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Governor Signs Budget Reserve Cap Bill, Giving School Districts More Room to Maneuver

October 16, 2017

After three years of advocacy by California education groups, Gov. Jerry Brown has signed into law a Senate bill that alleviates restrictions on school district savings in California. Senate Bill 751 allows districts room to maneuver financially during times of fiscal uncertainty and reduces the chance of staff layoffs and programmatic cuts should the reserve cap be triggered.

“SB 751 provides important relief for every school district in California,” said California School Boards Association (CSBA) CEO & Executive Director Vernon M. Billy on October 11. “Reserves are vital for districts to make budgetary decisions that best fit their local needs and provide the security needed to weather financial storms with reduced adverse impact on students, employees and programs. We thank the Legislature for making this needed adjustment to the reserve cap, which will benefit all of California’s 6.2 million public school students.”

The reserve cap originated in the 2014–15 state budget as part of a deal to help secure passage of Proposition 2 on the November 2014 state ballot. That cap, triggered under certain economic conditions, generally limited district savings to an average of 6 percent of their general fund. CSBA and its partners argued that the cap on savings inhibited districts’ ability to save for a rainy day, pointing to the recent recession as an example of a financial emergency that underscored the importance of school district reserves.

SB 751, authored by Sen. Jerry Hill (D-San Mateo) and Sen. Steve Glazer (D-Orinda) now ensures that if the reserve cap ever becomes active, every district in the state will either be exempted altogether or have significantly more flexibility from the limitations of the 2014 reserve cap.

Specifically, SB 751 provides relief by:

  1. Exempting all small school districts of less than 2,501 average daily attendance (ADA)
  2. Exempting all basic aid school districts
  3. Raising the reserve cap limit to 10 percent of the district’s general fund
  4. Clarifying that the higher cap applies only to general fund and special reserve fund ending balances; it would not apply to funds for capital outlay or funds such as self-insurance, building, deferred maintenance or post-employment benefits

A new reserve cap “trigger” makes it significantly less likely that the current reserve cap could become active. SB 751 also exempts school districts from restrictions on funds saved for large expenditures such as new textbooks or capital improvement projects, allowing them to invest more fully in these critical supports for school climate and student learning. The reserve cap does not apply to county offices of education.

The passage of SB 751, which sailed through the Legislature by unanimous vote, is testament to the tenacious advocacy of CSBA members, as well as the energetic support of partners such as Association of California School Administrators, Cal State PTA, Children Now, the League of Women Voters, Public Advocates and EdTrust-West.

“This bill is a victory for school districts and all Californians who believe schools should be allowed to save for a rainy day,” said CSBA President Susan Henry. “The reserve cap, as previously constructed, limited the ability of school boards to work with constituents to make prudent financial decisions. It also undermined the principles of local control and subsidiarity that have been a hallmark of this administration. We’re thrilled that school boards now have more flexibility to make sound fiscal choices as dictated by the needs of their students and their communities."

Source:  California School Boards Association

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