund balances to offset property taxes in order to be within the law. Superintendent Day notes that the state requirement had been for the fund balance to be no more than 3% of the prior adopted budget, then it was increased to 5%, then 9% during the pandemic years. Next year it will return to 5%.

Fiscal cliffs projected
      Chad Allen, the business manager for the AOS, points out that the fund balances will help school districts that are facing two impending fiscal cliffs. The first is caused by the increases in wages for school staff, with salary budget lines going up between $60,000 and $100,000 for some of the school departments in the AOS. Across the district, salary lines are increasing between 20% and 25% over a three-year period, with similar increases across the state. Those wage increases "eat up the fund balances," says Allen, who expects the relatively high fund balance in Eastport to soon disappear.
      The second fiscal cliff will occur when the fund balances are lost. "They will be half of what they used to be," Allen notes. School departments that were able to use $350,000 from their fund balances to limit any local tax increases may now only be able to use $125,000, which will lead to a tax increase. "You'll have to budget true to expenses," Allen notes for future budgets. "There won't be a carryover like there used to be."
      Allen observes that the Eastport school department has been "very reliant on the fund balance to keep taxation down." He notes, "They formed a habit." Without the use of the fund balance, local taxpayers would have provided the $300,000 used for the current school year from the fund balance.
      The second draft of the budget proposal for 2024-2025 in Eastport calls for using $350,000 from the fund balance, but there still is a proposed 12% increase in the local share to be raised from property taxes. While that amount is expected to be reduced some in the third draft, it still could result in about a one mill increase in the local tax rate. In Lubec, the second draft budget for 2024-2025 proposes a nearly 26% increase in the local share, with the total budget up 18%.
      Along with limiting tax increases, Allen notes that having a healthy fund balance can help with unexpected expenses. That happened in Perry, where three one-on-one ed techs needed to be hired unexpectedly for special needs students. Having only $50,000 in the fund balance would have covered only one ed tech. Baring has had several years without any fund balance because of a high special education caseload.
      As for how fund balances build up over time, Allen offers an example of how money can be left unexpended in a budget by pointing to school lunch budgeting. When the COVID pandemic hit, "school lunch formulas became inflated. We had asked the taxpayers to raise the money," but it wasn't used and "it fell into the pot." As another example, the Perry school had several vacant ed tech positions that were budgeted for but not filled, with those monies then ending up in the fund balance.
      Many larger school districts create assigned fund balances, which are similar to municipal capital reserve accounts. The school departments in AOS 77 do not use capital reserve accounts and instead obtain loans for larger capital expenditures. Assigned fund balances can be for operation and maintenance lines, or even regular and special education. Those designated accounts then do not count toward the state's percentage for total allowable fund balances, and Day says that school departments should be thinking about placing some funds in designated accounts that are like savings accounts.
      Day says her office has been taking steps to improve transparency about the budget process for local taxpayers. The total fund balance for each school department is now listed in the draft budgets, along with a listing of line items that are increasing or decreasing from one draft to the next and a table showing the increases to local taxation over the past eight years.