Targeting the schools’ ‘reserve cap’

School kids at work in a California classroom. (Photo: Monkey Business Images)

California voters passed Proposition 2 last November to establish a statewide “rainy day” fund.

Unfortunately, a one-size-fits-all law, SB 858, also passed last year as part of the state budget process. SB 858 prevents school districts from saving adequately to prepare for their own rainy day by setting a maximum average “reserve cap” of 6 percent on school districts reserves.

SB 799 would increase the cap to a more manageable 17 percent. Equally important, it adds transparency by requiring each district’s superintendent to present an annual report to their school board.

For the lion’s share of school districts in California, this is only enough to cover a few days of payroll and nowhere near enough to plan for economic downturns, large expenses such as textbooks, classroom technology, new buses or unexpected repairs. Most small and medium sized school districts maintain an average savings of 25 percent.

A one-size-fits-all approach to local decision making erodes the ability of school boards to work with our communities and parents to make locally sound fiscal decisions. This is inconsistent with the principle of local control over resource allocation. Further, it has a disproportional impact on schools serving student from low-income families, English learners and foster youth — the very students that the Local Control Funding Formula (LCFF) was intended to provide additional support to. LCFF gives local communities an opportunity to engage in healthy conversations about what our students need, including what a prudent fiscal reserve should be. Taking away that decision from local communities is a step in the wrong direction.

The “reserve cap” must be fixed.

Fortunately, Senator Jerry Hill introduced SB 799, which changes the restrictive cap and makes it workable for every school district in California. SB 799 would increase the cap to a more manageable 17 percent.

Equally important, it adds transparency by requiring each district’s superintendent to present an annual report to their school board on the district’s reserve and fund balances. School boards are to then adopt a policy on fund balances and provide an opportunity for public input.

This is a bipartisan bill coauthored by Senators Glazer, Allen, Block, Galgiani, Pavley, Roth and Wolk and Assemblymembers Bonilla, Brown, Calderon, Cooper, Gray, Irwin, Olsen, Salas and Ting. We applaud this bipartisanship.

SB 799 also contains the following reforms:

— Clarifies that the reserve cap covers unassigned balances but does not affect money set aside by districts for emergencies or future large purchases, such as technology, instructional materials or school buses.

— Exempts small school districts with fewer than 2,500 students and basic-aid districts from the budget reserve cap because of their unique cash flow needs.

There is widespread support for fixing the reserve cap that includes children’s advocacy associations, civic rights groups and school boards. The respected nonpartisan Legislative Analyst’s Office has agreed the budget reserve cap is bad policy and has urged the legislature to repeal the law. Credit rating agencies such as Standard & Poor’s and Fitch have stated that the current reserve cap will likely negatively affect school districts across the state. And, numerous newspaper editorial boards in California have also called for a fix to allow school districts to save for a rainy day.

School districts are as distinct as each of their students and communities.  What one district needs, another may not. That’s why local decision-making is so important and why it makes sense for each school district, in collaboration with those in their community, to determine what level is savings for a rainy day is sensible.

California State PTA and the League of Women Voters of California call on legislators to pass and Governor Brown to sign SB 799 before the end of session on September 11.

Ed’s Note: Justine Fischer is president of the California State PTA.  Helen L. Hutchison is president of the California League of Women Voters.




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