Thanks to everyone who's responded so far. I think we'll have a better handle on what to do after we check the by-laws. This service is simply fantastic! I can't say enough about it.
JHB captured both sides of the isssue, but I thought I'd jump in with my thoughts.
You don't have a "responsibility" (and certainly there's no requirement) to spend all your funds each year.
If you're fundraising is proving extra-successful, that's great. Moving forward you can think about fundraising a bit less, if you want (because you have that luxury). It's also a great opportunity for you folks to develop more involvement opportunities. You could have a Movie Night where absolutely everything is free or spaghetti supper or the like. What better thing to spend you dollars on than building involvement?
If you need some startup capital or have a purpose for saving the funds (and if your bylaws don't address it), then by all means hold it over.
Otherwise, many of PTO leaders tend to feel that the funds should be spent in the year earned in order to benefit the children/families who helped earn those funds. That's probably what the principal means.
If you have no real reason to hold the funds and you don't plan to spend them this year - then that means you raised funds needlessly, basically just to raise funds. It's not a good idea. Fundraising is a necessity for most PTOs, but it shouldn't be their primary purpose and it shouldn't be done without a reason.
Check your bi-laws. If they don't say then I wouldn't think you would be obligated to save them. I'm inclined to think like you about this subject except last year's board voted to spend it on teacher gift certificates to dinner. Drove a handful of us crazy. What an aggrevation.
Does anyone have some ideas about what to do with leftover funds? The princial is saying that we have a responsibility to spend the money, but I've served on a few non-profit boards that were glad to carry over any excess into a general fund. Even an endowment fund sounds better than just letting the school staff find a better use for it.