BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 531|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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THIRD READING
Bill No: AB 531
Author: O'Donnell (D), et al.
Amended: 6/9/15 in Senate
Vote: 21
SENATE EDUCATION COMMITTEE: 8-0, 6/17/15
AYES: Liu, Runner, Block, Hancock, Leyva, Monning, Pan, Vidak
NO VOTE RECORDED: Mendoza
SENATE APPROPRIATIONS COMMITTEE: 6-0, 7/6/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza
NO VOTE RECORDED: Nielsen
ASSEMBLY FLOOR: 74-0, 5/22/15 (Consent) - See last page for
vote
SUBJECT: School finance: budget calculations
SOURCE: Author
DIGEST: This bill 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.
ANALYSIS: 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 provides
documentation indicating that extraordinary fiscal
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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. As a condition of receiving an exemption, a
school district shall do all of the following:
1)Provide a statement that substantiates the need for an
assigned and unassigned ending fund balance that is in excess
of the minimum recommended reserve for economic uncertainties.
2)Identify the funding amounts in the budget adopted by the
school district that are associated with the extraordinary
fiscal circumstances.
3)Provide documentation that no other fiscal resources are
available to fund the extraordinary fiscal circumstances.
(Education Code § 42127.01)
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.
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.
Background
As part of the 2014-15 Budget Act, the state enacted a new
requirement to cap school district reserves in years following a
deposit in the state school reserve established by Proposition
2. 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
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combined assigned or unassigned ending fund balance that is in
excess of the following:
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.
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.
Comments
Need for the bill. According to the author's office, some in
the education community have argued that the reserve cap imposes
a burden on school districts, in large part because it prevents
them from setting aside monies in a reserve for a future
specified purpose. The author's office indicates that this bill
is intended to address this issue by specifying that monies in a
committed fund balance are exempt from the cap. Further, using
committed fund balances instead of assigned reserves for this
purpose has several advantages, including an increase in
transparency because a school district governing board's action
to put funds into a committed fund balance occurs during a
public meeting of the board.
When will the reserve cap be triggered? The state must make
deposits into the Rainy Day Fund when certain conditions are met
to trigger the reserve cap for districts. Among these
conditions, Test 1 must be the applicable Proposition 98 test
level and the state must have paid off all maintenance factor
created before 2014-15. The Legislative Analyst's Office (LAO)
indicated in its 2015-16 Proposition 98 Education Analysis in
February 2015 that the interaction between these two
requirements makes deposits unlikely in the near term.
Additionally, the 2015-16 Governor's Budget Summary indicated
that "the Administration does not anticipate fiscal conditions
requiring a Proposition 98 Rainy Day Fund deposit and the
related potential for caps on local reserves at any point in the
budget forecast period (through 2018-19).
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LAO's assessment and recommendations on the cap. The LAO
released a report, "Analysis of School District Reserves" in
January 2015. In the report, the LAO provided its assessment
and recommendations on the reserve caps. Specifically, the LAO
indicated, "to the extent districts begin shifting monies to
avoid the caps, we are concerned that local budgeting practices
could become more confusing. To the extent districts begin
spending down their reserves, we are concerned that they would
incur a number of risks." The risks include difficulty for
school districts to maintain programs in tight fiscal times,
difficulty addressing unexpected costs, greater fiscal distress,
and higher borrowing costs. The LAO also indicated concern that
the caps become operative following any deposit into the state
school reserve, even if the size of that deposit is smaller than
the triggered reduction in local reserves. To avoid all of
these risks, the LAO has recommended the Legislature repeal the
reserve caps.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, there is no
anticipated fiscal impact as the provisions included in this
bill appear to be declaratory of existing law. The California
Department of Education indicates that costs related to
providing technical assistance to the field on this bill's
provisions would be absorbable.
SUPPORT: (Verified7/7/15)
Association of California School Administrators
OPPOSITION: (Verified7/7/15)
None received
ASSEMBLY FLOOR: 74-0, 5/22/15
AYES: Achadjian, Travis Allen, Baker, Bigelow, Bloom, Bonilla,
Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau,
Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,
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Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, Patterson, Perea, Quirk, Rendon,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Alejo, Jones, O'Donnell, Olsen, Waldron,
Weber
Prepared by:Lenin Del Castillo / ED. / (916) 651-4105
7/7/15 17:13:28
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