BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 531 (O'Donnell) - School finance: budget calculations. ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: June 9, 2015 |Policy Vote: ED. 8 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: Yes | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: July 6, 2015 |Consultant: Jillian Kissee | | | | ----------------------------------------------------------------- This bill does not meet the criteria for referral to the Suspense File. Bill Summary: This bill provides that the cap on school district reserves in a fiscal year immediately after a fiscal year in which a transfer is made into the Public School System Stabilization Account does not apply to monies in a committed fund balance. Fiscal Impact: There is no anticipated fiscal impact as the provisions included in this bill appear to be declaratory of existing law. The State Department of Education indicates that costs related to providing technical assistance to the field on this bill's provisions would be absorbable. Background: As part of the 2014-15 Budget Act, the state enacted a new requirement to cap school district reserves in years following a AB 531 (O'Donnell) Page 1 of ? deposit in the state school reserve established by Proposition 2 of 2014. The legislation also created a separate requirement for districts to disclose certain information about their reserves each year. Specifically, existing law requires that in a fiscal year immediately after a fiscal year in which a transfer is made into the Public School System Stabilization Account, a school district budget that is adopted or revised shall not contain a combined assigned or unassigned ending fund balance that is in excess of the following: 1)For school districts with fewer than 400,000 units of average daily attendance (ADA), the sum of the school district's applicable minimum recommended reserve for economic uncertainties adopted by the State Board of Education, as specified, multiplied by two. 2)For school districts with more than 400,000 units of ADA, the sum of the school district's applicable minimum recommended reserve for economic uncertainties adopted by the State Board of Education, as specified, multiplied by three. Existing law authorizes a county superintendent of schools to grant a school district under its jurisdiction an exemption from the cap for up to two consecutive fiscal years within a three-year period if the school district, among other things, provides documentation indicating that extraordinary fiscal circumstances, including, but not limited to, multi-year infrastructure or technology projects, substantiate the need for a combined assigned or unassigned ending fund balance that is in excess of the minimum recommended reserve for economic uncertainties. (Education Code § 42127.01) Proposed Law: This bill: 1)Provides that the limitation on the amount that school districts may set aside in an assigned or unassigned ending fund balance in the fiscal year immediately after a fiscal year in which a transfer is made into the Public School System Stabilization Account does not apply to monies in a committed fund balance, as defined in the California School Accounting Manual. AB 531 (O'Donnell) Page 2 of ? 2)Provides that school district governing boards retain the ability to redirect monies in a committed fund balance to an alternative purpose in any subsequent year. Related Legislation: SB 774 (Fuller) repeals the existing statutory cap on the amount of fiscal reserves that a school district is allowed to maintain. This bill is pending before the Senate Education Committee. AB 1048 (Baker), similar to SB 774, proposes to repeal the statutory cap on the amount of fiscal reserves that a school district would be allowed to maintain under specified conditions. This bill failed passage in the Assembly Education Committee on May 13, 2015. AB 1318 (Gray) proposes to modify the calculation of the statutory cap on fiscal reserves. This bill is pending before the Assembly Education Committee. Staff Comments: This bill is flagged as potentially imposing a new reimbursable mandate on school districts. However, since this bill is consistent with current law, it is unlikely that the Commission on State Mandates would determine this bill to impose a higher level of service. According a recent Legislative Analyst's Office report, school districts are currently required to categorize monies in their reserves. The categories reflect varying levels of discretion that districts have in spending their reserves. School districts can use the committed category to indicate amounts that have been earmarked through an action by the school board. The assigned category indicates amounts that have been earmarked by a district official. The unassigned category indicates all amounts not designated for a specific purpose. Existing law specifies that school district fund balances must not have a combined assigned or unassigned ending fund balance that is in excess of specified amounts. This bill provides that the caps triggered by Proposition 2 deposits not apply to monies in a committed fund balance. Since the state accounting manual provides a district category for a committed fund balance, this AB 531 (O'Donnell) Page 3 of ? bill appears to be declaratory of existing law. In its report, the Legislative Analyst's Office indicates that districts that classify some part of their reserves as committed, assigned, or unassigned may later reclassify those amounts if desired. This interpretation of the law is consistent with the provisions of this bill. -- END --