AUBURN - To some people, it is money hoarded unnecessarily at the expense of taxpayers. To others, it is a rainy-day fund.

The $1.7 million unappropriated fund balance at the Auburn Enlarged City School District has become a major point of contention as the district plans for its next fiscal year.

The district's fund balance does exceed limitations established the state, but officials said the amount over the limit is small and many other districts are in a similar situation.

One of the most vocal critics of the district's fund balance has been Jerry L. Morgan, a former member of the board of education.

At the March 9 school board meeting, Morgan provided the board with copies of a letter he wrote to New York State Comptroller Alan G. Hevesi and Education Commissioner Richard Mills. The letter requested an investigation into the finances of the district, something Business Executive Marianne O'Connor does not shy away from.

Although Morgan has a list of wrongdoing accusations, his first involves the fund balance. At the end of last year, the district had $2.2 million left over, and applied $500,000 of that to the tax levy.

That left it with the $1.7 million, which is 3.2 percent of the district's total budget. State law says such fund balances should not exceed 2 percent.

The district operates on a fund accounting system. The system includes a general fund that encompasses operations, a capital fund that is for all building projects, a federal fund and a school lunch fund, among others.

"In each fund there are assets, liabilities and fund balance - or net worth," O'Connor said.

The 2 percent limit only applies in the general fund, O'Connor said, which include reserved and unreserved accounts. The reserved fund can only be used for certain expenses, such as insurance and supplies.

The unreserved fund is where money can be taken to reduce the tax levy.

The money left over, called the unappropriated fund balance, is what has Morgan upset.

"It's the pot of money you have to fall back on should you have a deficit, should bad things occur, should revenues not occur," O'Connor said.

"That is absolutely ridiculous," Morgan said. "They tax us for their cushion. The state set that limit so school districts don't go crazy and tax their communities to death."

In the 1999-2000 school year, the district took $900,000 from the unreserved fund balance, and placed it in the appropriated fund balance to reduce the tax levy. While that may seem like good news to taxpayers, who then only experienced a 4.96 percent increase on the tax levy the following year, it left the district with only a $719,267 cushion for the 2000-2001 school year. That meant no money was available to be put towards the tax levy for the next year, resulting in a 10.35 percent increase.

"The district used a good chunk to keep taxes down to barely nothing," O'Connor said. "So they're eating away fund balance.

"Unappropriated are your cushion. These are the things that made the banks go bankrupt because they get their equity too low, and things go wrong, revenue doesn't come in, and your stuck," O'Connor said.

District Superintendent John Plume said the 2-percent limit is an outdated standard. He said the state Legislature has been looking to increase the threshold.

"The reason why it's no longer such a good number at 2 percent is because the costs for districts can be very high," Plume said.

Legislation to phase in increases from 2 to 4 percent, to ultimately a 5-percent limit in the unappropriated fund balance passed both houses last year, but Gov. George Pataki vetoed it. Other government organizations do not have a 2-percent limit.

"So the ones that are most vulnerable - the school districts - who have to take their budget to a vote, are limited to 2 percent," O'Connor said.

The district is not worried about Morgan pointing out that the district's unappropriated fund balance is 3.22 percent - 1.22 percentage points over the limit.

"The consequences for going over that 2 percent are generally minimal, if any," Plume said.

"It is a law - period," Morgan said. "They#'re breaking the law."

If the district were in a situation of being 8 or 10 percent over, there would be a phased in returning on the money to avoid a situation where there were no tax increases, then suddenly large increases.

"Part of preventing 20-percent tax increases is to project over time and develop fiscal stability," O#'Connor said. "Him (Morgan) saying, 'Pull money out of here, pull money out of here,' leads to a good year one year and a crisis the next.

"Let's get this to a fiscal stability where you're not having these jumps," she said.

Staff writer Shelly Oddo can be reached at 253-5311 ext. 248 or shelly.oddo@lee.net.