High school district board opposes proposed cap on school reserves

By Karen Billing

The San Dieguito Union High School District board has come out against the cap on school district reserves proposed by new legislation in the state. On Aug. 21, the board approved the adoption of a resolution in opposition to the local reserves cap, part of the Proposition 98 Rainy Day Fund.

Proposition 2 will go out to voters on the November ballot. If it passes and the state’s Rainy Day Fund is established, as soon as even a dime is dropped into the fund, school districts will be required to spend down the reserves.

Eric Dill, associate superintendent of business services, said this could have a negative impact on the district.

“Boards are opposing the reserve cap up and down the state,” said Dill, who drafted the resolution approved by the board. “The education community doesn’t want to let it drop …we want school boards to have control of their own financial solvency and management in good times and bad.”

In June, Gov. Jerry Brown signed into law SB 858, the education budget trailer bill that requires districts to spend reserve balances down to no more than two to three times the minimum level of statutory reserve for economic uncertainties.

In SDUHSD’s case, its reserves could not be more than 6 percent of its total general fund expenditures. The statutory minimum for school district reserves is 3 percent, less than 20 days of total cash flow.

“We wouldn’t be able to cover our payroll,” Dill said of the 3 percent level.

Dill said SDUHSD maintains a reserve of about 12 percent, and the reserve cap would severely limit the district’s ability to respond to future economic downturns.

The resolution states the district’s belief that prudently setting aside money for economic uncertainties is good financial planning.

“We built our reserve so we could be prepared if there was an economic downturn, and we had a big one in 2008,” Dill said.

Because the district had prepared and maintained its reserves, it didn’t have to lay off teachers, issue furloughs, shorten the school year or reduce salaries, as many districts were forced to do.

The reserve came into play this year when the district faced an uncertainty it hadn’t planned for when its California State Teachers Retirement System (STRS) contribution was increased.

“If we didn’t have the reserves, that would be $800,000 to $900,000 that we would’ve had to find somewhere else,” Dill said.

Supporters of the cap on reserves say that it would promote transparency, local control and accountability. The California Teachers Association has come out in support of the cap on reserves, arguing that taxpayer dollars should be spent in classrooms and not “sitting in bank accounts.”

A bill from the opposition side to repeal the reserve cap, AB 146, failed last week.

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