032706 RESPONDENTS' MEMORANDUM OF LAW

022406 JOINT VERIFIED ANSWER

013006 consented request for an extension

012706 INGERMAN SMITH request for an extension

Hevesi Audit Faults CPA firm Coughlin, Foundotos, Cullen & Danowski for failing to meet professional standards

STATE EDUCATION DEPARTMENT

COMMISSIONER OF EDUCATION

Dated this 24^th day of January, 2006

Introduction

     Petitioner Joseph Giardina is a lifelong resident of, taxpayer in and graduate of the schools in the Bedford Central School District (the “District”).  He brings this petition to the Commissioner on behalf of all taxpayers in the District. All are adversely affected by Respondents’ illegal budget practices.  Indeed, Respondents boast of being fiscally conservative but, in reality, show reckless disregard for taxpayer funds--willfully ignoring the RPTL and the Education Law and the Commissioner’s regulations.

     Respondents’ less-than-forthright budget practices result in planned multi-million dollar budget surpluses year after year.   Unnecessary and commensurately higher property taxes result.   Respondents flagrantly ignore laws and regulations in place to require unintended surpluses be returned in the following year’s tax levy.

     Abuse abounds with manipulating the law to retain taxpayer funds for future use or to produce, as the Board recently put it, to “maintain maximum flexibility.”  Respectability is afforded such abuse with an outside auditor that may look the other way, but in any case, fails to properly evaluate the legitimacy of the District’s tax certiorari reserve funds.

     This petition contains demands for relief from the adverse budget practices of Respondents, and an immediate stay on the District’s 2006-2007 budget proposition until such practices cease.  Intervention and oversight in district’s financial matters is urgent. The petitioner also seeks the Commissioner’s to  remove Mark Slivka from his position as Board President and as a member of the District’s Finance Subcommittee, the removal of Brad Sacks from his seat on the District’s Finance Subcommittee, the removal of Mark Betz in his capacity as the Assistant Superintendent for Business and Administrative Services; and, finally, a demand that the District’s independent auditor be disallowed from future independent audits in the Bedford Central School District.

     Accordingly, petitioner respectfully alleges;

First:  Petitioner Joseph P. Giardina resides at 63 High Street, Mount Kisco, New York 10549.  He is a resident, a taxpayer and a voter in the Bedford Central School District (herein, District).

Second:               Respondent Board of Education is elected by the voters in the District.  The Bedford Central School District is organized under provisions of the laws of the State of New York.

Third:                        Respondent Mark Betz is employed in the District as the Assistant Superintendent for Business and Administrative Services for well over a decade.  Among his duties, Respondent Betz advises and confers with Respondent Board as to what measures to take with district’s fund balance and its cash reserves, particularly the tax certiorari reserves. His knowledge and advice is instrumental for the board to develop and manage the District’s budget.  He attends and advises at all Board meetings and those of the Finance Subcommittee (herein “Subcommittee) meetings of the Respondent Board.  Mr. Betz has been employed for well over a decade in his current position.  His 2004 compensation, based on his 2004 I.R.S form W2 is $157,182.12.

Fourth:                Respondent Mark Slivka is the President of Respondent Board and serves on the Respondent Board’s Subcommittee.  He has served on the Board for approximately seven years.

Fifth: Respondent Brad Sacks is a member of the Respondent Board of Education and serves on the Subcommittee. 

Sixth:                        Respondent Coughlin Foundotos Cullen & Danowski, LLP, 1650 Route 112, Port Jefferson Station, New York 11776-3060 conducted the 2004-2005 outside independent audit of the District. Its license to practice public accounting is governed under the laws of the State of New York and regulations of the State Education Department.

Seventh:            In Respondent Board minutes, the following item appears:  “On a motion made by Mrs. Wollin, seconded by Mrs. Loucas and carried unanimously the Board of Education approved the establishment of a 2004-2005 Tax Certiorari Reserve, effective June 30, 2005, and fund it with any excess fund balance not to exceed the certiorari petitions of $1,429,489.”  [See page 7 of the July 14, 2005 respondent board of education minutes annexed hereto as Exhibit 1.]

Eighth:                   In the same Respondent Board minutes, the following motion appears:  “On a motion made by Mrs. Loucas, seconded by Dr. Karle and carried unanimously the Board of Education approved the 2005-2006 Tax Warrant, in the amount of $86,336,526 and commanded each town tax collector to collect the amounts of the levy apportioned in the appendix “A” attached to the tax warrant.” [See Exhibit 1]

Ninth:                      A copy of the Bedford Central Tax Warrant for July 1, 2005 – June 30, 2006 is attached hereto as Exhibit 2. 

Tenth:                      According to RPTL §1318(1), the annual school district tax warrant has specific requirements such that "[t]he warrant of the collecting officer . . . shall state the amount of unexpended surplus funds in the custody of the board and shall further state that except as authorized or required by law, such unexpended surplus funds have been applied in determining the amount of the school tax levy."

Eleventh:        According to the 2005-2006 Tax Warrant, the Respondent Board affirms (with seven signatures) that the appropriated undesignated, unreserved fund balance remaining in the 2004-2005 budget is $650,000.  This amount is credited accordingly to the tax levy. 

Twelfth:           However, the undesignated fund balance listed on the district’s 2005-2006 Tax Warrant is under-stated because the 2004-2005 Tax Certiorari Reserve Fund is over-reserved.  Thus, the amount specified as the “undesignated, unreserved fund balance remaining” does not reflect what is, in fact, the true undesignated, unreserved fund balance.

Thirteenth:                        According to law, the tax certiorari reserve has to be created before the tax levy. Since the 2004-2005 Tax Certiorari Reserve was established in such an open-ended and illegal fashion, the amount specified as the “undesignated, unreserved fund balance remaining” on the 2005-2006 Tax Warrant cannot possibly be accurate. 

Fourteenth:                    The correct amount of the “undesignated, unreserved fund balance remaining” can only be determined after a specific sum is dedicated to the 2004-2005 Tax Certiorari Reserve.  

Fifteenth:       Moreover, based on RPTL 1318(1), Respondent’s 2005-2006 Tax Warrant does not include required statutory language; that is, it does not “…state the amount of unexpended surplus funds in the custody of the board…” as RPTL 1318(1) precisely requires.

Sixteenth:      Since the degree to which the 2004-2005 Tax Certiorari Reserve is over-funded is the minimum amount by which the $650,000 “undesignated, unreserved fund balance is under-stated and incorrect, the 2005-2006 Tax Warrant is invalid.

Seventeenth:                As a result of purposeful skirting of law, the District is collecting more taxes than necessary to operate for 2005-2006.

Eighteenth:                       Absent a specific amount of money stipulated in the 2004-2005 tax certiorari resolution, it is difficult to determine a precise dollar amount of taxpayer funds allocated to the said reserve by respondents in the 7/13/05 illegal resolution.  But the 2004-05 Tax Certiorari Reserve resolution is worded in such a way that respondent would have funded the 2004-05 TCRA to 100% of claims had sufficient surplus fund balance existed.

Nineteenth:                      At the end of each fiscal year, a school board may retain unexpended, unreserved funds remaining in the district’s general fund in an amount equal to 2 percent of the district budget for the upcoming school year.  This is known as the district’s fund balance.  The board may use these funds to pay for items that constitute ordinary contingent expenses (RPTL 1318) see also Appeal of Rabideau, 38 Educ. Dep’t Rep. 359 (1998).

Twentieth:   As required by RPTL 1318 (1), at the conclusion of each fiscal year, a board of education must apply any unexpended surplus funds to reduce its tax levy for the following school year.

Twenty-first:              Accordingly, surplus funds may not be retained beyond the last day of the fiscal year or June 30^th.

Twenty-second:    The RPTL 1318 defines a surplus fund balance as “any operating funds in excess of two percent of the current school year budget, and shall not include funds properly retained under other sections of law.”

Twenty-third:            Based on the Commissioner of Education’s decisions, a district must also take the necessary steps after June 30 to determine with reasonable accuracy the year-end fund balance by the time the tax warrants are approved, on or before September 1 of each year (RPTL §§1306[1], 1318[1]; Appeal of Liberatore, supra).

Twenty-fourth:     The 2004-2005 year end fund balance was not determined with “reasonable accuracy’ before the 2005-2006 Tax Warrant was approved. The records shows that the 2004-2005 Tax Certiorari Reserve was created with an open-ended amount to be funded with monies “left over” from surplus fund balance after issuing the 2004-2005 Tax Warrant.

Twenty-fifth:              The Commissioner has determined that “if surplus money is to be used to establish a reserve fund, the fund should be established before the tax levy (Appeal of Gorman, supra; Appeal of Simons, supra). 

Twenty-sixth:             Based on Commissioners Decision No. 15,039 and RPTL 1318, “a sound estimate of the fund balance should be taken into account when developing a budget for the next school year, and must be reflected in the computation of the tax levy and noted on the tax warrant.”

Twenty-seventh:                        Based on several prior decisions by the Commissioner, he expresses concern when other school districts are not aware of the extent of excess unexpected funds until after the close of the fiscal year. 

Twenty-eighth:       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 (Appeal of Clark, 37 Educ. Dep’t Rep. 386 (1998).

Twenty-ninth:           In other words, a reserve fund is intended as a mechanism to reserve and accumulate funds over time for a future project, not as a vehicle to absorb and hide over-collected taxes.

Thirtieth:        Respondent Board, under advice and counsel from Respondent Betz and the Subcommittee, authorized the funding of the 2004-2005 Tax Certiorari Reserve with monies that otherwise were legally earmarked to be returned as a credit in the 2005-2006 tax levy.

Thirty-first:                   Education Law §3651(1-a) and RPTL 1318 authorizes the establishment of a Tax Certiorari Reserve fund for the payment of judgments and claims in tax certiorari proceedings without voter approval, provided that “the total of the monies held in such reserve fund shall not exceed the amount which might reasonably be deemed necessary to meet anticipated judgments and claims arising out of such tax certiorari proceedings.”

Thirty-second:        Quoting directly from pages 611-12 in the 28^th Edition of School Law (2000) regarding the proper protocol for establishing a reserve fund, it states, ”The proposition to establish a reserve fund must specify the purpose, the ultimate amount, the probable term and the source from with the funds will be obtained.  The details of each resolution should be different in order to cover particular items to be included in the establishment of each fund. A school district attorney should be consulted on the exact wording.”

Thirty-third:                 Based on RPTL 1318(1), the law permits a board of education to retain additional unexpended operating funds when authorized to do so "under other sections of law," but it does not authorize a board to retain such funds by informally deciding to hold them for future expenses.   

Thirty-fourth:         Based on prior years’ Board and Subcommittee minutes surrounding surplus fund balance, the respondent board uses the legal options of establishing reserve funds without voter approval with an extorsive intention of improperly retaining taxpayer monies.  Respondents park the public’s money into inflated tax certiorari reserves to, in their words, “maintain maximum flexibility.”  [See 5/24/04 Subcommittee minutes which were subsequently adopted into the Respondent Boards 6/4/04 minutes, are annexed hereto as Exhibit 3.]

Thirty-fifth:                   Quoting again from the 28^th Edition School Law, published by the NYS School Boards Association and the NYS Bar Association in 2000, it states “The Education Law and commissioner’s regulations require that all school districts obtain an independent audit by an outside certified public accountant or public accountant.  The purpose of this audit is to verify the accuracy of invoices, purchase orders, payroll, claims and contracts transacted by the school district during the school year.  The independent auditor will review the documentary evidence and thus determine the district’s compliance with all laws, policy and rules and regulations regarding the expenditure of money.”  (Sec. 2116-a(3) 8 NYCRR Sec. 170.2(r).”

Thirty-sixth:                  The District’s 2004-2005 outside audit was performed by Respondent Coughlin Foundotos Cullen & Danowski, LLP.  [The first relevant ten pages detailing the District’s fund balance are annexed hereto as Exhibit 4.]

Thirty-seventh:      The first page of said 2004-2005 audit reports:  “We have audited the accompanying financial statements of the governmental activities, each major fund and the fiduciary funds of the Bedford Central School District as of and for the year ended June 30, 2005…These financial statements are the responsibility of the District’s management.  Our responsibility is to express opinions on the financial statements based on our audit.” [See Exhibit 4.]

Thirty-eighth:            The 2004-2005 outside audit has significant failures.  It did not determine, nor did it express any opinion, that the District is not in compliance with all laws, policy and rules regarding the expenditure of money, especially in the area of surplus fund balance and verifying the reasonableness of the 2004-2005 Tax Certiorari Reserve. 

Thirty-ninth:                On information and belief, based on budget presentations, Respondent  Betz was instrumental in designing, calculating and presenting the proposed 2005-2006 budget, recommending a 2004-2005 Tax Certiorari Reserve and related documents for Respondent Board and, ultimately, public consideration.

Fortieth:          The District’s “General Fund’s Unreserved-Undesignated Fund Balance” is described by the Respondent outside auditor as “the component of total fund balance that is the residual of prior years’ excess revenues over expenditures, net of transfers to reserves and designations to fund prior years’ budgets.  It is this balance that is commonly referred to as ‘the fund balance.’  [See page 8 of the Audit, Exhibit 4.]

Forty-first:                     On May 6, 2005 the Respondent Board published a guide to the proposed 2005-2006 budget.  It is available on the Respondent district’s website.  For this Petition, it is referred to hereafter as the “2005-2006 Budget Guide.”[A copy of the three pages dedicated to the District’s 2004-2005 fund balance is annexed hereto as Exhibit 5.]

Forty-second:          The 2005-2006 Budget Guide determines the “Total Estimated Fund Balance as of June 30, 2005 [to be]$5,563,779.”  [See page 3, exhibit 5.]

Forty-third:                   However, according the 2004-2005 audit report states: “General Fund fund [sic] balance $7,221,548.  [See page 7, Exhibit 4.]

Forty-fourth:           On information and belief, comparing the 2005 Budget Guide and the 2004-2205 Audit, Respondent Betz and Respondent Board understated total fund balance by 23% or $1,657,769. ($7,221,548 minus $5,563,779).

Forty-fifth:                     Respondents, therefore, failed to make “a sound estimate” of the 2004-2005 fund balance when developing the 2005-2006 budget in violation of Commissioner’s regulations and RPTL 1318.

Forty-sixth:                    Consequently, this breach resulted in a higher than necessary tax levy on the 2005-2006 Tax Warrant.

Forty-seventh:       Page 8 of the 2004-2005 independent audit report states “the district’s 2004-05 revenues exceeded budget projections by 1,455,217; and expenses were overestimated by $1,567,315 for a total of $3,022,532. “ [See Exhibit 4.]

Forty-eighth:              Quoting directly from page 7 of the 2004-2005 Audit, “Expenditures and encumbrances under budget arose primarily from under-expended balances in instruction and employee benefit line items.” [See page 7, exhibit 4.]

Forty-ninth:                  Quoting directly from the 2004-2005 Audit again, it states beneath the table listing total combined fund balance:  “The district’s ability to increase the funding in the tax certiorari reserve was to a large extent due to actual expenditures being less than those amounts budgeted.”  [See page 7, exhibit 4.]

Fiftieth:              The 7/13/05 resolution to create a 2004-2005 Tax Certiorari Reserve is illegal.  It fails to state the specific amount of money in appropriated for the reserve and does not meet the legal standard.

Fifty-first: On Page 8 in the 2004-2005 outside audit report, Respondent Auditor indicates $394,867 was released from the total Tax Certiorari Reserve and returned to the general fund effective 6/30/05.  And total new district funds allocated to tax certiorari reserves increased by $942,269 from fiscal year end 2003-04 to fiscal year end 2004-05.[See p. 8, Exhibit 4]

Fifty-second:              The net total change, therefore, in the total funds allocated for future tax certiorari payments is $1,337,136 ($942,269 plus $394,867).  [See page 8 Exhibit 4.]

Fifty-third:                       Utilizing the 2004-2005 audit report and the 2005-2006 Budget Guide, Petitioner approximates the dollar amount appropriated to the 2004-2005 Tax Certiorari Reserve at $1,337,136.  He examines the “fund balance changes” demonstrated through a comparison of the actual revenues and expenditures for the year compared to budget listed in the 2004-2005 audit report and matches that number against the amounts listed for specific tax certiorari reserves by year in the 2005-2006 Budget Book.

Fifty-fourth:               The 2004-2005 audit report states $1,310,000 of surplus fund balance was “transferred” to reserves. [See Section B, page 8, Exhibit 4].

Fifty-fifth: The total dollar amount in the Tax Certiorari Reserve effective June 30, 2005 is $2,331,627.  Upon information and belief, based on the fact that only three years reserves may be legally held at any one time, this amount must represent the total for the tax certiorari reserves for 2002-2003, 2003-2004, and 2004-2005.

Fifty-sixth:                        Previous Board minutes and the 2005-2006 Budget Guide show Respondent Board established a  $500,000 2002-2003 Tax Certiorari Reserve.  [See relevant page from the 7/25/2003 board minutes attached hereto as Exhibit 6, and see Exhibit 5.]

Fifty-seventh:           In the Subcommittee meeting, Respondents discussed plans to establish a $500,000 2003-2004 Tax Certiorari Reserve.  This amount is confirmed in the 2005-2006 Budget Book. 

Fifty-eighth:                  It is assumed for the purpose of this Petition that the Respondent Board approved this $500,000 Tax Certiorari Reserve some time after July 21, 2004.

Fifty-ninth:                      Therefore, using the numbers in the Board minutes and 2005-2006 Budget Guide, the combined tax certiorari reserves for 2002-2003 and 2003-2004 is $1,015,686 [i.e. $508,885 plus $506,801].  (The extra monies in excess of $500,000 in each account presumably represent accrued interest.)

Sixtieth:             Therefore, since the total amount of the  three fiscal years tax reported tax certiorari reserves is $2,331,627, then the amount allocated to the 2004-2005 Tax Certiorari Reserve must be the total allocation less the two older reserves; or an amount close to $1,315,941 ($2,331,627 minus $1,015,686).

Sixty-first:                        This amount, $1,315,941, closely approximates the $1,310,000 listed as “transferred to the reserves” in the 2004-2005 audit. It ties in with the net change in tax certiorari reserve balance of $1,337,136. [See p.7, 2005 exhibit 5].

Sixty-second:             It follows that the 2004-2005 Tax Certiorari Reserve is approximately $1,310,000 and is thus equal to approximately 92% of $1.4 million of 2004-2005 total tax certiorari claims!

Sixty-third:                      Not only is it unreasonable to reserve against the 2004-2005 tax certiorari claims at that rate, it is absurd.  Such a level in the Bedford Central School District is unjustified, far in excess of the legal “reasonable” standard and violates the Education Law and the RPTL 1318.

Sixty-fourth:              On information and belief, based on district records and the 2004-2005 Audit, the district has no history of paying tax certiorari claims at such a high rate. 

Sixty-fifth:                        In Subcommittee minutes dated May 25, 2004 the following conclusions were reported: “Certiorari judgments remain within the expected range.  For 2003-2004 and again for 2004-2005 the Board did not budget any money to pay such judgments [sic].  However the board has created reserves to handle such costs.  At the year’s end the various certiorari reserves will have in excess of $1.35 million.  It is the opinion of the subcommittee that the cycle of certiorari judgments may be on the upswing after four years of insubstantial judgments.” [See exhibit 3.]

Sixty-sixth:                       Petitioner is not aware of any district records or findings to substantiate a claim “that certiorari judgments may be on the upswing.”

Sixty-seventh:          To the contrary, recent history shows payouts more in the range of 0-7% of total certiorari claims.

Sixty-eighth:                 Based on the 2005-2006 Budget Guide, Respondents estimated $387,303 of the original $500,000 2001-2002 Tax Certiorari Reserve was “returning” to the general fund.

Sixty-ninth:                     Indeed, the 2004-2005 audit report confirms in fact  a sum very close to that $387,303 amount, i.e. $394,867, was released to the general fund upon closing out the 2001-2002 Tax Certiorari Reserve.  [See p. 7, exhibit 4]

Seventieth:                        On information and belief, based on the 2004-2005 audit report and not discounting for interest earned, approximately only $105,133 out of the $500,000 reserved was used to pay 2001-2002 tax certiorari claims.

Seventy-first:            On information and belief, based on previous Board minutes establishing tax certiorari reserves, $500,000 represented 30% of the filed tax certiorari petitions claims of approximately $1,650,000. [See relevant minutes in exhibit 6.]

Seventy-second: These figures mean that the District paid out only approximately 7% of the total 2001-2002 claims which were made(i.e. only $105,000 out of $1,650,000).

Seventy-third:          Based on minutes of the Board, the 2002-2003 and 2003-2004 Tax Certiorari Reserves were established by estimating that only 30% of the value of tax certiorari petitions filed would produce paid claims. [See Exhibit 6]]

Seventy-fourth:  Regarding the establishment of the 2002-2003 Tax Certiorari Reserve and discussing year-end fund balance, the minutes record:  “The tax certiorari accounts were reviewed as were the certioraris to date.  Mr. Betz recommended the funding of a tax reserve account at a level of 30%.”  [See exhibit 6.]

Seventy-fifth:           Looking at the 2005-2006 Budget Guide and the 2004-2005 audit report, the 2002-2003 and 2003-2004 Tax Certiorari Reserves still contain more money than that with which they started!   This leads to the inexorable conclusion that no claims of any significance have been paid relative to the amount of petitions filed.

Seventy-sixth:          Yet the Respondent Board’s 2005 Special School Budget Issue, it states that in the 2003-2004 fiscal year $104,687 in “refunds of property taxes” were paid and estimates $60,000” in “refunds of property taxes” would be made for the 2004-2005 year.  Furthermore, for the 2004-2005 fiscal year, “0” is budgeted for refunds of property taxes, and “0” is budgeted for refunds of property taxes for the ‘proposed’ 2005-2006 budget.  [See page 3 of the Bedford Dateline, A Publication of the Bedford Central School District, 2005 Special School Budget Issue annexed hereto as Exhibit 7.]

Seventy-seventh:                      A glance at how the Finance Subcommittee sorts these inconsistencies out is interesting. It provides insight into the Respondents’ reckless disregard for fact  The 1/19/05 Finance Subcommittee minutes report:  “Since 2000-2001, the District has paid an average of $200,000 per annum…the District should expect far larger certiorari expenses for the next few years.” Going back to 9/13/05 the Subcommittee minutes report: “The early 2000s saw a decline to an average cost of approximately $200,000.  With the increase in tax assessments and land values over the past few years, the Board has increased its certiorari reserves with the expectation of an upturn in claims.  As of the first three months of 2005-2006 expected judgments have already exceeded last year’s entire total…The subcommittee expects that an increase in residential claims will boost near term totals much higher.”  Then on 12/22/05 the Subcommittee minutes record that since the late 1990s certiorari costs “have averaged less than $300,000” and that “the cycle is on the upturn…especially amongst the commercial businesses in Mt. Kisco.”  [See copies of all referenced minutes collated together and annexed hereto as exhibit 8.]

Seventy-eighth:      The Subcommittee minutes in Exhibit 8 lack specific and truthful numbers.  Instead Respondents use imprecise language like “expected judgments.”  Audited figures contradict the Subcommittee misinformation fed to the Board by the Respondent Subcommittee members and Respondent Betz.

Seventy-ninth:        The 2004-2005 Tax Certiorari Reserve is clearly far out of compliance with the RPTL and the Education Law.  Based on the District’s own records and outside audit, it is not reserved at a level as the law requires “which might reasonably be deemed necessary to meet anticipated judgments and claims arising out of such tax certiorari proceedings.”

Eightieth:        The same is true for the 2002-2003 and 2003-2004 Tax Certiorari Reserves.

Eighty-first:                   This deliberate overfunding of the total tax certiorari reserves demands correction before the 2006-2007 District school budget is prepared for voter approval in May 2006.

Eighty-second:        Respondent auditor Coughlin, Foundotos Cullen & Danowski, LLP failed in its professional duty to assure the public and the Education Department that the Respondent District “is in compliance with the laws, policies and regulations governing District’s funds.” 

Eighty-third:                 On information and belief, based on the 2004-2005 audit report and the District’s other records, the Respondent auditor: 1) failed to discover or to disclose what is clearly a significant over-funding in the 2004-2005 Tax Certiorari Reserve and 2) failed to acquire sufficient information to warrant the expression of an opinion on the legal compliance of the tax certiorari reserves, particularly the 2004-2005 Tax Certiorari Reserve.

Eighty-fourth:         The District has a history, based on previous independent outside audits and Respondent Board minutes, of significantly underestimating revenues and overestimating expenditures.  Respondents’ financial records and minutes show the 2004-2005 budget ended up with a surplus of approximately $3,000,000.  Based on these independent outside audits and Respondent minutes, a pattern emerges wherein Respondent Board retains planned built-in budget-to-budget surpluses year to year.  These multi-million dollar surpluses do not find themselves sufficiently returned, as required by law, in the form of a following year credit in the tax levy.  [See May 24, 2004 Board minutes attached hereto as exhibit 4.and see the last six years of the District’s Tax Warrants annexed hereto as exhibit 9]

Eighty-fifth:                  Respondent Board and Respondent Betz willfully scheme to defraud voters of their rightful return of overcharged taxes by illicitly maximizing the options available under the General Municipal law and the RPTL to spend or otherwise keep from returning taxpayer money as the law requires.

Eighty-sixth:                 The May 24, 2004 Respondent Board minutes state:  “2003-04 Fund Balance:  Apart from the legally allowable 2% undesignated fund balance, there will be a fund balance of over $3.2 million at years end.  Of that $3.2 million, $1.796 million will be used to fund items identified for the public and recently approved by the public in Proposition 2.  An additional $850,000 will be used to fund various reserve accounts:  $500,000 to set up a 2003-2004 tax certiorari reserve; $250,000 to be added to the Employee Benefit Liability Reserve; and $100,000 used to fund a newly created Workers’ Compensation Reserve.  $350,000 of the $3.2 million will be used to reduce the tax rate increase for 2004-2005. Finally, approximately $210,000 remains for further Board determination.  If that amount does in fact remain at years end, the subcommittee recommends that the Board add it to the recently created 2003-2004 tax certiorari reserve.  Placement in that reserve will allow the Board the greatest flexibility in determining its future use.  The subcommittee also recommends that the Board consider asking the public permission to create a capital reserve to be established sometime in 2004-2005.” [See copy of the board minutes from 5/24/2004, exhibit 3.]

Eighty-seventh:      What’s most disturbing is the 2004-2005 Tax Warrant dated 7/21/04, lists “$2,146,000” as appropriated reserve to be applied as a credit in the 2004-2005 tax levy--yet on 9/8/04 the board still had an additional $2,190,000 in “fund balance.” The Respondents used these surplus funds from the previous year to “set up and fund” a 2003-2004 tax certiorari reserve account for $500,000, to fund a workers compensation reserve account for $100,000 and $1,590,000 to fund the Employee Benefit Accrued Liability Reserve  [See district’s 2004-2005 Tax Warrant exhibit 2, see 7/21/04 minutes and 9/2/04 minutes annexed hereto as Exhibit 10.]

Eighty-eighth:            It is self-evident that the surplus fund balance in fiscal year 2003-2004 is the sum of the $2,146,000 “appropriated reserve” listed on the 2004-2005 Tax Warrant plus the $2,190,000 moved into the listed reserves above on 9/2/04 or $4,336,000!

Eighty-ninth:               Not only did the 5/24/04 minutes woefully mislead the public as to the true extent of the 2003-2004 budget surplus, the respondents created over $2 million is reserves with 2003-2004 fund balance six weeks after the 2004-2005 Tax Warrant was approved and issued in violation of the RPTL, the Education Law and the Commissioner’s regulations.

Ninetieth:      Contrary to respondent board practice, taxpayer funds in a tax certiorari reserve is not designed for “greatest flexibility for future use.”

Ninety-first:                  The “greatest flexibility” remark by Respondent Board indicates a capricious attitude toward taxpayer funds and profound ignorance of the RPTL.  This is borne out the by District’s own financial records, minutes and tax warrants.

Ninety-second:       In light of Respondents’ historical propensities 1)to build in rolling multi-million dollar surpluses into its annual budgets and 2) to retain most of, if not all, the such expected surpluses; Petitioner suffers with the burden of taxes that are higher than necessary to operate the district.

Ninety-third:                Only Immediate intervention and oversight from the Commissioner of Education will stop this pattern of taxpayer betrayal.

Ninety-fourth:        Public confidence cannot return to the budget process unless these wrongs are corrected with all the speed and authority afforded to the Commissioner of Education.

Ninety-fifth:                 The Commissioner states repeatedly in his decisions regarding fund balance mismanagement that he demands strict compliance with the laws and regulations of the State of New York.  Violations, he warns, warrant removal from office.

Ninety-sixth:                In light of the foregoing recitals of fact and the obvious misstatements with respect to the Respondent Board, an amended independent outside audit is necessary to restate and correct all of the District’s tax certiorari reserves.  This need to be  based on realistic, reasonable and responsible assessments of likely tax certiorari claim judgments before the 2006-2007 budget is put up for voter approval.  The law and common sense require nothing less.

Ninety-seventh:     The amounts necessary to fund tax certiorari reserve accounts now and in the future, should be determined in accordance with applicable accounting and auditing principles and standards for the estimation of contingency items, and the method of such calculations should be explained in detail when included within the proposed budget as an ordinary and necessary contingent expense. 

Ninety-eighth:           Respondents’ practice of informally accruing funds for tax certiorari reserves by creating a budget surplus must cease. The reserves need not be created out of thin air and funded with producing illegally retained surplus funds purposely from the previous year’s tax year base which are accumulated by purposely scattered allocations to improper reserves.

Ninety-ninth:              To justify an appropriation of taxpayer funds to a tax certiorari reserve, the law requires more than the simple accessibility of funds.  It must contain specific criteria for the determination of such an appropriation.  If those criteria are not met, the law requires that such accessible funds must be returned to the taxpayer.

One hundredth:     ‘Ordinary Contingent Expenses’ for purposes of a school budget have been defined under law to include 1) legal obligations; 2) expenditures specifically authorized by statue; and 3) other items necessary to maintain the educational program, preserve property and ensure the health and safety of the students and staff (Sec. 2601-a(5); Formal Opn. Of Counsel 213 (1967)

One hundred first:                Based on the Commissioner’s decisions, a reserve fund can be thought of as self-imposed savings accounts for a particular purpose into which funds will be deposited over a period of time until a desired amount is accrued.

One hundred second:         The unspecified appropriation for the 2004-2005 Tax Certiorari Reserve amounts to an illegal appropriation of taxpayer funds.  Respondent Betz, Respondent Board President and Subcommittee member Slivka and Respondent Sacks in his capacity as a Board member and member of the Subcommitte are negligent for recommending this ridiculous funding level; Respondent Board of Education is negligent for approving same and the District’s outside auditor failed to indicate in its 2004-2005 audit report that the Respondent Board is so obviously out of compliance and may well be negligent in failing to live up to professional standards.

One hundred third:              It bears repetition, respondents have a willful habit of collecting too much tax for its budget creating large excess fund balances that keep real estate taxes at an unnecessary level because budget surpluses do not find their way back as a credit in the tax levies.

One hundred fourth:      It is apparent that Respondent is building in a rolling multi-million dollar surplus fund balance into the budget which has a two-fold detrimental effect on the Petitioner. First it makes the tax levy artificially high. Secondly, Respondent is well aware of and capable of forecasting excess fund balance, but fails to do so, before presenting a new budget for approval by the voter, among whom the Petitioner is numbered.  By regularly and illegally retaining the funds constituting the large multi-million dollar swollen reserves, budget to budget increases only appear to be in palpable limits.

One hundred fifth:                   Respondents’ budget practices amount to perpetual creation of unofficial reserve fund to pay for previously unbudgeted expenses.  (Appeal of Clark 37 Education Dept. Rep. 336 (1998).

WHEREFORE, since respondents knowingly and willfully:

a)  authorized and funded a 2004-2005 tax certiorari reserve in violation of RPTL 1318, of the Education Law and of the Commissioner’s regulations;

b)  authorized over-funding for said tax certiorari reserve based on 2004-2005 surplus fund balance rather than on, and irrespective of, there not having been a legal and reasonable valuation of prospective tax certiorari claims settlements;

c)   authorized the 2005-2006 Tax Warrant without the statement required by RPTL 1318 and with an incorrect surplus fund balance amount to be applied to the 2005-2006 tax levy;

d)  have contrived, in repetition of a demonstrated similar history to bend the law to secrete funds out of the otherwise refundable surplus fund balance and;

e)  improperly retained these taxpayer funds improperly in the 2004-2005 tax certiorari reserve instead of returning said funds as a credit to the 2005-2006 tax levy;

f)  continued to maintain a perpetual built-in and planned surplus that repeatedly extracts more taxes than necessary to operate the District thus concocting for Respondents a legally unauthorized “greatest flexibility” with funds that they have a duty to return to Petitioner and all other taxpayers;

g)  evaded proper review by Respondent’s outside independent auditor Coughlin Foundotos Cullen & Danowski, LLP;

h)  aided and abetted said auditor to disregard  “the proper inquiries of management regarding the methods of measurement and presentation” regarding District’s compliance with all laws and regulations should achieve;

Petitioner respectfully requests Commissioner to

                          I.      Direct respondents to consent to competent legal and accounting advice appointed by the Commissioner;

                     II.      Order Respondent Board to restate all of the District’s designated tax certiorari reserves for 2002-2003, 2003-2004 and 2004-2005;

                III.      Order henceforth Respondents to fully comply fully with Real Property Tax law 1318, Education Law, and Commissioner’s regulations;

                     IV.      Order respondents to approve tax warrants in strict compliance with the statutory requirements;

                          V.      Order an immediate stay on developing a 2006-2007 school budget for voter consideration until Respondents correct all the District’s Tax Certiorari Reserves; especially the 2004-2005 Tax Certiorari Reserve Fund;

                     VI.      Order an immediate stay on developing 2006-2007 school budget until the Commissioner is satisfied that Respondent can and will honestly forecast a reasonable estimate of 2005-2006 fund balance;

                VII.      Order respondents to present evidence that monitoring controls are in place and operating as designed by law;

           VIII.      Remove respondent Mark Betz from his position as Superintendent of Business Administration in the Bedford Central School District due to willful deceptive practices;

                     IX.      Remove Respondent Mark Slivka from his postion as president of the Bedford Central School District Board of Education and remove him from his position on the District’s Finance Subcommittee, for repeated gross negligence at taxpayer expense unacceptable given his years of experience on the board of education,and on the Finance Subcommittee

                          X.      Remove Respondent Brad Sacks for willful gross negligence at taxpayer expense from his position on the Finance Subcommittee as his education and experience as a practicing attorney make his conduct all the more unacceptable;

                     XI.      Order respondents to restate and correct all of the District’s 2002-2003 and 2003-2004 tax certiorari reserves based on reasonable and responsible assessments of likely judgments before the 2006-2007 budget proposition is put up for voter approval;

                XII.      Order respondents make available all relevant “work papers” from the 2004-2005 audit report of the District concerning the “Financial Analysis of the District’s Funds.”

           XIII.      Remove Coughlin Foundotos Cullen & Danowski, LLP from all present and future outside audits of the Bedford Central School District;

                XIV.      Finally, order such other relief as the Commissioner deems just and proper.

Dated January 24, 2005: