Implementation of S1701
Q&A

A1 Must districts recertify A4Fs for 2004-05?

Yes, all regular, non-vocational districts that estimated surplus balances over 3% on line 1670 of recap (except for those with excess amounts less than $50,000 as explained below) in their budget proposed to the voters or board of school estimate in April 2004, must revise their 2004-05 budget and appropriate the additional surplus (unreserved, undesignated general fund balance) over 3% as budgeted fund balance (line 121) and make a corresponding reduction in tax levy (line 150). Abbott districts that received discretionary education opportunity aid are still required to go down to 2%.

Districts that estimated surplus amounts in their proposed budget over 3% but less than $50,000 over 3% are not required to revise their 2004-05 A4Fs and recertify taxes. These districts, however, as all regular, non-vocational districts, will be subject to the 3% excess surplus calculation at June 30, 2004 in the annual audit.

A2 How does a district know the additional amount of surplus to appropriate?

The amount of additional unreserved, undesignated fund balance to be appropriated is the amount on line 1670 of recap of balances in a district’s proposed budget over 3%. Each County Superintendent has been provided a list of the districts in their county that identifies affected districts and the amount of additional surplus that must be appropriated for tax relief in 2004-05. This amount has been lowered accordingly by any reduction already made by a municipal governing body(ies) in its review and certification of a defeated budget.

A3 Are affected districts required to revise their budget to update and reprint the A4F?

Yes. Every affected district must revise their budget by increasing budgeted fund balance (line 121) and decreasing tax levy (line 150). The recap of balances should be updated accordingly (increase line 1660, column 2), edits must be run and then reprint the A4F. If you are a district with a split year, the reduction can be distributed as permitted. The revised A4F must be signed by the board secretary and submitted to the County Superintendent along with a copy of the updated revenues and recap of balances for verification/approval. Hand revised A4Fs cannot be submitted.

A4 When does the municipal clerk sign the revised A4F?

Following the County Superintendent verification and approval.

A5 How/where does the County Superintendent indicate its verification and approval?

The County Superintendent must review the revised A4F and compare the reduction in tax levy to the amount identified in the list provided of affected districts. All discrepancies beyond the amounts supported by a Certification (see B3 and B4) must be resolved prior to approval. The County Superintendent will indicate their verification/approval by signing and dating the revised A4F. (Note: there is no preprinted County Superintendent signature/date line.)

A6 What happens following County Superintendent verification/approval?

The County Superintendent will return the verified/approved A4F back to the district. The district is then responsible for providing the A4F to the municipal clerk for signature and the standard process for A4F certification and distribution follows as outlined in the 2004-05 budget guidelines on page 202 (regular districts) and page 204 (regional districts).

A7 Must affected districts retransmit the budget to the department?

Yes. All districts required to revise their budget and A4F must retransmit following County Superintendent approval of the revised A4F. As with the original transmission, districts only need to press "Transfer Data to DOE Menu" on the main menu of the Budget Software and follow the standards steps to transmit the updated data to the department.

Districts with defeated budgets that do not need to revise the A4Fs due to the offset made by the municipal reduction, are strongly advised to revise their budgets to reflect the municipal reduction as budgeted fund balance up to the 3% requirement. If not, the excess surplus over 3% will be identified at audit time.

A8 Is there a deadline for A4Fs to be revised?

The department strongly recommends this entire process to be completed within 10 working days. County boards of taxation are pending issuance of tax bills to reflect these changes. The County Superintendents should work with the affected districts and county boards of taxation to facilitate completion of the process as soon as possible.

B. Post-April Election Surplus Appropriation to Capital/Maintenance Reserve and/or to Increase Spending

B1 What does the new law mean when it states under N.J.S.A. 18A:7F-7 that for 2004-05 all transfers of surplus (undesignated, unreserved fund balance) to either the capital reserve, maintenance reserve or to increase spending are "null and void"?

The department is still reviewing the full scope of this provision, however, it is clear that transfers of undesignated, unreserved fund balance made after the April 2004 election (after April 8 for Type I districts) to either the capital or maintenance reserve or to increase spending are not considered valid or legal transactions under this law and would not justify a valid Certification (see answer to B3 below) to reduce a district’s required surplus appropriation over 3% to offset 2004-05 tax levy.

Therefore, the provision requires that all post-election transfers of surplus (undesignated, unreserved fund balance) to the capital and/or maintenance reserve must be reversed and reclassified as undesignated, unreserved fund balance (see answer to D2 below). This would exclude amounts identified on line 1653 (transfer to capital and/or maintenance reserve) in the recap of balances (see answer to B2 below). The provision also requires that all post-election transfers of surplus (undesignated, unreserved fund balance) to increase spending for needs beyond 2003-04 be reversed, if possible, or at a minimum, adjusted in the excess surplus calculation (see answer to D3 below).

All districts should be aware that moving forward, the new law (N.J.S.A. 7G-31) no longer permits districts to transfer surplus by board resolution to either the capital or maintenance reserve at any time during the year; all transfers of surplus to these reserve accounts now require authorization at budget time as designated in the budget certified for taxes. The new law also restricts appropriation of unbudgeted or underbudgeted revenue for the first nine months of the budget year (see answer to C1 below).

B2 Is a post-April election transfer of surplus to either the capital reserve or maintenance reserve "null and void" if such transfer was identified on line 1653 on the recap of balances?

No. If the transfer was identified in a district’s proposed budget on line 1653 of the recap of balances, such transfer was identified prior to the election (or April 8 approval for Type I districts) and therefore, it was already excluded from the amount of undesignated, unreserved fund balance on line 1670 of recap.

B3 If a district transferred surplus after the April election (or April 8 for Type I districts) to increase spending or to either the capital/maintenance reserve and subsequently withdrew the funds for a 2003-04 T&E need, can the district deduct that transferred amount from the required appropriation over 3% in the revised A4F?

Yes, if the district can certify (see B4 below on how to certify) that the transferred surplus appropriation increased spending for a 2003-04 T&E need and no other line item account balances were available.

Under the revision to N.J.S.A. 18A:7F-7 in the new law, all transfers of surplus to capital or maintenance reserve or to increase spending after the April 2004 election are "null and void" unless the district can demonstrate that the appropriation was necessary for use in the 2003-04 school year for T&E and no other line item account balances were available. Any capital or maintenance reserve transfer to be certified for such purposes must have been subsequently withdrawn and expended for a 2003-04 need prior to the passage of the new law. If the funds were withdrawn and committed (encumbered) but not expended, this would not be considered an appropriation for a 2003-04 need for purposes of the Certification. Similarly, if surplus was appropriated to increase spending for a T&E need and not fully expended, this would not be considered an appropriation for a 2003-04 need for purposes of the Certification.

B4 What is required for a district to "certify" that a post April election transfer to either the capital or maintenance reserve (and subsequently withdrawn) and/or to increase spending was for a 2003-04 T&E need in order to submit a different tax levy on the revised A4F?

A district must submit a signed Certification to the County Superintendent along with the revised A4F that states the additional surplus appropriated post-April election was for a 2003-04 T&E need and is no longer available for tax relief in 2004-05.

The signed Certification must specify the specific purpose of the appropriation, why it was necessary for a 2003-04 T&E need, and that no other line items balances was available for reallocation. The Chief School Administrator, Business Administrator and the Board President must sign the Certification. The Certification will be subject to audit and any amounts determined to be for a purpose beyond 2003-04 or not necessary due to available line-item balances shall be reserved and designated for tax relief in 2005-06.

The Certification’s only purpose is to justify a different A4F amount than the amount of excess surplus required for tax relief in 2004-05 as identified on the list provided to the County Superintendent. Certifications are not applicable for end of year review of excess surplus.

C1 Can a board approve a post-April election increase in spending due to an increase in unrestricted miscellaneous revenue?

Yes, with no restrictions if completed prior to the passage of the law. An increase in miscellaneous revenue, or any other revenue other than budgeted fund balance, approved post-April election but prior to the passage of the law is a legally valid board approved action. The revision to N.J.S.A. 18A:7F-7 regarding post-April election increases in spending in 2003-04 (prior to enactment of the law) only refers to increases in spending funded by board approved appropriation of unreserved, undesignated fund balance.

However, note that effective with the passage of the new law, a board of education may only increase spending through appropriation of unbudgeted or underbudgeted revenue (including miscellaneous revenue and surplus) during the last three months of the year after requesting and receiving approval by the Commissioner for a T&E need. Any district may also petition the Commissioner for appropriation prior to that time if the need is emergent.

Regulations to be issued will specify the process for petitioning the commissioner for an emergency appropriation during the first nine months and for requesting approval for a T&E need during the last three months. Prior to issuance of regulations, any district that has an immediate need to appropriate underbudgeted, unbudgeted revenue due to an emergency should request this need in writing to the Commissioner for review.

C2 Can a board still approve line-item appropriation transfers after the April election that do not increase spending without Commissioner approval?

Yes, with no new restrictions if completed prior to the passage of the law. Effective with the passage of the new law, a board of education must receive Commissioner approval for transfers of any "general fund account" that exceeds 10%, on a cumulative basis. See C3 below on the department’s preliminary guidance on this new section.

C3 How will the department define "general fund account" transfers that require Commissioner approval if transfers exceed 10%, on a cumulative basis?

It is the department’s intent to define general fund appropriation account, at a maximum, as those reported in the advertised appropriations in the original budget certified for taxes. The final definition will be part of the Commissioner regulations promulgated pursuant to the new law. The regulations will most likely aggregate these accounts further for the purpose of implementing this new provision, however, until such regulations are adopted, all districts should follow the advertised appropriations for tracking transfers and obtaining the requisite Commissioner approval for those over 10% on a cumulative basis.

D1 What guidance will the auditors be provided for review of the Certifications (see B3 and B4 on discussion of Certifications) for a 2003-04 T&E need?

The annual audit program will include guidance to review the Certifications (see B3 and B4 for discussion of Certifications) for proper reporting of fund balance and calculation of excess surplus. The procedures will include at a minimum, a review that no other line-item balances were available and that such appropriation was for a 2003-04 T&E need. If the review determines that available balances existed and/or an appropriation was for a need beyond 2003-04 (e.g. textbooks for 2004-05, computers and other equipment that will be delivered in 2004-05, summer programs) then the amount (which should have been appropriated for tax relief in 2004-05) must be reserved and designated for tax relief in 2005-06.

D2 What guidance will the department provide the auditors for a post-April election (or for Type I districts, post April 8 budget approval) transfer of surplus to capital and/or maintenance reserve for needs beyond 2003-04?

The annual audit program will include guidance to review transfers of undesignated, unreserved fund balance to capital and maintenance reserve and reverse all post-April election (or for Type I districts, post April 8) transfers not subsequently withdrawn by June 30, 2004, and reclassify as undesignated, unreserved fund balance for purposes of calculating audited excess surplus at 3%. Post-election transfers to either of these two reserves subsequently withdrawn will be reviewed as a post-election transfer to increase spending (see D3 below).

The department has no discretion in the application of this new provision and transfers to the capital or maintenance reserve must be reversed under the new law, even if designated for a purpose included in the long range facilities plan or maintenance plan.

D3 What guidance will the department provide the auditors for a post-April election (or for Type I districts, post April 8 budget approval) transfer of unreserved, undesignated fund balance to increase spending for needs beyond 2003-04?

The annual audit program will include guidance to review post-April election (or for Type I districts, post April 8) transfers of undesignated, unreserved fund balance to increase spending. The procedures will include at a minimum, a review that no other line-item balances were available (that legally could be used to fund the appropriation) and that such appropriation was for a 2003-04 T&E need.

If the review determines that no other line-item balances existed and the appropriation was for a need beyond 2003-04 (e.g. textbooks for 2004-05, computers and other equipment that will be delivered in 2004-05, summer programs) then the appropriation must be reversed, if possible, or it will be adjusted in the excess surplus calculation accordingly.

D4 When will the annual audit program be available?

The department plans to issue the annual audit program within the next few weeks given the numerous impacts of the new law on end of year reporting that need to be incorporated.