March 7, 2024

Dear County and District Superintendents, Chief Business Officials:

Notification of School District Reserve Cap Requirements

 2024–25 Fiscal Year

As a result of the balance in the Public School System Stabilization Account, the statutory limitation on school district reserves continues to be in effect for the 2024–25 budget period, pursuant to Education Code (EC) Section 42127.01(e).

The district reserve cap requires that a school district’s adopted or revised budget pursuant to EC Section 42127 shall not contain a combined assigned or unassigned ending general fund balance of more than 10 percent of those funds. Assigned and unassigned balances within the Special Fund for Other than Capital Outlay shall also be included within the 10 percent reserve cap.

The reserve cap requirement does not apply to small school districts or basic aid school districts pursuant to ECSection 42127.01(c), defined as follows:

• Small School Districts: Average daily attendance of fewer than 2,501 pupils.

• Basic Aid Districts: Local property taxes are greater than Local Control Funding Formula Entitlement, less funding for Categorical Minimum State Aid, pursuant to EC Section 42238.02(o).

A county superintendent of schools may grant a school district under its jurisdiction an exemption from the requirements for up to two consecutive fiscal years within a three-year period if the school district provides documentation indicating that extraordinary fiscal circumstances, including, but not limited to, multiyear infrastructure or technology projects, substantiate the need for a combined assigned or unassigned ending general fund balance that is in excess of the reserve cap, pursuant to EC Section 42127.01(b).

As a condition of receiving an exemption from the county superintendent of schools, school districts must do the following:

1. Provide a statement that substantiates the need for a combined assigned and unassigned ending general fund balance that is in excess of the reserve cap.

2. Identify the funding amounts in the adopted or revised budget that are associated with the extraordinary fiscal circumstances.

3. Provide documentation that no other fiscal resources are available to fund the extraordinary fiscal circumstances.

If you have any questions, please email the Fiscal Oversight and Support Office at sacsinfo@cde.ca.gov.

Sincerely,

/s/

John Miles, Administrator
Fiscal Oversight and Support Office

Last Reviewed: Friday, February 14, 2025