Schools to lawmakers: Repeal the reserve cap

Late last year, the Legislature passed a fiscally irresponsible law that prevents local school districts from maintaining prudent budget reserves necessary to prepare for future economic downturns, to invest in classroom improvements, and to protect our students. As ridiculous as that sounds, unfortunately that’s the reality.

Sacramento should not prevent local elected school boards and leaders from planning responsibly to ensure school children and educational services are protected.

The respected, non-partisan Legislative Analyst’s Office agreed the budget reserve cap was bad policy and urged the legislature to repeal the law in a recent report.

That’s why thousands of educators, including school board members, school district officials, community members, parents and others are calling for the Legislature to repeal the local school district reserve cap.

Passed into law in 2014, the reserve cap contained in SB 858 limits how much school districts can save in reserve funds. Under this law if the state deposits as little as $1 dollar into a statewide rainy day fund for schools, which could happen as early as this year based on an improving economy, local school districts could be forced to eliminate between $5 and $14 billion of their own rainy day savings that took years to build up. For most school districts in California the new cap on savings equates to 6 percent, only a few days of cash flow, far too inadequate for a savings account for a rainy day or large expenses.

For example, in my district – the Moreno Unified School District, because we had a prudent reserve, we were able to update our technology to implement the state mandated Smarter Balanced Assessments that students are required to take. We were also able to avoid borrowing money during the last two years even though the state was deferring school district funds in order to balance its budget. This allowed our school district to avoid the high cost of borrowing from Wall Street bankers and save $500,000 per year. In other words, we were able to keep that money flowing to classroom programs and avoid laying off a large percentage of our employees.

School districts also need the flexibility to use reserve funds to pay for large purchases that benefit students such as textbooks, buses and classroom technology.

Repealing the budget reserve cap language held in SB 858 will once again allow local school district officials to make the best decisions for our unique local circumstances.

The respected, non-partisan Legislative Analyst’s Office agreed the budget reserve cap was bad policy and urged the Legislature to repeal the law in a recent report.

Credit rating agencies such as Standard & Poor’s and Fitch have stated that the SB 858 reserve cap mandate likely will negatively affect school district credit ratings across the state. That increases the cost of borrowing, sending classroom dollars to bankers instead of students.

When California faces the next inevitable economic downturn, schools must be able to protect students and maintain classroom instruction and jobs. School districts also need the flexibility to use reserve funds to pay for large purchases that benefit students such as textbooks, buses, classroom technology or to help pay for fixing or modernizing classrooms.  Repealing this section of the law will allow our school districts to maintain a prudent reserve for times of financial uncertainty.

Keep in mind; school districts are as distinct as each of the school children 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 prudent. The answer is not a Sacramento mandate, a one-size fits all formula that applies to all school districts and ignores widely varied circumstances of each district.

Fortunately, some lawmakers in Sacramento are willing to do the right thing and restore local control and preserve responsible budgeting at the local level. We are now calling on the Governor and all legislators to do the right thing for their districts by repealing the budget reserve cap.
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Ed’s Note: Jesús Holguín is president of the California School Boards Association and a board member of the Moreno Valley Unified School District.