CSBA Issues Statement Regarding LAO Analysis of School District Reserves
SACRAMENTO, Calif., (January 21, 2015) – The California School Boards Association (CSBA) released this statement regarding the Analysis of School District Reserves issued today by the Legislative Analyst’s Office (LAO):
“CSBA is pleased with the Analysis of School District Reserves released today by the LAO as it shares our concerns with the reserve cap and recommends that the legislature repeals it,” said CSBA CEO & Executive Director Vernon M. Billy. “Since July, CSBA has aggressively advocated for the repeal of the reserve cap because we strongly believe it is fiscally irresponsible, inconsistent with the principle of subsidiarity, and would jeopardize the financial solvency of school districts across the state.”
Released in early December, CSBA’s Report on School District Reserves outlined the potential negative impacts on California school districts resulting from SB 858, Section 27, that became operational when Proposition 2, the state Rainy Day Fund, was passed in November. “The first dollar contributed to the state Proposition 98 reserve account would force school districts to bring local reserve balances to arbitrarily imposed levels that could lower district bond ratings, limit borrowing ability, and threaten their ability to meet financial obligations, including deferred maintenance, retiree and employee benefits, and school programs,” said Jesús M. Holguín, CSBA President and Moreno Valley Unified School District board member.
Key highlights from the LAO analysis include:
- In the event districts begin spending down their reserves, the LAO was concerned they would incur a number of risks, including:
- Difficulty maintaining programs in tight fiscal times. The reserve caps would allow most districts to maintain only a few weeks of payroll in reserve.
- Difficulty addressing unexpected costs. Emergency facility repairs and other unexpected costs would place districts with low reserves in a precarious position.
- Greater fiscal distress. Historically, districts with reserves below the caps have been about twice as likely to be flagged for fiscal intervention as their peers with higher reserves.
- Higher borrowing costs. Districts with lower reserves could have their credit ratings reduced, increasing the cost of borrowing money.
- The reserve cap is far below the reserve level generally needed to receive a top credit rating.
- LAO was also concerned that the caps become operative following any deposit into the state school reserve – even if the size of that deposit is much smaller than the triggered reduction in local reserves.
“It is important for legislators to understand that district reserves are not one-size-fits-all for a good reason. Local reserves are critical for district solvency, especially for the large number of small districts in California where even relatively minimal changes in financial circumstances are magnified and can be devastating for entire communities,” added Billy. “The reserve cap must be repealed so governing boards can determine the appropriate reserve levels needed to maintain fiscal solvency for the school systems they govern.”
About CSBA
The California School Boards Association (CSBA) is the non-profit education association representing the elected officials who govern public school districts and county offices of education. With a membership of nearly 1,000 educational agencies statewide, CSBA brings together school district governing boards and county boards of education to advocate for effective policies that advance the education and well-being of the state’s more than 6 million school-age children. CSBA provides policy resources and training to members, and represents the statewide interests of public education through legal, political legislative, community and media advocacy.
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