SANTA BARBARA, Calif. – School board members representing school districts from Santa Barbara, Santa Maria, Pleasant Valley, Ventura, and Atascadero areas today urged legislators and Governor Brown to fix the school budget reserve cap held in SB 858 – a fiscally irresponsible bill that limits the ability of school districts to maintain adequate reserves to save for a rainy day.
Efforts are underway urging the Legislature and the Governor to fix the cap. Earlier this summer, twenty-six Democrat legislators from across the state submitted a letter calling on the legislative leadership to fix the reserve cap. In addition to that letter, public policy groups have also urged members of the Legislature to focus on a solution. With the 2015-16 budget process complete, and the issue of the reserve cap silent, there is now an urgent need for the state’s elected officials to work to find an equitable resolution prior to the end of the legislative session in mid-September.
The California School Boards Association (CSBA) has launched a statewide media campaign urging legislators and Governor Brown to fix the school budget reserve cap. The ads illustrate the imbalance of prohibiting school districts to save for a rainy day. A father tells his daughter that she cannot save her allowance for a future purchase of a bicycle, that if she doesn’t spend the allowance by the weekend she can’t have it.
The impetus of the ads come from SB 858, a bill passed along with last year’s state budget limiting what school districts can prudently save for a rainy day. SB 858 maintains that if the state deposits as little as $1 dollar into the state rainy day fund for schools, local school districts statewide could be forced to eliminate between $5 and $14 billion of savings, and it would require local school reserve funds (savings) to be below a state-mandated 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 to pay for school operations. 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.
Ed Heron, President, Santa Barbara Unified School District stated, “By limiting our rainy day savings, this bill threatens classroom programs, threatens teacher and school employee jobs, and it threatens many districts’ ability to save up for necessary large expenses like textbook replacements, technology upgrades, busses or modernizing classrooms.”
“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,” Jack Garvin, Board Member, Santa Maria Unified High School District.
In fact, 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.’
California School Boards Association CEO/Executive Director Vernon M. Billy said that, “Capping school district reserves leaves our classrooms and school children vulnerable to the next rainy day. Local reserves are critical for district solvency, especially for the hundreds of small districts in California where even relatively minimal changes can significantly impact the ability of these districts to educate their students. Governing boards must be allowed the discretion to determine reserve levels that best support the needs of the students in their districts.”
Billy added, “The reserve cap is antithetical to the state’s own efforts to save for a rainy day. Every day of legislative inaction puts our schools and children at further risk. The budget reserve cap must be fixed. Our schools should not be subjected to the uncertainty the budget reserve cap brings. We look forward to working with the Governor and legislators to enact a solution that school board members can support and that creates an environment that restores school districts’ ability to ensure students receive a quality educational experience. We continue to push legislators to recognize that this issue cannot be ignored or deferred.”
Credit rating agencies agree the SB 858 cap 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.
John Walker, Board Member, Ventura 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 upward change in a 30-year bond interest rate results in millions of dollars of additional costs to taxpayers.”
Suzanne Kitchens, Board Members, Pleasant Valley School District, explained, “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.”
“Education is built on the premise of providing quality learning opportunities to all California students. Budget caps on local reserves create uncertainty for districts and more importantly for our students. That’s why this Sacramento mandated, one-size-fits-all law is irresponsible and undermines local control,” stated Tami Gunther, Board Member, Atascadero Unified School District.
Lindsey Baker, League of Women Voters of California-Santa Barbara added, “The League of Women Voters of California supports fixing the school district reserve cap. Keeping these reserves where local decisions can be made to best suit local needs is a cornerstone of democracy.”
Heron 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 to fix this fiscally irresponsible law.”