PORTLAND – The school board unanimously endorsed a new financial reserve policy Tuesday night and agreed to set up three funds to help get its financial house in order as it prepares for multi-year budgeting.

The board backed a policy that calls for a set reserve amount in each budget, to enable the school district to cover unexpected costs and prove to credit rating agencies that it is operating in a financially sound manner. Good ratings from the agencies allow the school district to borrow money at favorable rates.

The board also agreed to establish a debt management policy that will allow it to do an analysis to make sure the level of borrowing is appropriate, and to set up reserve funds to buy equipment, handle fuel costs and provide stability to tax rates.

Jaimey Caron, who heads the board’s finance committee, said the policies and funds both grow out of a closer working relationship with the City Council. The finance committees of both bodies now meet regularly to make sure that the budget process goes smoothly in the spring.

Caron noted that finances are a particular concern for the school board because it had to borrow $1.8 million from a city reserve account in 2007 to close an unexpected budget deficit. The superintendent and business manager resigned in the wake of the financial crisis.

Caron also pointed out that the capital fund, for large-scale equipment purchases, will be a joint city-school account.

Justin Costa, another board member, noted that Tuesday’s vote only adopts the policies and establishes the funds. The board will have to budget by following the policies and determine how much money to put into the funds starting in the spring, when it works on the 2012-13 budget.

The board also gave a first reading to a proposal to lease the former Cathedral School, a parochial school between Congress and Cumberland avenues that was closed by the Roman Catholic Diocese of Portland.

School officials want to move the program for students who have problems in traditional classrooms out of the West School on Douglass Street. That school has structural problems such as a leaky roof, a sunken foundation, broken windows and poor insulation. Moving the students would allow Portland Adult Education to consolidate its operations at the West School.

The board is expected to discuss and vote on the lease in November.

Staff Writer Edward D. Murphy can be contacted at 791-6465 or at: emurphy@pressherald.com