State auditors are scolding South Country school district authorities for their plans next school year to maintain an $8.9-million budget surplus, rather than using most of that money quickly to curb taxes.

South Country officials respond that next year's tax hike will be held to 1.97 percent. They add that much of the cash surplus will be used to limit tax increases in subsequent years.

The state comptroller's audit report, released earlier this week, says the district expects to retain $8.9 million in reserves not earmarked for specific purposes as part of next year's budget, which will total about $106.2 million.

State auditors note that such a reserve would be more than double the 4 percent of total budget allowed under state law.

"District officials should use the surplus fund balance in a manner that benefits District taxpayers," states a letter to the district from Deputy Comptroller Steven Hancox.

Michael Buzzeo, the district's interim assistant superintendent for business, insists that its budget plans will benefit taxpayers.

Buzzeo says the district will use $1.8 million in surplus money to hold down taxes next year, while retaining the other $8.9 million for the future. He contends that any quicker depletion of reserves could leave the district with inadequate funds, especially if the economic recession continues.

"The following year, you could wind up with a dramatic spike in the tax rate," he said. "You have no idea what's going to happen."

South Country's situation underlines an ongoing statewide debate over whether the 4 percent limit on un-earmarked reserves - raised from 2 percent over the past two years - is adequate. Buzzeo says the district plans to comply with the letter of the law, by apportioning surplus cash among several reserve funds earmarked for specific purposes.

The comptroller's report also criticizes South Country for tardiness in submitting quarterly financial reports. Buzzeo, who took over the business office in July, said he was unaware of that reporting requirement until recently.

South Country must submit financial reports to Albany not required of most districts, because it obtained special state permission in 2006 to borrow $4.6 million to pay off a budget deficit. The district serves about 4,700 students in the Bellport area.

The comptroller's office does acknowledge that the district's projected revenue and expenditures for next year appear reasonable. South Country's school board is scheduled to adopt its proposed budget Wednesday.

In separate reports, state auditors also approve projected revenue and spending in the East Moriches and Patchogue-Medford districts. Those systems also borrowed money in recent years with Albany's permission to pay off deficits.