Source: California Channel webcast

Catharine Baker appeals to members of the Assembly Education Committee to pass AB 1048, her bill to rescind the cap on district reserves.

Advocates for school districts are still hoping they can persuade legislative leaders and the governor to repeal the limit on how much money districts can annually keep in reserve. So far, though, they’ve struck out.

Last week, on a party-line vote, the majority Democrats on the Assembly Education Committee rejected Assembly Bill 1048, sponsored by Assemblywoman Catharine Baker, R-Dublin. The bill would have rescinded the reserve cap, which has yet to go into effect. Democrats and Republicans disagreed on how much of a problem, if any, the ceiling on reserves will create. A Senate version of the bill, sponsored by Sen. Jean Fuller, R-Bakersfield, failed to move out of that body’s Education Committee.

School management groups were incensed over a last-minute deal last year in which Democratic leaders and Gov. Jerry Brown attached the cap on district reserves to the bill containing legal language associated with the state budget, called the trailer bill, without a hearing. The school management groups say they didn’t learn about the cap until shortly before the vote on the budget.

The California School Boards Association blamed the California Teachers Association for persuading Democratic leaders to include the cap as a way to free up money tied up in reserves so that it would be subject to contract negotiations. The CTA, while not publicly taking credit for orchestrating the deal, is the primary opponent to rescinding the cap. The school boards association said the ceiling on reserves violated local control over local budgets – the principle behind the Local Control Funding Formula – and has made rescission its top priority this year.

Baker, in a hearing on her bill last week, called the cap “a destabilizing policy we have imposed on every district in the state.”

Under current law, districts must maintain minimum end-of-year balances in their general funds, ranging from 1 percent for Los Angeles Unified to 5 percent for the smallest districts. The cap on reserves would range from 3 percent for L.A. Unified to 10 percent for small districts of under 1,000 students.

CTA lobbyist Estelle Lemieux said it was “unconscionable” for districts to hoard money in reserves that taxpayers expect to be spent on education programs.

The Legislative Analyst’s Office, which also has called for the cap’s rescission in a January 2015 report, found that fewer than 10 percent of the nearly 1,000 districts in the state would have met the new cap requirement had it been in effect in 2013-14. Faced with big cuts in state funding following the 2008 recession, as well as uncertainty about whether there would be further cuts if voters failed to pass temporary taxes under Proposition 30 in 2012, most districts built up double-digit reserves. In 2013-14, according to the LAO, reserves averaged 66 percent of general fund expenditures for small districts, 21 percent for mid-sized districts and 15 percent for large districts.

State revenues have surged the past two years, but school boards and superintendents argue they remain subject to volatile state taxes and a possible decline in state revenue when Prop. 30 is phased out over the next three years. Districts, they argue, should determine their own reserve levels, based on individual circumstances that they, not Sacramento politicians, know best.

But CTA lobbyist Estelle Lemieux said it was “unconscionable” for districts to hoard money in reserves that taxpayers expect to be spent on education programs. Districts laid off librarians, counselors and nurses at the same time they were building huge surpluses, she said.

The cap on reserves would go into effect the year after the state makes payment of any size into a new rainy day fund for K-12 and community colleges that’s part of Proposition 2, which voters passed last year. The rationale behind the cap is that districts wouldn’t need large reserves if the state also has a rainy day fund to cushion revenue declines.

Contributions into the state education rainy day fund would be rare, however. Revenue from the capital gains tax would have to be above average, and all debts owed to schools under Proposition 98, called the maintenance factor, would have to be paid off. The LAO, in the latest analysis of the May budget revision, predicts no contributions to the rainy day fund – and no triggering of the reserve cap – for at least the next three years. In its analysis of the May budget revision, School Services of California, a Sacramento-based education consulting firm, concluded that there is an outside chance that the reserve cap could be enacted next year.

But Josh Daniels, an attorney and a member of the Berkeley Unified school board, testified at the AB 1048 hearing that the mere existence of the reserve cap law is already creating harm. The bond rating agency Standard & Poor’s cited the cap as one reason to deny his district a better credit rating, which could have saved Berkeley taxpayers potentially millions of dollars in lower interest payments, Daniels said. Not knowing when the cap may be triggered is prompting some districts to lower reserves despite their better judgment, the school boards association has argued.

Assemblyman Patrick O'Donnell, who chairs the Assembly Education Committee, said there has been misinformation about the need for the repeal.

Source: California Channel webcast.

Assemblyman Patrick O’Donnell, who chairs the Assembly Education Committee, said there has been misinformation about the need for the repeal.

Democrats counter that worries about the reserve cap are overblown, based on what the chair of the Assembly Education Committee, Patrick O’Donnell, D-Long Beach, called “confusion and misinformation.” O’Donnell, a teacher and former CTA leader, said that a district could appeal to its local county office of education to grant a one-year waiver from the reserve restriction. And a school board could designate savings for specific purposes, such as new computers, school buses or a roof replacement, that wouldn’t count toward the reserve cap. To emphasize the point, O’Donnell has sponsored AB 531, confirming that committed reserves are an option that districts can use.

But Daniels called committed reserves “a red herring” that appears to give districts flexibility the Legislature took away with the reserve cap. Rescinding the cap is the only way to make things right, he and others say.

Dennis Meyers, a lobbyist for the school boards association, said he and other school groups will continue to make their case to the Brown administration for a solution, although CTA is not likely to give up the cap without getting something in return. It’s not clear what the price will be to make it vanish.


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  1. school Trustee Nelson 10 months ago10 months ago

    John F., the sky is really not falling. UPDATE Assemblyman O'Donnel's clarification bill is advancing (AB 531) while the others are stalled. It is clear, reading the AB 531 recent committee staff reports, that school boards that vote to put reserve money in "committed" reserves, rather than leave them in generic (slush fund) unassigned surplus or administrative "assigned" reserves, avoid any "cap" calculations. These different categories of reserves are formally explained … Read More

    John F., the sky is really not falling. UPDATE Assemblyman O’Donnel’s clarification bill is advancing (AB 531) while the others are stalled. It is clear, reading the AB 531 recent committee staff reports, that school boards that vote to put reserve money in “committed” reserves, rather than leave them in generic (slush fund) unassigned surplus or administrative “assigned” reserves, avoid any “cap” calculations. These different categories of reserves are formally explained in the “California Schools Accounting Manual.”

    Is AB 531 necessary? The committee staff considers not – just a clarification of existing law – but with loads of hair pulling and teeth grinding by CSBA and ACSA etc.: clarity seems better than misinformation.

    My Board has convinced my administration to switch to this system – and we are gradually VOTING to move more of our unassigned and staff assigned reserves funds into these Board “committed reserves.”

    Replies

    • el 9 months ago9 months ago

      The irony of this approach of committed reserves is that it removes transparency from the process - it makes it harder for teachers or a member of the public or for that matter a trustee to look at the budget and understand truly how money will be spent in the current year and what funds are available for an emergency or a change of plan. The cap is plain stupid. Let districts keep a reserve that … Read More

      The irony of this approach of committed reserves is that it removes transparency from the process – it makes it harder for teachers or a member of the public or for that matter a trustee to look at the budget and understand truly how money will be spent in the current year and what funds are available for an emergency or a change of plan.

      The cap is plain stupid. Let districts keep a reserve that makes sense to them; we should encourage districts to accurately budget their planned expenditures for the year and call out those reserves in a way everyone can see.

      Percentages are silly; for one thing, the 5% is less than a single payroll. And for small districts, 5% might be a fairly small amount of cash – less than the cost of one major unexpected repair like the loss of a roof or a school bus engine. A secondary factor in a small district is volatility in enrollment that can change revenue several percent of the annual budget, plus or minus.

  2. FloydThursby1941 1 year ago1 year ago

    The union wants that to go to across the board pay raises with no concessions on seniority or the impossibility of firing bad teachers or bonuses/fines based on days missed during which the teacher is not sick. That way there will be pressure to raise taxes or go into debt to not have horrible pay cuts during the next recession. It's political. Saving a year's funding over time would be very wise, … Read More

    The union wants that to go to across the board pay raises with no concessions on seniority or the impossibility of firing bad teachers or bonuses/fines based on days missed during which the teacher is not sick. That way there will be pressure to raise taxes or go into debt to not have horrible pay cuts during the next recession. It’s political. Saving a year’s funding over time would be very wise, good for kids, and avoid drastic cutbacks. The union cares only about the teachers, not the kids. You can’t raise salaries then cut them if there’s a recession, you have to leave them flat and hope inflation causes a slight cut over time. However, with inflation around 1%, you only get a 1% cut in years with no raise. Therefore they lock in raises before it is fiscally responsible to give them. If you didn’t have a union involved you could give a raise but rescind it if attendance and performance don’t improve, or the economy crashes, but I’d say hold back on the raises until teachers do a better job as measured by the tests and average number of absences overall and specifically the Tuesday before Thanksgiving, which has been a real problem.

  3. navigio 1 year ago1 year ago

    Btw, a curious thing about sb858 is that is specifically refers to the state board reserve caps as being 'recommended reserve for economic uncertainties', yet the measuring stick is all general fund ending balance object codes. The reason this matters is there is a specific object code for funds set aside for economic uncertainties, and that is generally a very small subset of all ending fund balance amounts. (as an example, LAUSD's 12-13 economic reserves … Read More

    Btw, a curious thing about sb858 is that is specifically refers to the state board reserve caps as being ‘recommended reserve for economic uncertainties’, yet the measuring stick is all general fund ending balance object codes. The reason this matters is there is a specific object code for funds set aside for economic uncertainties, and that is generally a very small subset of all ending fund balance amounts. (as an example, LAUSD’s 12-13 economic reserves is barely half of the recommended cap, but their total general ending balances is more than quadruple the cap).

    It seems either the authors of the bill were attempting to mischaracterize the concept of ending fund balances, or they made a mistake in the text of the bill..

  4. SD Parent 1 year ago1 year ago

    Learn from San Diego Unified. Our district has held nothing more than the minimum reserves (between 2-3%) since 2007-08, and it wrecked havoc on our schools. When the cuts to education came (year after year), the district had nothing in reserves to support programs and services, and it scrambled to cobble together onetime funds (ARRA funds, then redevelopment funds, and then selling off tens of millions of dollars of property) at borrowing to … Read More

    Learn from San Diego Unified. Our district has held nothing more than the minimum reserves (between 2-3%) since 2007-08, and it wrecked havoc on our schools. When the cuts to education came (year after year), the district had nothing in reserves to support programs and services, and it scrambled to cobble together onetime funds (ARRA funds, then redevelopment funds, and then selling off tens of millions of dollars of property) at borrowing to make payroll (spending $4 million per year in interest payments) to limp through the recession, decimating services and programs in the process. All those programs and services had employees–librarians, teachers of K-3 classrooms and off campus programs to increase cross-cultural interactions, counselors, nurses, bus drivers, the entire GATE department, other support staff, etc.—so the most junior certificated and classified employees were laid off, creating havoc as personnel across the district were shuffled to new positions and sites (with several schools losing almost all of their teaching staff).

    If CTA leadership would use some of that critical thinking that its members are teaching students as part of Common Core, they would realize that there will never be enough in the state’s “rainy day fund for schools” to support ongoing programs, services, and their own members when (not if) there is another downturn in the state’s economy. To spend down district reserves in an improving economy not only ensures cuts in programs and services in the next economic downturn but puts a target on the back of all of the most junior teachers.

    I appeal to CTA and the legislature: don’t force all districts to suffer like ours did or play shell games with their funding by labeling it “committed.” Allow districts–and their broad coalition of stakeholders, including CTA members–to exert the local control that the Governor and legislature say they want districts to have and locally determine how much to hold in reserves above mandated minimums. Repeal SB 858.

    Replies

    • John Fensterwald 1 year ago1 year ago

      SD Parent: A point of information I didn’t include in my latest piece. School districts would be required to draw down their reserves to meet the cap after the state makes a deposit of any size – one dollar or a hundred million dollars – into a new education rainy day fund under Proposition 2. This calls into question whether districts could rely on the state rainy day fund as a backup in bad times.

    • navigio 1 year ago1 year ago

      Not to focus on you, but just trying to understand... During that time there were no caps. Districts had full freedom to go reserve-crazy. In other words, SD chose a low cap even when it had the option not to (arguably, structural deficits don't always provide true 'choice', but the point is that decision is probably a fair representation of how the district would behave without caps--how is that different?). Also, are you implying that … Read More

      Not to focus on you, but just trying to understand…

      During that time there were no caps. Districts had full freedom to go reserve-crazy. In other words, SD chose a low cap even when it had the option not to (arguably, structural deficits don’t always provide true ‘choice’, but the point is that decision is probably a fair representation of how the district would behave without caps–how is that different?).

      Also, are you implying that using reserves to avoid teacher layoffs is fair game?

      An anecdote related to that: something similar happened our district re teacher shuffling. In fact, something like 15% of our teachers were laid off one year. The ‘tragedy’ was that was one of the years with a big, albeit very late influx of one-time revenue. The net result was that everyone got hired back, and as a result everyone got shuffled (bumping process). We even closed some schools due to that fiscal emergency. It would have taken a full 10% of our budget to avoid just the teacher process, which is about triple the amount SD had at the time (at least double what we had too). Even if SD had 10% reserves at the time, would it have depleted that entirely to keep teachers for one more year?

      Its worth noting that the whole idea of the ‘rainy day fund’ is to avoid such revenue fluctuations. Is it fair to assume those would not happen as a result? If so, does that limit the strength of such arguments?
      It may also be worth noting that some of the debts that prop 2 would address are pension debts. Whether these are specifically education-generated debts is not clear (would be helpful to know).

      It’s also interesting that caps appear to require to be enforced regardless of how much the rainy day fund receives. Is that true? Does this mean the rainy day fund has the possibility of not being large enough to fund the fluctuations it was intended to cover?

      The biggest problem with the caps is it seems to assume the rainy day fund replaces reserves. Based on information presented, that does not seem to be the case.

      • Tom 1 year ago1 year ago

        Nav - just fyi, our District had reserves that maxed out at about 13%, and was enough to avoid large-scale layoff and program terminations. Seems that SD did not set aside enough and paid the price. Also, I don't think we can trust the politicians managing the reserve fund to put enough away and/or use for another "pressing" priority. Better to let local District control it, and if they are irresponsible like … Read More

        Nav – just fyi, our District had reserves that maxed out at about 13%, and was enough to avoid large-scale layoff and program terminations. Seems that SD did not set aside enough and paid the price.

        Also, I don’t think we can trust the politicians managing the reserve fund to put enough away and/or use for another “pressing” priority. Better to let local District control it, and if they are irresponsible like SD, then the Ed Board will pay the price from the local voters. Most Districts will be able to do the right thing.

      • Ed Advocate 1 year ago1 year ago

        Is it true the rainy day fund does not have to be used on education – can be used for whatever is decided is most important?

      • el 9 months ago9 months ago

        navigio, our district drew down reserves and/or relied upon them to avoid layoffs that in some cases would have happened due to true revenue reductions, and in other cases would have happened unnecessarily because the revenue magically reappeared after the district was told money would be cut. The reserves stabilized the programs significantly, and benefitted students as well as staff to give everyone the confidence that the accustomed program could be maintained.

  5. Ed Advocate 1 year ago1 year ago

    I could go on about the absurdity of this cap, but that has been well documented by the LAO (http://www.lao.ca.gov/reports/2015/edu/district-reserves/district-reserves-012115.pdf), the League of Women Voters (http://lwvc.org/issues/legislative-priorities), the CSBA (https://www.csba.org/Advocacy/LegislativeAdvocacy/RepealReserveCapSB858AB146.aspx) and dozens of other organizations across the state. Bottom line - the ed committee had NO understanding of the issue (watch cal channel May 13 starting about 20: scroll on bottom to get to p2: http://www.calchannel.com/recent-archive/) and the fact that they ignored dozens of experts and … Read More

    I could go on about the absurdity of this cap, but that has been well documented by the LAO (http://www.lao.ca.gov/reports/2015/edu/district-reserves/district-reserves-012115.pdf), the League of Women Voters (http://lwvc.org/issues/legislative-priorities), the CSBA (https://www.csba.org/Advocacy/LegislativeAdvocacy/RepealReserveCapSB858AB146.aspx) and dozens of other organizations across the state. Bottom line – the ed committee had NO understanding of the issue (watch cal channel May 13 starting about 20: scroll on bottom to get to p2: http://www.calchannel.com/recent-archive/) and the fact that they ignored dozens of experts and did not allow this to get to the floor of the assembly is a complete abdication of the oath of office. In addition, the fact that the new assembly people had no concept of the bill and actually argued for support without knowing it (Thurmond, O’Donnell, McCarty and Santiago) proves nothing other than that they were coerced – what a sham. I wonder if EdSource will actually allow this to be printed, or delete it as they do other comments that call out the guilty parties, especially those that supported Prop 2? Mmmm…

    Replies

    • John Fensterwald 1 year ago1 year ago

      Ed Advocate: We print all comments by writers who follow our simple rules. And you know this.

    • navigio 1 year ago1 year ago

      One of the ironies of the LAO report is that it shows higher reserves are a function not of districts under-spending, but of government funding being higher and coming in later than expected. In other words, the higher reserve levels during the past 8 years or so were not counter to district fiscal strategies as indicated by reserve levels for the preceding 20 years or so. If that's true, perhaps a compromise would be to … Read More

      One of the ironies of the LAO report is that it shows higher reserves are a function not of districts under-spending, but of government funding being higher and coming in later than expected. In other words, the higher reserve levels during the past 8 years or so were not counter to district fiscal strategies as indicated by reserve levels for the preceding 20 years or so. If that’s true, perhaps a compromise would be to raise the cap levels?
      It is understandable that districts have more than doubled their reserve levels during the recent funding chaos. However, it is also fair to question whether money intended for education should not be used for education. Edsource did a piece a while back about excessive EIA reserves in LAUSD. Manuel has also mentioned a number of times the legally dubious Title I reserves in the same district. Note, these are even dedicated funds that have reserve caps already built-in. If your district had to fire teachers in order to increase reserve levels to, say, 20%, how would you feel about that?

      It is also ironic that the LAO report is concerned with one of the mechanisms districts could use to circumvent the cap because it has the potential to reduce transparency, when increasing transparency is arguably the very reason the caps are being proposed.

      Also, at the end of the LAO report there is a graph showing that schools with reserves below the proposed caps are much more likely to be in fiscal distress. Not only does this seem obvious (such districts are more likely to be running structural deficits, which by definition result in lower reserves) but is also problematically circular: the very definition of fiscal distress uses low reserves as one of its metrics. ahem.

      Lastly, it seems somewhat ironic that anti-cap arguments seem to be based on a fear that teachers will get their hands on that money. If a district has reserves, it’s not like that money is off the table. In fact, if reserves are in fact used as a measure of fiscal health, having large ones may make it even more likely that districts are willing to negotiate higher, and more importantly, ongoing salary increases.

      I do agree that cap runs counter to the concept of local control. From that standpoint, it is confusing that it exists.

  6. navigio 1 year ago1 year ago

    This is one of those issues where everyone seems to be hiding something (or maybe no one really knows the answers?). Spending off a reserve would force a one-time expenditure, probably not something unions could take advantage of in negotiating salaries (where people seem to fear it the most). In addition, ongoing reserves, if kept constant with constant revenue, reflect a balanced budget. So the fact that a reserve exists does not imply we are … Read More

    This is one of those issues where everyone seems to be hiding something (or maybe no one really knows the answers?).
    Spending off a reserve would force a one-time expenditure, probably not something unions could take advantage of in negotiating salaries (where people seem to fear it the most).
    In addition, ongoing reserves, if kept constant with constant revenue, reflect a balanced budget. So the fact that a reserve exists does not imply we are continually under-funding education, at least not by the amount of the reserve.
    One point that seems to hold some water is that a state-level reserve would be subject to being plundered.
    However, districts seem to be good at hiding reserves, so maybe this argument applies at the local level as well..?
    Another is that district-level reserves can be used when and how the district decides. Could districts use a state-level reserve like a bank? My guess is no.

    Replies

    • Tom 1 year ago1 year ago

      I can answer your first issue Navigio - School Districts and do issue "one-time payments" to teachers. Our District did so this year as well as last year, so it can be done when the unions demand it. Your other points about reserves are about local Districts who say that the State has cut funding abruptly when the economy does south, like it did 7 years ago. In our District, the reserves have … Read More

      I can answer your first issue Navigio – School Districts and do issue “one-time payments” to teachers. Our District did so this year as well as last year, so it can be done when the unions demand it.

      Your other points about reserves are about local Districts who say that the State has cut funding abruptly when the economy does south, like it did 7 years ago. In our District, the reserves have helped retain teachers and programs that would otherwise be cut. We just finishing reserve spending this year, and right on cue, all employees got what I consider generous compensation increases ranging from 5 to 7%. Our Superintendent got a 5% salary increase for “longevity” whatever that is! Kind of argues for more Sacto control of reserves, but that wasn’t what I was thinking a month ago.

    • Ed Advocate 1 year ago1 year ago

      The transparency is an issue - and you could contend that AB531, which says that committed reserves don't count in the cap limit, further reduces transparency as districts desperately shift funds there so they do not have to spend them down. Until the time comes when shell games are reversed and districts are not paid last in difficult times, it would seem unwise to adopt a reserve cap. In addition - so many of these … Read More

      The transparency is an issue – and you could contend that AB531, which says that committed reserves don’t count in the cap limit, further reduces transparency as districts desperately shift funds there so they do not have to spend them down. Until the time comes when shell games are reversed and districts are not paid last in difficult times, it would seem unwise to adopt a reserve cap. In addition – so many of these issues are local, driven by districts needs and expectations, as well as size and other factors. If we are going to make expenses determined locally, taking more control over local revenue seems an odd choice. We can also add on that in good times districts will have less control over revenue – some will be siphoned off to Prop 2 fund, and after Prop 30 expires there will still be approx $2.4 Billion taken out of the general fund before the Prop 98 calculation ($6B*40% in test 1), the increasing pension obligations and, last but not least, whatever the state decides to add into the Prop 98 obligation. So, hard to argue that districts don’t need to save when the state cannot be counted on. Mostly, I hate that we have to fight battles that are a distraction, and don’t improve anything, just undo another mess.

      • navigio 1 year ago1 year ago

        I dont think you can say that not including committed reserves into the cap limit would further reduce transparency, as this is exactly what happens now. The one benefit of such an approach would be that some districts would be less likely to put their entire reserves into the opaque 'unassigned' object code. District budgets are made three years out. It should not be too much of a problem to at least hint at why … Read More

        I dont think you can say that not including committed reserves into the cap limit would further reduce transparency, as this is exactly what happens now. The one benefit of such an approach would be that some districts would be less likely to put their entire reserves into the opaque ‘unassigned’ object code. District budgets are made three years out. It should not be too much of a problem to at least hint at why you want to maintain reserves. There is nothing stopping you changing it later if something else arises.
        fwiw, I am not even ‘pro-cap’, I just think the reasons people are using to argue both for and against it are misleading. And although they are related, prop 2 is a separate issue.
        If I were a legislator I would vote to repeal the cap for no other reason than it is poorly thought out and even potentially does not address the issue it was intended to. However, I think there is a lot of manipulation in reserves at the local level to the detriment of resources. There should be some way to address that.

  7. Tom 1 year ago1 year ago

    The most notable part of this article to me is the statement that the CTA is opposed to AB1048...so that the reserve money is available for contact negotiations. Meanwhile, a large number of school Districts are saying the low reserve caps will harm programs and students. If there was any doubt previously, the CTA's first priority is the adults, kids second. Sure hope that voters remember this when candidates are running for … Read More

    The most notable part of this article to me is the statement that the CTA is opposed to AB1048…so that the reserve money is available for contact negotiations. Meanwhile, a large number of school Districts are saying the low reserve caps will harm programs and students. If there was any doubt previously, the CTA’s first priority is the adults, kids second. Sure hope that voters remember this when candidates are running for office. We sure did here in Contra Costa County – results are now in and Glazer easily beat Bonilla after pointing out her voting record and how she is bought and paid for by the CTA! Hopefully this spreads state-wide and we see some improvements.

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