Question: The CTA is making public that our 4% economic uncertainty reserve is "recommended" . Could you direct me to where I can cite reference that the 4% is "required"

Response: The word "required" is not found when reviewing reserve requriements in the Education Code. Instead, reserves are a portion of the standards and criteria review that county offices perform when reveiwieng and subsequently approving or disapproving district budgets and/or interim reports. The reserve component is usually one of the most significant requriements becasue if the dsitrict cannot show that the reserve can be maintained in the current year and also in subsequent years, the county office will note that fact and certifiy the dsitrict's fiscal records accordingly.

The FCMAT Web Site contains a guide describing AB 1200 and related responsibilities which explain in detail criteria and standards and also education codes that would assist in explaining reserve requirments to boards, unions, staff and other community members. It explains in detail that fund balances are only one peice of the requriement, even though it is a very important one. The criteria and standards in total is what drives decisions at the county level.

Some important code sections to know when describing the requirements include:

Education Code 33127: The Superintendent of Public Instruction, the Cntroller, and the Driector of hte Department of Finance were to develop on or before March 1, 1989, standards and criteria to be reviewed and adopted by the State Board of Educsation to be used by local educational agencies in the development of annual budgets and the management of subsequent expenditures from the budget. The standards and criteria to be adopted were to include cmparisons and reviews of the following:

average daily attendance

revenues and expenditures

reserves and fund balance

multi year committments

Education code 33128: Becomes operative on July 1, 2004, and will replace code section 33127, but still lists the same comparisons and reveiws.

Education Code Section 42124: States "The budget may also contain an amount to be known as the general reserve in such sum as the governing board may deem sufficient, for the next succeeding fiscal year, to meet the cash requirements to which the district's credit may be legally extended for that portion of said next succeeding fiscal year until adequate proceeds of the taxes levied for, or apportionment of state funds made to, the district during such succeeding fiscal year are available to the district."

In addition, Education Code section 42125 states that "The budget may contain amounts to be known as the designated fund balance, which may be designated for any specific purpose as determined by the governing board of the school district, and the unappropriated fund balance. These funds shall be available for appropriation by a majority vote of the members of the governing board, to cover expenditures that have not been provided for or that may have been insufficiently provided for, or for unforeseen requirements as they may arise."

6/13/04