Local School Board Members and League of Women Voters of California Call for Legislators to Repeal New Law that Prevents School Districts from Saving for a Rainy Day
SB 858 is fiscally irresponsible and will hurt local schools, students and programs
FRESNO, Calif. – School board members representing school districts in the Central Valley, and the League of Women Voters of California today urged legislators and Governor Brown to repeal SB 858 – a fiscally irresponsible bill 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 that 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 the students of California. SB 858 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 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 (savings) 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 Susan Markarian, Board President, Pacific Union Elementary School District.
The respected, non-partisan Legislative Analyst’s Office agreed SB 858 was bad policy. From a January 2015 report in which the LAO 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 & Executive Director of the California School Boards Association. “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.”
Credit rating agencies agree the SB 858 mandate likely will negatively affect school districts across California. Fitch Ratings expects that increased pressure by stakeholders to draw down the reserve cap 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 quality of school districts.
Michael E. Hanson, Superintendent, Fresno Unified School District, said, “Rating changes resulting from the SB 858 cap increases the cost of borrowing, sending scarce classroom dollars to bankers instead of students, which would be a useless waste of resources. Any downward change in a 30-year bond interest rate results in millions of dollars of additional costs to taxpayers.”
Jacquie Canfield with the League of Women Voters of California (Fresno) stated, “The League of Women Voters of California supports a repeal of the local school district reserve cap. Keeping these reserves where local decisions can be made to best suit local needs is a cornerstone of good democracy.”
Juan Garza, Superintendent, Kings Canyon Unified School District, “It takes years for a district to build its reserves. 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.”
Kathy Spate, Board Member, Caruthers Unified High School District stated, “Every local school district is different. That’s why this one-size-fits-all law is irresponsible and undermines local control. Most school districts in California are small or medium sized. These school districts need to have a larger percentage of budget reserves set aside because they often face certain revenue stream fluctuations that larger districts don’t. In small school districts with less than 2,500 students, even relatively minimal changes in financial circumstances are magnified and can be devastating for entire communities.”
Carol Mills, Board Member Fresno Unified School District said, “School boards have to work in concert with our local parents, community, teachers and others to budget responsibly to best protect students and classroom services.”
Mrs. Markarian 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 repeal this fiscally irresponsible law.”