Nan Austin

Sacramento takes up reforms on savings cap looming for schools

A bipartisan effort to raise a potentially calamitous cap on school district reserves is moving forward in Sacramento.

The cap, included in a June 2014 budget trailer bill, was hailed by unions as a way to make districts spend the money voters intended schools to use. But what voters intended, gauging from the successful Proposition 30 campaign, was to save or improve schools with those extra taxes, not raise overhead.

The cap’s implementation had to wait on several measures of state fiscal recovery, most now met or close to it. Should it take effect without reforms, districts would have to spend down one-time money while under heavy pressure to use it for ongoing labor costs.

Senate Bill 799, authored by Bay Area Sens. Jerry Hill and Steve Glazer, is an effort to raise the cap and give some flexibility for districts to save up for big expenses, according to an assessment posted Friday by financial consultants School Services of California Inc.

The bill passed the Senate and moved to the Assembly, where amendments were added last week. The issue has been a priority for the California School Boards Association, which has led a public education effort on the topic. Assembly Republicans joined with Democrats in hailing the bill’s intent, notably our own Kristin Olsen of Riverbank, the Assembly Republican leader.

“I’m happy to join my colleagues from across the aisle in support of this legislation to allow schools to budget responsibly and ensure they have the resources needed to educate students. I have actively worked to undo the bad policy of capping the amount of money schools can save that was hastily pushed though the budget process last year,” Olsen said in a statement released last week.

Assemblyman Adam Gray, D-Merced, said the measure “restores the flexibility school districts need to save for a rainy day while ensuring our kids receive the best possible education.”

The cap as it stands – a 6 percent limit on reserves – forces districts to spend down savings to roughly two weeks’ payroll in the bank. It was backed by teachers unions, widely seen as a way to put more money on the negotiating table.

Had such a cap been in place in 2008, however, cuts to teacher earnings and jobs would have been sliced to the bone. Most local school districts used reserves to keep operating, with teacher paychecks the largest slice of their budget pie.

During the recession, our cash-strapped state reduced and delayed payments – sometimes into the next fiscal year – to keep its own paychecks from bouncing. For several years, the budget was late or changed midyear, meaning schools had no idea how bad it would be until school was well underway. Without deep reserves, the uncertainty alone would have forced deeper cuts.

In fairness, the return of better funding has seen schools socking away a lot into savings.

With the anguish and turmoil of recession-era finances fresh on their minds, most boards are loath to commit money from the short-lived guarantee of Proposition 30, even with rosy predictions of a rebounding economy. That goes double in the Valley, where generally lower property tax revenues leave schools utterly dependent on the flow of state dollars.

A Legislative Analyst’s Office report said the average district had 15 percent in reserve in 2007-08, the year before the recession hit schools. As of 2013-14, only large districts fit that profile. The median reserve for median districts had jumped to 21 percent, and small districts, so vulnerable to the single big hit, had tucked away enough savings that the median amount was 66 percent of annual spending.

Key provisions in SB 799 include raising the cap to 17 percent for reserves, roughly two months’ payroll, and clarifying that it only applies to unassigned balances, a review of the version amended Friday shows.

Of possibly even greater interest in this area, with its plethora of tiny districts, the bill exempts agencies serving fewer than 2,501 students from any cap.

That clears Mariposa County entirely (1,869 students), every district in Tuolumne County (the largest of 11 has 1,101 students), all but Calaveras Unified in Calaveras County, half of Stanislaus County’s 26 districts and two-thirds of Merced County’s 21 districts (14 of 21).

Keep up on the debate at