Organizations representing school districts and superintendents are trying to stop a last-minute effort to limit the size of their budget reserves, which they’re characterizing as a bald-faced attempt by Gov. Jerry Brown and the Legislature to meddle with their finances. With the Legislature set to vote Sunday on the measure and the state budget, they have two days to head it off.
Issuing a warning to Gov. Brown, the presidents of three main education organizations threatened Friday to oppose the governor’s proposal to strengthen the state’s rainy day fund – which is on the November ballot – if he allows the cap on districts’ reserves to go through.
The cap on reserves, which education organizations say they never saw coming, was inserted this week in the state budget trailer bill, which is the technical language accompanying the
budget that Gov. Brown and legislative leaders negotiated behind closed doors.
As of next year, state law will reset the minimum for school districts’ reserves. For Los Angeles Unified it will be 1 percent and for small districts, which have less room for error during a fiscal crisis, it will be 5 percent. For most districts, the minimum will be 3 percent.
trailer bill, if approved, would set a maximum reserve that districts could set aside in their budgets for a potential fiscal emergency. Under the proposal, the maximum reserve for most districts would become 6 percent, with 3 percent in Los Angeles and 10 percent for small districts.
Wording of proposed cap on district reserves (underlined passages) from omnibus trailer bill, AB 1463, June 13, 2014
EdSource commentary opposing proposed cap on reserves by Vernon Billy, CEO of the California School Boards Association, and Wes Smith, Executive Director of the Association of California School Administrators, June 13, 2014
Overview of Gov. Brown’s Rainy-Day Fund, Legislative Analyst’s Office (starts on page 18), January 2014
Coming out of the recession, a number of districts have built up reserves much larger than that: 20 to 30 percent in some of the smaller districts. Initially they did this because they didn’t know if Proposition 30 – which raised sales and income taxes partly to help fund schools – would pass. Then they didn’t know how much they would get under the first years of the Local Control Funding Formula. As a result, districts have been cautious about committing to future spending.
Christine Frazier, the Kern County superintendent of schools, in a teleconference on Friday, said districts’ prudent budgeting has saved teachers’ jobs and protected students. “Those districts with minimum reserves had huge layoffs,” she said.
“To me this asks our districts to spend, spend and live paycheck to paycheck,” Frazier said. “It goes against what the governor has been saying about living within your means.”
Teachers unions, which advocated the proposed cap on reserves, said that after years of employee sacrifices and cuts, districts shouldn’t be sitting on piles of money. “Districts get public money for the purpose of spending it in the classroom, not for hoarding it,” Mike Myslinski, a spokesman for the California Teachers Association, told the Los Angeles Times.
But in the Friday teleconference, Josephine Lucey, president of the California School Boards Association, called the proposal “fiscally irresponsible” and “a blatant maneuver by CTA to move dollars to the negotiating table for salary increases” by draining reserves. She said that if the reserve limit goes through, she would urge the school boards association to oppose Brown’s rainy day fund in November. The presidents of the Association of California School Administrators and the California Association of School Business Officials, also on the phone call, predicted their organizations also would fight the rainy day fund if the reserve cap moves ahead.
Connected to state rainy day fund
The cap on district reserves would be tied to the passage of the state rainy day fund, which would set up two separate state reserves. One would be for the General Fund and the other for spending for K-12 schools and community colleges through Proposition 98, the main source of education funding. Under the proposed cap, every year that the state puts money into the Prop. 98 reserve, districts would then have to spend down reserves to the maximum allowed. As EdSource has written previously, diverting any money into a Prop. 98 reserve would be rare – and definitely wouldn’t happen for the next seven years. But that doesn’t assuage opponents like Lucey and Frazier, who said the state shouldn’t be interfering with districts’ decisions on the size of their reserves.
Bob Blattner, a consultant who advises school districts, predicted districts could face “boom and bust budgets” as they try to build up adequate reserves, only to shred them in years that the state puts money into its own reserve. “A healthy reserve is in the interest of districts and their employees,” he said.
Along with the cap, the trailer bill would also require districts to hold a public hearing to justify a reserve that exceeds the minimum 3 percent. Although they say they’re not against making finances transparent to the public, Lucey and others oppose
the provision because it presumes that any money put aside above the minimum is excessive.
Kevin Gordon, president of Capitol Advisors Group, an education consulting firm, said districts address varying concerns in setting their reserves. A tiny district may worry about replacing the one bus it runs; others may foresee the need to put aside money for building repairs or a decline in school enrollment. “This stigmatizes the notion that it is wise to save for a rainy day,” he said. “That’s contrary to everything Brown has stood for.”