School board members representing school districts in San Diego County and the League of Women Voters of California urged legislators and Governor Brown to repeal the new cap on school district reserves—a fiscally irresponsible piece of legislation that limits the ability of school districts to maintain adequate reserves to save for a rainy day.
Late last year, the legislature passed SB 858, which undermines local control and fiscal prudence by preventing school districts from maintaining the budget reserves necessary to prepare for the next economic downturn, maintain fiscal solvency, and protect students. The law maintains that if the state deposits as little as $1 into the statewide rainy day fund for schools–which could happen sooner than previously expected based on an improving economy–local school districts statewide could be forced to eliminate between $5 billion and $14 billion in savings that took years to build up.
The budget reserve cap component of SB 858 mandates that if this state trigger is pulled, local school reserve funds must be below a certain state limit, or cap. For most school districts in California, the new cap on savings equates to approximately 6 percent, which represents only a few days of cash flow.
"Reserves are what help school districts weather economic downturns and the volatility of state revenues, and help us save for specific projects, like textbooks, technology upgrades, modernizing classrooms, and maintenance projects," said Encinitas Union School District Board Member Carol Skiljan.
The respected, nonpartisan Legislative Analyst's Office agreed that SB 858 was bad policy. From a January 2015 report in which the office reviewed the bill: "Reserves allow districts to manage cash flow, mitigate funding volatility, address unexpected costs, save for large purchases, and reduce borrowing costs. We recommend the Legislature repeal the reserve caps."
"Today's press conference is a reflection of the groundswell of support from across the state by school board members, superintendents, parents, and the community for repeal of the reserve cap," said Vernon M. Billy, CEO and executive director of the California School Boards Association (CSBA). "In fact, school boards across California continue to aggressively advocate against this poorly conceived legislation by meeting with lawmakers, sending letters, and passing resolutions. CSBA remains committed to doing whatever it takes to convince the governor and the legislature that the reserve cap is bad for schools, bad for kids and bad for California–and that it must be repealed."
"Every school district is different. That's why this one-size-fits-all law is irresponsible and undermines local control," said Katie Dexter, Lemon Grove School District board member. "Most school districts in California are small or medium sized. These districts need to have a larger percentage of their budgets set aside in reserves because we face certain revenue stream fluctuations that larger districts don't. In small- and medium-sized districts, even relatively minimal changes in financial circumstances are magnified and can be devastating for entire communities."
Credit rating agencies agree that the SB 858 mandate likely will negatively affect school districts across California. Fitch Ratings expects that increased pressure by stakeholders to draw down the reserves may result in some credit quality deterioration. According to The Bond Buyer (November 2014), analysts said a reduction of local control, responsibility, and financial accountability will weaken the (financial) quality of school districts.
"The League of Women Voters of California supports a repeal of the local school district reserve cap," said Kay Ragan, director of the League of Women Voters of California. "Keeping these reserves where local decisions can be made to best suit local needs is a cornerstone of good democracy."
Local school board members agree.
"It takes years for a district to build its reserves," said Elizabeth Jaka, a board member in the Vista Unified School District. "With SB 858, school districts are being told we must eliminate billions in reserve savings and abandon the fiscal prudence we know is right for our districts and schools."
"Governing boards must be allowed the discretion to determine reserve levels needed to serve the needs of the students in our districts," said Barbara Ryan, Vice President of the school board in the Santee School District. "SB 858 leaves schools and school children vulnerable."
Skiljan concluded, "SB 858 is bad policy. School board members, school administrators, principals, parents, and educators from around the state will continue to be active in Sacramento and in local communities throughout the state until our concerns about SB 858 are addressed. We urge the legislature and governor to repeal this fiscally irresponsible law."
Photo: Pictured after a press conference March 31 are, from left, Barbara Ryan, Carol Skiljan, Katie Dexter, and Elizabeth Jaka.