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CSBA Delivers More than 800 Resolutions and Letters from School Boards to Governor Brown Urging Repeal of SB 858 Reserve Cap


SACRAMENTO, Calif., (March 10, 2015) – The California School Boards Association today delivered more than 800 resolutions and letters from school board members throughout California to Governor Brown that calls for the repeal of the reserve cap contained in SB 858 that limits school district reserves.

CSBA President and Moreno Valley Unified School District board member Jesús M. Holguín personally delivered the appeals to the Governor’s office, and said that the repeal of the reserve cap is CSBA’s number one priority in 2015. Holguín was joined by Vernon M. Billy, CEO & Executive Director of CSBA, and fellow school board members who were in Sacramento today to meet with Legislators to discuss key education issues.

“Late in the budget process last year, the Legislature passed a fiscally irresponsible law that prevents school districts from maintaining the budget reserves necessary to prepare for the next economic downturn, maintain fiscal solvency and protect the students we serve,” said Holguín. “Unless SB 858 is repealed it’s possible that school districts statewide could be forced to eliminate between $5 and $14 billion in savings that took years to build up. This reserve cap is bad for kids and needs to be repealed.”

The SB 858 section maintains that if the state deposits as little as $1 dollar into the statewide rainy day fund for schools – which could happen as early as this year based on an improving economy – local school districts statewide could be forced to eliminate billions of savings. The budget reserve cap component of SB 858 mandates that if this state trigger is pulled, local school reserve funds (savings) must be below a certain state-mandated 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.

The reserve cap undermines local control and fiscal prudence by preventing school districts from maintaining adequate budget savings to protect classroom instruction and jobs during economic downturns, and it creates a disproportionate risk for small school districts. School districts also use reserve funds to pay for large purchases that benefit students such as textbooks, transportation, classroom technology and to help pay for fixing or modernizing classrooms.  

“District reserves are not one-size-fits-all for a good reason. Local reserves are critical for district solvency, especially for the large number of small districts in California where even relatively minimal changes in financial circumstances are magnified and can be devastating for entire communities. Governing boards must be allowed the discretion to determine reserve levels needed to best accommodate the needs of the students in their districts. Simply put, this fiscally irresponsible bill leaves schools and school children vulnerable,” said Billy.

The respected, non-partisan Legislative Analyst’s Office agreed the SB 858 reserve cap was bad policy and urged the Legislature to repeal the law. The January 2015 report found that: “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.”

Credit rating agencies agree this mandate will negatively affect school districts across California.  Fitch Ratings expects that increased pressure by stakeholders to eliminate the reserve cap may result in some credit quality deterioration. While Standard & Poor’s Ratings Services said, “In our view, statutory limitations on reserves may alter the financial management landscape for California school districts that have a consistent track record of maintaining what we view as very strong reserves.”  

“It takes years for a district to adequately build its reserves. With SB 858 school districts are being forced to eliminate the reserves and abandon the fiscal prudence of years past. School board members, school administrators, and business officials from around the state will be active in Sacramento and in local communities until our concerns about SB 858 are addressed. We urge the legislature and Governor Brown to repeal this fiscally irresponsible portion of the law,” said Holguín.

About CSBA
The California School Boards Association (CSBA) is the non-profit education association representing the elected officials who govern public school districts and county offices of education. With a membership of nearly 1,000 educational agencies statewide, CSBA brings together school district governing boards and county boards of education to advocate for effective policies that advance the education and well-being of the state’s more than 6 million school-age children. CSBA provides policy resources and training to members, and represents the statewide interests of public education through legal, political legislative, community and media advocacy.