Bill would soften cap on district reserves

Bill would soften cap on district reserves

(Calif.) Two Bay Area lawmakers are once again attempting to find a compromise over a controversial cap on the amount of money school districts can keep in reserve.

State Senators Jerry Hill, D-San Mateo, and Steve Glazer, D-Orinda, have reintroduced legislation that would raise the maximum reserve from about 6 percent of a district’s general fund to about 17 percent. SB 751 would also exempt from the spending restriction any money being saved for a big purchase like new textbooks or capital improvement.

A very similar bill failed to win support last spring after drawing opposition from the California Teachers Association.

Teri Burns, legislative advocate for the California School Boards Association–which is sponsoring SB 751–said districts need flexibility in how to manage their money.

“When we face an economic down-turn, we all turn to our savings account,” she said in an interview. “The same is true for school districts. During the recession, most school districts chewed up their reserve before they laid people off or made other cuts, so that they could continue providing services to kids.

“Districts need to keep a reserve for those down-times, or to meet the needs of big projects coming up,” she said.

The reserve caps were a last-minute amendment to the 2014-15 state budget in response to complaints from the CTA and other school employee groups that district administrators kept too much money in reserve and out of reach in contract negotiations over salaries and benefits.

Under existing law, districts are prohibited from keeping in reserve more than two-times a minimum amount set by the state and based on the district’s size. In general, that amount is about 3 percent of their general fund.

But the caps are only triggered once a series of conditions are met. One of them is that the Legislature makes a contribution into the Rainy Day fund as directed by a voter-approved initiative–something that is likely to happen as part of the 2017-18 budget.

But because other conditions are not likely to happen anytime soon, the non-partisan Legislative Analyst has said that the caps are not expected to be triggered anytime during the next five years.

A 2015 report from the LAO found that school reserves fluctuate with economic conditions. Reserves were at their lowest in the early 1990s, when districts held just 8.3 percent of statewide expenditures. They were highest in 2010-11 when they represented 21.2 percent of expenses.

While the LAO found that there were some districts with very large reserves, the amounts traditionally set aside are not especially high when compared to other government agencies like community colleges and municipalities.

Still, getting support in the Legislature for revising the existing restriction has proved difficult.

After the bill failed to pass out of the Assembly’s Education Committee last June, Hill and Glazer brought the idea back in last August in an effort to rally support at the end of the session. But once again, the CTA reportedly killed its progress again.

As proposed, SB 751 would:

  • Establish a hard cap of 17 percent of a district’s general fund without regard to the size of a district;
  • Require a county superintendent of schools to grant a school district an exemption if the school district provides documentation indicating that extraordinary fiscal circumstances substantiate the need for fund balances above the cap; and
  • Exempts from the reserve cap basic aid districts and districts with fewer than 2,501 average daily attendance.