Budget Season: A Scary Summer Thrill Ride
Each year the beginning of summertime marks the start of those time-honored events: students leave the classrooms for other adventures and their smiles seem slightly brighter, while school district boards and administrators contemplate the never-ending budget rollercoaster and their faces often reflect their concerns. This year is no different, as the fiscal horizon has both positive directions and challenging obstacles – it’s the roller coaster we’ve come to be accustomed to.
On June 20th, Governor Jerry Brown signed a state budget that offered schools a lot of good news, a welcome continuation of the turnaround that began last year. As signed, the 2014-2015 budget increased Proposition 98 funding $5.6 billion over last year’s funding level. It made progress toward paying down the “wall of debt” owed to schools in the form of mandate reimbursements and deferrals, and contained a trigger mechanism to retire more debt if revenues climb beyond current forecasts. But included in the budget were two provisions that have the potential to substantially undermine the fiscal stability of some districts.
Education trailer bill SB 858 will imposes a cap on school district reserves in any fiscal year that immediately follows a transfer to the Proposition 98 reserve fund. School officials have expressed concern that this cap may severely impair a district’s ability to adequately guard against economic surprises by maintaining a locally determined adequate reserve level. Effective if the Rainy Day Fund ballot measure passes in November, most local districts would be prohibited from having reserves in excess of twice the minimum recommended reserve amount. If the minimum for the average school district is a 3% reserve, this new law will set 6% as the statutory maximum for most districts, the equivalent of fewer than three weeks of operational funding.
The budget also includes a plan to increase funding to erase the $74.4 billion shortfall in the State Teachers’ Retirement System. The plan includes phased-in contribution increases for the state, teachers and school districts, with school districts paying the largest part of the increase. Over the next seven years, districts will see their contribution rates go from 8.25% of payroll to 19.1%. While the shoring up of the Teachers’ Retirement System is a necessary step, it will impose a new pressure in schools budgets as the contribution amount rises over the next seven years.
In combination, these two laws have the potential to undermine the fiscal stability of certain districts, even as the overall state budget picture for schools improves. As we have since our inception in 1972, Keenan will continue to present California school districts with the proven solutions that maintain your fiscal stability and preserve our most valuable resources: California’s public education system and the education of our youth.