Last week, tucked away in a budget trailer bill, California reversed decades of counseling school districts to budget conservatively. New language means districts must justify keeping reserves beyond a bare minimum of 3 percent. If the state rainy day fund initiative passes in November, districts could be forbidden to save more than enough to cover about three weeks’ expenses.
Assembly Republicans asked Gov. Jerry Brown to veto the provision. But Brown had bargained hard to get it, Sen. Mark Leno, D-San Francisco, told EdSource.org. Leno led the budget negotiations.
“The language approved by the Legislature appears problematic, but we are waiting on details of the specific wording,” said Don Gatti, head of Stanislaus County Office of Education business services, which reviews budgets of the county’s school districts.
To fully appreciate the irony of Sacramento imposing a reserve cap, consider how the state essentially used school districts as piggy banks to get it through the Great Recession.
Let’s review: During the lean years, the state made less money, so schools got less. Fair enough. But that lower amount still was more than the state could afford, so it chopped off chunks to pay in some future year when times were better, about $1 out of $4, by the end.
Then the state put off paying even that reduced amount. Instead of a predictable cash flow, districts stretched dollars between widely spread installments. Each year, more of the state’s allocation – nearly half, by the end – arrived after June 30 because the state was tapping into next year’s money to pay last year’s bills.
Twice, threats of state cuts midyear meant districts did not learn until November what they had to spend on classes that started in August.
By paying schools less than by its own calculations it owed them, the state kept its own borrowing costs down. Districts emptied their pockets, and in some cases tapped lines of credit, to keep classrooms running on the promise the check would be in the mail soon.
To manage the cuts, the cash crunch and the uncertainty, districts relied on reserves – which, under this provision, they would not have had.
“Had we been living at a 6 percent maximum, we would not have survived the last few years,” Chief Business Official Julie Betschart told Modesto City Schools board members this month.
By state estimates, 30 percent of the state’s students attended schools in financial jeopardy in 2011.
That said, some jittery districts are using new revenue now coming in to build deep reserves. Modesto City estimates it will end this year with a 25 percent reserve, growing to 30 percent by June 30, 2015.
Set-asides for costly campus updates and maintenance delayed during the lean years are part of that, board member Sue Zwahlen said.
Every district sets its own comfort level with reserves. Turlock Unified expects to have a 16 percent reserve a year from now, growing from about 14 percent in 2013-14. Ceres Unified had an 8 percent reserve this year and is planning for a slim 5.5 percent cushion next year.
But whether boards choose to save up a lot of money or a little, having no choice puts a big dent in the theory of local control.
“This proposal seems to be the antithesis of the principle of local control and subsidiarity,” wrote John Gray in a June 13 opinion piece for School Services of California Inc., a school finance consulting firm. “The proposal would stand the idea of assuring a minimum prudent reserve on its head.”
The California Teachers Association has come out in support of the cap, saying districts should not be hoarding money. The California School Boards Association has come out squarely in opposition, calling it a union move to get raises.
But reserves are one-time money, and the higher taxes expire in six years, while raises, once given, keep going. Except in a handful of nearby districts, teacher salaries already have come back to full strength or better. Bonuses are showing up, but since teacher retirements are based on the final year, one-time windfalls can cost mightily in the long run.
Here’s a different way to pare down those pesky reserves. If every school parent group and site council put their heads together, they could come up with a fantastic list of one-time investments that would pay off for years to come.
Consider the benefits of digital school libraries with e-readers to check out, athletic equipment for PE, science labs, art programs, chess sets, outdoor knolls facing small stages, video equipment for English assignments and accessible, well-ventilated bathrooms.
Even one-time buys could give kids an “Aha!” moment that lasts a lifetime, like a weeklong sixth-grade camp for everyone, field trips to California missions and local museums.
The list of possibilities for short-term spending with long-term gains is endless. If schools need to spend money, why argue over just one option?