Districts press to repeal cap on reserves

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John Fensterwald

December 1, 2014

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The California School Boards Association wasted no time in reissuing its call for the Legislature to repeal the cap on school districts’ budget reserves, which the association calls fiscally irresponsible.

The association held a press conference Monday, the first day back for lawmakers following last month’s election, to issue a report documenting the case for the repeal. The impact of imposing the cap, forcing districts to collectively spend down billions of dollars in reserves, the report says, “ranges from exposing them to needing a bailout from the state, seeing their bond ratings go down and having to pay more interest when borrowing money for short and long-term loans, not being able to meet financial obligations from retiree benefits, etc.” Nearly all of the state’s 1,000 districts would be harmed, it projected.

The school boards association insists that the cap violates the principle of local control and is bad policy that should be expunged.

Legislators passed the cap without discussion as part of the state budget in June. It was tied to Proposition 2, creating a rainy day fund for state education funding, which voters approved last month.

The cap would limit districts’ reserves to between 3 percent, for Los Angeles Unified, to 10 percent for tiny districts in the year after the state put any amount of money into the education rainy day fund. The Legislative Analyst’s Office has predicted that state revenue would not be diverted into the education rainy day fund for at least five years – and then rarely, because of a series of conditions that must be satisfied. The state would have to have paid off all IOUs to schools, for example. However, the school boards association insists that the cap violates the principle of local control and is bad policy that should be expunged.

The California Teachers Association lobbied Gov. Jerry Brown for the reserve cap, arguing that many districts have treated reserves as a savings account instead of spending taxpayer dollars on programs.

The school boards association said that the average district reserve fund of 30 percent in 2012-13 – a year of fiscal uncertainty – was skewed by 400 districts with fewer than 1,000 students. The state’s 25 districts with more than 30,000 students had a reserve averaging 11 percent, the report said.

The Association of California School Administrators and a number of education nonprofits, including Children Now and Education Trust-West, also support the repeal.

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