This week a bipartisan coalition of legislators held a press conference to announce SB 799, sponsored by Senator Jerry Hill, which introduced legislation that will fix the school budget reserve cap. SB 799 would give more flexibility to school districts to set aside reserve funds to best suit their students’ needs.
According to the coalition, “The ‘reserve cap’ is a fiscally irresponsible law passed last year that limits what school districts can save for a rainy day and limits what schools can save for large, critical investments in classroom technologies, school repairs, textbooks and other classroom investments.”
Last June, SB 858 was passed as part of the budget. It included a provision that has come to be known as the school district reserve cap. It is a requirement whereby, in a year following a year in which there is a contribution of any amount to the state-level Prop 98 reserve account (created in Prop 2), then school districts would be forced to spend down their assigned and unassigned ending balances to just two times their minimum required level of reserve for economic uncertainty. For most districts, their minimum reserve amount is 3 percent, so the reserve cap would be two times that.
According to analysis from the California School Boards Association (CSBA), “While the trigger for the cap to actually require districts to spend their funds may not be pulled in the nearest future, school districts, bond rating agencies, school boards, school administrators, parents, public interest groups and press statewide are all calling for a repeal of the reserve cap, or short of a repeal, reform of the cap to ensure that districts have the means to protect employees and programs during the next recession and the flexibility to set monies aside for large purchases like text books, technology and school buses while also funding school construction, self-insurance, large maintenance projects, etc.”
Senator Jerry Hill (D-San Mateo), author of SB 799, said, “The bill we’ll be introducing later this week represents the compromise we could have achieved had there been an opportunity for negotiation last year when the school reserve cap language appeared in a trailer bill. Senate Bill 799 will allow for modest reserves, increased transparency and public involvement at the local level.”
Jesus Holguin, President of the California School Boards Association stated during a press conference earlier this week, “We applaud Senator Hill and the co-authors of SB 799 for stepping forward and recognizing the need to find a solution that will meet the needs of all school districts.”
The legislation will “[p]rovide hard cap of 17 percent of unassigned balances in General Fund and Special Reserve Fund for Other than Capital Outlay Projects without regard to district size.” According to the release, “17 percent represents the minimum recommended amount of reserves local governments should maintain (2 months) from the Government Finance Officers Association.”
It would also modify language to clarify application only to unassigned balances in the General Fund and Special Reserve Fund for Other than Capital Outlay. Supporters say, “This will ensure that the cap does not affect monies set aside by school districts for such things as emergencies or future large purchases such as technology, instructional materials, school buses, etc., or for future obligations such as construction projects, retiree benefits, or self-insurance.”
Further, the bill would add a requirement for adoption of board policy on fund balances. The policy would include annual reports to the local board of education. In so doing, according to supporters this would increase transparency at the local level specific to reserve levels and explain why they exist.
The bill would further require the county superintendent to adopt policy on appeal procedures to allow districts to know requirements up front.
Finally it would altogether exempt small school districts (definition consistent with Education Code-fewer than 2,501 ADA) and basic aid districts from the provisions of this section. Supports note, “Small districts and basic aid districts have unique and extreme needs for higher reserves because of their stressed cash flow needs. Small districts can be hit with sudden expenses at any moment such as increased special education costs or loss of enrollment. Basic aid districts receive no state aid and as such receive local property tax revenues only twice each year to cover 12 months of expenses.”
“Getting the state’s financial balance sheet in order has been an important goal of the Governor and the Legislature,” Senator Steve Glazer, part of the coalition, said in a press release. “That leadership should be applauded. But what we don’t want to do is exercise fiscal responsibility at the state level only to erode that same financial prudence on the local level.
“This legislation rebalances our system of state and local budget responsibility. It restores important local control by elected school board members. It provides transparency and financial accountability closer to stakeholders and the public,” the senator added.
Trudy Schafer, Senior Director for Program of the League of Women Voters of California, said, “Allowing districts to keep adequate reserves protects classroom programs and services and local education jobs.”
“The local school reserve cap erodes the ability of local school boards to work with our communities and parents to make decisions that are best locally,” added Shayne Silva, Director of Legislation, California State PTA.
“SB 799 is the right solution at the right time. We again thank Senator Hill and the co-authors for recognizing the need to fix the budget reserve cap. SB 799 is a bi-partisan and good public policy piece of legislation. We must move this bill through the Legislature before session adjourns in September and urge Governor Brown to sign it into law,” concluded Mr. Holguin.
SB 799, the reserve cap fix, currently has 14 co-authors, including Senators Hill, Glazer, Allen, Block, Galgiani, Pavley, Roth and Assembly Members Gray, Brown, Calderon, Cooper, Irwin, Olsen, and Ting. Many of these legislators stood with public policy and education groups, including the California School Boards Association, California State PTA, League of Women Voters of California and others.
—David M. Greenwald reporting