Laguna school board backs bill to alter financial reserves rules

A state Assembly bill that would exempt school districts from adhering to a cap on their financial reserves under certain circumstances received support in Laguna Beach on Tuesday.

The Laguna Beach Unified School District board unanimously voted to support AB 235, recently introduced by Assemblyman Patrick O'Donnell (D-Long Beach).


The law would amend California's education code to, among other changes, alter the trigger when a cap goes into effect.

The bill passed in the Assembly Education Committee on Wednesday. Rick Pratt, the education committee's chief consultant, said the bill now moves to the Assembly Appropriations Committee.


In June 2014, California enacted a law that capped school district general fund reserves if, during the previous year, the state had deposited money into its own reserve fund for schools, according to a 2015 state Legislative Analyst's Office report.

The primary purpose of the state school reserve, known as the Public School System Stabilization Account, is to provide a state-level, rainy-day fund to protect schools against a falloff in revenues.

Currently, the cap would go into effect the year after a transfer is made into the PSSSA regardless of the amount of that transfer.

Under O'Donnell's bill, a cap would go into effect a year after funds in the PSSSA are equal to or exceed 3% of the total general fund revenues appropriated for school districts.

"If only a small amount is transferred, [the PSSSA] would provide little protection against an economic downturn," according to Pratt's analysis of the bill.

To date, the cap has not been triggered.

The bill would also exempt basic aid districts, like Laguna, from having to adhere to cap requirements. Basic aid districts keep the money from local property taxes and still receive the constitutionally guaranteed basic state funding.

Laguna receives most of its revenue from property taxes, which are distributed twice a year, according to a district staff report.

The local district doesn't want to be hampered in contributing to its reserve fund because of the vagaries of the housing market.

The board sent a letter to O'Donnell that said: "Large swings in property tax revenues, like we saw during the recent housing-driven recession, can significantly impact our district.... Community-funded school districts have no safety net when property tax revenues — their main source of funding — fall short."

Caps vary according to district size, the Legislative Analyst Office report said.

School districts use assigned and unassigned reserves to set funds aside for possible future use, according to Pratt's analysis.

Unassigned reserves are typically used for economic uncertainties, while assigned reserves are earmarked for specific future spending, such as for instructional materials.

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