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Attorney General's Opinion

Attorney General, Richard Blumenthal

May 30, 2003

Honorable Theodore S. Sergi
Commissioner of Education
Connecticut State Department of Education
165 Capitol Avenue
Box 2219
Hartford, CT 06145

Dear Commissioner Sergi:

In your letter of January 23, 2003, you have asked this Office for advice regarding the legal authority of the Board of Education for Regional School District No. 8 to create and fund from year to year what is referred to as an accrued liability reserve fund for the stated purpose of paying certain teacher retirement benefits under the terms of the district's collective bargaining agreement with its teachers. You note that the municipalities participating in the district currently pay annual assessments, which are deposited in the reserve fund each year.

Based on your letter and the appended materials, we understand that the district asserts that such a reserve fund represents not only a sound fiscal practice, as indicated by their auditors, but is required in order to comply with the auditing requirements of Conn. Gen. Stat. §7-394a. The municipalities on the other hand, relying in part on opinions from their respective attorneys, believe the establishment and maintenance of the fund violates the mandates of Conn. Gen. Stat. §10-51(c) and (d).

For the reasons that follow, we are of the opinion that the board lacks legal authority to establish and maintain a reserve fund for the purposes described, although you or any individual board may seek a legislative change permitting such a fund if you or they believe it to be advisable.

Conn. Gen. Stat. § 10-51 provides the basic roadmap for the budget process and fiscal operation of regional school districts. As a general mandate, subsection (c) of the statute, among other things, requires that "[t]he board shall use any budget appropriation which has not been expended by the end of the fiscal year to reduce the net expenses of the district for the following year." Subsection (d) of the statute goes on to prescribe certain limited circumstances under which a reserve fund may be established, namely, "to finance a specific capital improvement or the acquisition of a specific piece of equipment." The statute further requires that the fund must be aptly named to reflect its specific stated purpose, i.e., for specific capital improvements or equipment purchases. In addition, in any given year the appropriation to such a fund cannot exceed one percent of the district's annual budget. Conn. Gen. Stat. §10-51(d). These two clear and specific statutory mandates -- that unexpended funds be rolled over to reduce next year's expenses, and that any reserve fund created must be for one of the two stated purposes and be limited in size -- are persuasive evidence that the legislature did not intend to empower regional school districts to create the kind of reserve fund Region No. 8 has created and maintains. If the legislature, which was quite specific about what kind of reserve funds can be created, had wanted to empower regional districts to create reserve funds like the one at issue, it presumably would have expanded the scope of reserve funds permitted under Conn. Gen. Stat. §10-51(d). See, In re Adoption of Baby Z., 247 Conn. 474 (1999); Dowling v. Slotnik, 244 Conn. 781, cert. den., Slotnik v. Considine, 525 U.S. 107 (1998) (Absent evidence to the contrary, statutory itemization indicates that the legislature intended the list to be exclusive).

It may well be that sound business practice and generally accepted accounting principles indicate that the creation and maintenance of such funds are warranted or even desirable. However, as statutorily created entities, regional school districts are bound by the statutory mandates governing their establishment and operation. Indeed, as we noted in our opinion dated April 9, 1997 wherein, among other things, we opined that regional school districts may not transfer surplus funds to a reserve fund to finance capital improvements or equipment not expressly provided for by appropriation in the district's annual budget, the specific statutory mandate must be obeyed no matter how “prudent the improvement or acquisition may be.” In the same vein, Conn. Gen. Stat. §7-394a, covering the more general topic of principles and standards for audit reports for municipalities, regional school districts and “audited agencies,” cannot control over the specific and direct mandates of Conn. Gen. Stat. §10-51(c) and (d). State v. State Employees' Review Board, 239 Conn. 638, 653 (1997); Concerned Citizens of Sterling v. Connecticut Siting Council, 215 Conn. 474, 482 (1990); Meriden v. Board of Tax Review, 161 Conn. 396, 401-402 (1971) (A basic rule of statutory construction requires that a more specific statute take precedence over a less specific statute); see also, Sullivan v. State, 189 Conn. 550, 555-556, n. 7 (1983) (When a general statute and a specific statute conflict, they should be construed so the more specific controls).

Finally, in the face of these clear statutory mandates, accrued liability funds for teacher retirement benefits are not validated by a State Department of Education instruction manual which appears to acknowledge the existence of such funds. An instruction manual covering how such funds should be reported for certain purposes cannot substitute for the requisite statutory authority to create such funds in the first instance. If the creation and maintenance of such accrued liability funds would be efficacious, interested parties should pursue legislative action to enact the requisite statutory authority for such funds.

Very truly yours,


Ralph E. Urban
Assistant Attorney General

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