Santa Cruz County Could Lose Its Funding Reserve in Five Years

The Santa Cruz County Office of Education is worried that the finance reform bill signed into law by Governor Jerry Brown could see the agency running at a deficit within only five years. J.M. Brown of Santa Cruz Sentinel is reporting that SCCOE will be unable to fully fund the operation of the 10 districts it oversees by the 2018-19 academic school year unless it is allowed to either implement cuts or seek new ways to increase its revenues.

SCCOE's associate superintendent for business services Mary Hart said that the agency plans to find a way around the problem, but so far no specifics of that plan have been made available. Among the possible candidates for cuts could be some teacher training programs, science fairs and other offerings that are not required by state law.

While districts around California were trying to keep the lights on while dealing with severe budget deficits, SCCOE was the envy of the state because of its hefty financial reserves. However, the new school funding formula signed into law by Brown would draw funding away from county offices and move it directly to school districts – especially those that serve a high number of low-income and non-English-speaking students.

County education officials told the grand jury frugal management combined with the ability to sweep restricted funds loosened by the state allowed them to amass a strong reserve, which in 2011 reached a level equivalent to 47 percent of its general fund budget. The enormous savings account along with the agency's decision to buy two new buildings at a time when district budgets were shrinking stirred ire among local educators and led to the grand jury investigation that recommended several reform measures.

The COE, which by its own account has spent at least $1.5 million on aid to districts in recent years, is expected to draw reserves down to 28 percent by June 2014 — $12.8 million out of $44.6 million in expenses. Hart said the office will maintain a state-mandated reserve of 3 percent, but a new flat-funding rule from Sacramento combined with rising costs for salaries and benefits will result in a negative fund balance within five years.

The grand jury called on the office to better manage its reserves, but the whole issue could become moot thanks to the new funding formula, according to County Superintendent Michael Watkins. Watkins believes that the county will lose most of its control over funding decisions going forward.

Although the report issued by the 19-member grand jury praised SCCOE's fiscal restraint, it still questioned if the large reserve was truly justified.

The panel's recommendations were to "adopt a policy establishing parameters for the amount of a reserve to maintain" and "establish well-defined procedures and policies regarding financial support to school districts."

The grand jury's forewoman, Lise Peterson, said the panel did not intend to suggest a maximum reserve level. Rather, the group simply urged the COE to better communicate with the public about how it would manage its savings account in the future.

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