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Coalition fighting cap on budget reserves stumbles

Posted on September 21, 2015 at 5:00 AM Comments comments (507)

An update on the reserve cap and the pending legislation to repeal it.  I think we can all agree that the movement was much stronger when we were united.  

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EdSource,Sep 17, 2015 | By John Fensterwald

Coalition fighting cap on budget reserves stumbles

A push in the Legislature to reduce the restrictions on school districts’ budget reserves faltered last week after a coalition of school organizations fractured over proposed compromises.

 

Senate Bill 799 remained stuck in an Assembly committee on Friday, the last day of the session. It will resurface next year, and negotiations will continue, said Dennis Meyers, assistant executive director for the California School Boards Association.

 

At issue was a disagreement over how far the school organizations should compromise on their bill, which sought a total repeal of the cap on district reserves that legislative leaders and Gov. Jerry Brown imposed, at the urging of the California Teachers Association, as part of the 2014 state budget.

 

The cap would force districts to spend down money they put aside for economic uncertainties, emergencies and other purposes, like future computer purchases, whenever the state put money into a new rainy day fund for K-12 and community colleges. Although deposits into that fund are predicted to be infrequent – and probably won’t be made in the next several years – the California School Boards Association and other school management groups, including the Association of California School Administrators, complained that the cap potentially threatens districts’ financial stability and their credit ratings, and contradicts the state commitment to local control.

 

“We too loved SB 799, but one of the first rules is don’t fall in love with your bill,” said Dennis Meyers, California School Boards Association.

Last month, the school boards association-led coalition, which included some children’s advocacy groups, the League of Women Voters and the California State PTA, proposed an alternative to a repeal: SB 799 would exempt from the cap districts with less than 2,501 students, whose finances can be the most volatile, along with property tax-rich districts, called basic aid districts, which rely solely on local property taxes to pay their bills. For other districts, the cap on reserves would be raised to 17 percent, nearly triple the average 6 percent that the Legislature imposed. The new limit would be in line with the minimum reserve that a national oversight organization recommended.

 

Along with the prime authors, Senate Democrats Jerry Hill, D-San Mateo, and freshman Steve Glazer, D-Orinda, 15 Republican and Democratic legislators signed on as co-authors. But, sensing the bill was still in trouble, CSBA resumed negotiations on its own with the California School Employees Association, the union that represents hourly school employees, such as custodians and teachers aides. Those discussions led to a new proposal that would have set the maximum cap for most districts at 12 percent, midway between the current limit and SB 799’s 17 percent, and removed the exemption for many basic aid districts. It also would have required school boards to give a monthly accounting of money in reserves that districts assigned for specific purposes that didn’t count toward the cap under SB 799.

 

Those proposed changes didn’t go over well with members of the coalition, who were presented with them two days before the final day of the session. The California Associations of School Business Officers, with 3,000 members, wrote SB 799’s sponsors saying the proposed changes “are a step in the wrong direction and would erode the fiscal safety net to schools.” The California State PTA issued an alert to all legislators saying it would not support further amendments or an alternative to SB 799. The Association of California School Administrators didn’t officially oppose the proposal because it hadn’t seen the actual wording, but Executive Director Wes Smith said he also made it clear to legislators that his organization couldn’t support changes to the bill that it hadn’t reviewed and approved.

 

Molly McGee Hewitt, executive director of the school business officers organization, said she opposed all three “ill-conceived” changes. She expressed concern that the proposed concessions would make it harder to hold the line on passing SB 799 intact.

 

But Meyers said everyone acknowledges that repeal of the reserves cap “is not really in the cards,” so the goal is to significantly weaken the law. “We too loved SB 799 (as originally written),” he said, “but one of the first rules is don’t fall in love with your bill. Everyone needs to be open to any changes so that a bill that can get signed.”


School groups pursue compromise on budget reserves

Posted on September 3, 2015 at 12:15 AM Comments comments (174)
A new article on the ongoing battle over the reserve.  It was refreshing to read that the "target" is 17% because the LAO found that the median reserve for large districts with the strongest bond ratings was 17 percent.  This is good to know in our day to day speak on this issue.

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A year-long battle between a coalition of school organizations and the California Teachers Association over district reserves has taken a new turn.

 

The dispute is over how much districts should be allowed to keep in reserve as a result of new limits that were set last year. The reserve cap became law after the CTA persuaded legislative leaders and Gov. Jerry Brown to insert the change into cleanup language as part of last year’s state budget negotiations.

 

The CTA had complained that districts were hoarding a bonanza of post-recession funding that it argued should be spent on student programs and services. Groups including the California School Boards Association, Association of California School Administrators, the California Association of School Business Officers, the California State PTA and the League of Women Voters countered that the new reserve cap was fiscally irresponsible, even though it likely is years away from taking effect. They claim it is a ploy to force more money saved for emergencies onto the bargaining table for potential pay raises and benefits.

 

But having failed to persuade the Legislature to repeal the cap, the groups, led by the school boards association, have proposed a late-session compromise to loosen the restrictions and fully exempt the state’s smallest districts.

 

Senate Bill 799, which the school boards association wrote, would raise the limit on a district’s unrestricted budget reserve to 17 percent of its general fund, in those years when a reserves cap is imposed. That’s nearly triple the 6 percent reserve under current law for most large and moderately sized districts. The new limit would not apply to money that districts have set aside for specific purposes.

 

The exemption would remove the cap entirely for districts with fewer than 2,501 students and the 10 percent of property-wealthy districts, known as “basic aid” districts, that are funded primarily through local property taxes, not state revenues. Together, small and basic aid districts comprise nearly two-thirds of all districts, according to the school boards association.

 

“We believe this bill is a good compromise and a solution that both houses of the Legislature and the governor can support,” said Dennis Meyers, assistant executive director, governmental relations, for the school boards association.

 

In a video statement, Molly McGee Hewitt, executive director of the business officers association, said, “We believe repeal is not a political reality even though (the cap) is not sound public policy. This is a chance to modify and change the reserve cap and to give back for our school districts some stability that we have lost.”

 

Even if the cap won’t be triggered for several years, the school boards association and other groups want it changed now. They view it as an intrusion on the principle of local control.

The school boards association made repealing the cap its top legislative priority for the year. But in May, Democrats who formed the majority in the Assembly Education Committee defeated repeal legislation sponsored by Assemblywoman Catharine Baker, R-Danville. Republican Sen. Jean Fuller, R-Bakersfield, withdrew her version of the bill from the Senate Education Committee.

 

Prospects for SB 799, with less than two weeks before the Legislature adjourns for the year, remain uncertain. Two Senate Democrats, Jerry Hill, D-San Mateo, and freshman Steve Glazer, D-Orinda, are the prime authors, with 15 Republican and Democratic legislators as co-authors. But the bill is stuck for now in the Assembly Rules Committee, which could send it either to the Assembly Education Committee for review or directly to the Assembly floor for a vote.

 

A spokesperson for the CTA said, without elaborating, that the union opposes the bill.

 

Districts currently have no limit on the size of their reserves, which are funds left over at the end of a year. They can use the reserve as a stockpile for emergencies and downturns in state revenue or as a set-aside for future purchases, such as technology or building repairs.

 

Democrats supporting the current law, led by Assemblyman Patrick O’Donnell, a former teacher who chairs the Assembly Education Committee, said that the school boards association and others are exaggerating the risks of the budget cap.

Under current law, the cap on district reserves would go into effect only in a year after the state puts any money into a special rainy day fund for K-12 schools and community colleges. Those years, tied to tight revenue requirements under Proposition 98 and other conditions, would be rare – and probably not in the next three years at the earliest, the Legislative Analyst’s Office predicted in May. Districts could apply to county offices of education for an exemption.


 

Districts substantially increased their reserves as a protection from budget cuts after the recession. The size of the reserves varied widely, with the smallest districts building the largest reserves. The median reserve for large districts – those with more than 30,000 students – was under 20 percent in 2013-14. The proposed limit for SB 799 would be 17 percent for money not designated for specific purposes.

CREDIT: LEGISLATIVE ANALYST'S OFFICE

Districts substantially increased their reserves as a protection from budget cuts after the recession. The size of the reserves varied widely, with the smallest districts building the largest reserves. The median reserve for large districts – those with more than 30,000 students – was under 20 percent in 2013-14. The proposed limit for SB 799 would be 17 percent for money not designated for specific purposes.

Depending on a district’s size, the cap would range from 3 percent of a district’s general budget for the state’s largest district, Los Angeles Unified, to 10 percent for the smallest districts, with 6 percent the average for moderately sized districts.

 

Even if the cap won’t be triggered for several years, the school boards association and other groups want it changed now. They view it as an intrusion on the principle of local control that Gov. Brown espoused and the Legislature adopted with the Local Control Funding Formula. And they said the low cap could jeopardize their financial stability in an economic downturn, make it harder to manage their cash and cause bond rating agencies like Moody’s and Standard and Poor’s to lower districts’ credit ratings, raising the cost of borrowing money.

 

An LAO analysis earlier this year of 2013-14 found that, had the cap been in effect then, less than 10 percent of the state’s districts would have met the reserve requirements. Districts had $7.3 billion in unrestricted reserves, while the law would have set a limit of $2.8 billion.

 

DEMOCRATS: POTENTIAL HARM IS OVERSTATED

 

Democrats supporting the current law, led by Assemblyman Patrick O’Donnell, a former teacher who chairs the Assembly Education Committee, said that the school boards association and others are exaggerating the risks. The law already permits school boards to vote to shift money for specific future uses into what’s called a “committed reserve” that doesn’t count toward the cap. And that’s what districts would do to bring the unrestricted reserves down if the cap went into effect, they predict.

 

But Meyers called this option an unnecessary work-around, adding complexity to a bad law. SB 799 instead would require school boards to present annually an explanation of what’s in the reserves and justify the uses – a better form of transparency, he said.

Hill and the school boards association chose 17 percent as the limit because that’s the amount that the Government Finance Officers Association, a national organization, recommends that local districts keep in reserve, with more money in times of volatile revenue. That amount equals between two and three months of a district’s operating expenses, said LAO analyst Kenneth Kapphahn, who wrote the LAO analysis. The LAO found that the median reserve for large districts with the strongest bond ratings was 17 percent.

 

Sen. Bob Huff, R-Diamond Bar, who stepped down this week as Senate minority leader, said that Republicans favor repeal of the cap, which he called a “dumb” policy, but would support SB 799 as written. However, noting that the finance officers recommended 17 percent as a minimum reserve, not as a limit, he said he was concerned that the number would be whittled down in negotiations over the bill.

 

Gov. Brown has not indicated whether he would support revising the reserves cap that he agreed to insert in the budget language a year ago.

 

 

John Fensterwald covers education policy. Email him or Follow him on Twitter. Sign up here for a no-cost online subscription to EdSource Today for reports from the largest education reporting team in California.


New debate over school reserve cap

Posted on August 21, 2015 at 12:15 AM Comments comments (268)
We've heard a lot about the reserve cap and as the stewards of fiscal solvency, we are likely all on the same page about the need to repel it.  In any debate, it's always helpful to try to understand the thinking that opposes our position.  This article has a couple of quotes that might help us to better understand the opposition’s position.  In turn, this could help inform us as to how to provide factual information about the relationship between a school district's reserve cap and the State's rainy day fund.  

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San Diego Union Tribune

By Maureen Magee | 5:18 p.m. Aug. 19, 2015

The debate over how much money school districts should be allowed to sock away has been resurrected in California as lawmakers reconvene in Sacramento over the next month to finish their work for the year.

 

School finance leaders and education officials from throughout the county and state have launched a last-ditch effort in recent days to persuade the Legislature to lift new limits on so-called “rainy day funds.”

 

The reserve cap was included in the state budget last year in a trailer bill. The restriction limits school districts to setting aside no more than 6 percent of their budgets in reserve accounts to prepare for economic downturns.

 

The cap goes into effect the year after the state makes any payment into a new rainy day fund for schools and community colleges under Proposition 2, approved by voters last year.

 

Administrators and school boards have argued that the cap puts districts at financial risk by preventing them from adequately preparing for a fiscal crisis — from a potential decline in state tax revenue once Proposition 30 expires, to troubles brought on by natural disaster.

 

But labor leaders and other groups say the cap would free up education funds from bloated reserve accounts, putting money on the table for student programs, teacher salaries and other immediate uses that should be decided publicly.

 

According to a report from the Legislative Analyst’s Office, in the 2013-14 school year the state’s largest districts — those with more than 30,000 students — reported a median reserve of 15 percent of expenditures. The state’s smallest districts with fewer than 300 students reported a median reserve of 66 percent.

 

Reserves had been built up in recent years after districts weathered the recession and feared future fiscal uncertainties.

 

Dan McAllister, the county’s treasurer-tax collector, and Randy Ward, superintendent of the San Diego County Office of Education, have blanketed local legislators with letters sent this month urging a change to the cap.

 

“This makes a mockery of good fiscal behavior — and local control,” said McAllister, who is chairman of the San Diego Unified School District audit and finance committee. “Who other than local districts knows what their reserves should be?”

 

Claudia Briggs, spokeswoman for the California Teachers Association, said an argument for local control is an argument for keeping district reserve caps low.

 

“We had the rainiest of days during the recession and many of these districts sat on humongous reserves, which did nothing to mitigate drastic cuts,” Briggs said. Sen. Steve Glazer, D-Contra Costa and Sen. Jerry Hill, D-San Mateo, were part of a group to announce legislation Tuesday that would raise the state’s reserve cap as high as 17 percent.

 

Glazer praised Gov. Jerry Brown and the Legislature for strengthening the state’s rainy day fund to better position California for weathering future economic downturns. But he criticized the law that was passed last year that restricts how much local districts can save.

 

 

“What we don’t want to do is exercise fiscal responsibility at the state level only to erode that same financial prudence on the local level,” said Glazer, a San Diego State University alum.

 

Chris Prokop, president of the Cajon Valley Teachers Association, said large reserves are unnecessary, especially since the state now has its own rainy day fund.

 

“Now that the governor has a rainy day fund, it’s somewhat redundant to have a backup fund for your backup fund,” said Prokop, who is also a member of the CTA political action committee for San Diego and Imperial counties.



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