FAQs on the Sale of the Cabello Site and District Reserve Levels

FAQs on the Sale of the Cabello Site and District Reserve Levels

A Fiscal Stabilization Fund is a portion of a School District’s fund balance set aside through formal means pursuant to Governmental Accounting Standards Board (GASB) 54. In the case of New Haven, the adopted District board resolution, and most importantly, the approval from the State Allocation Board (SAB) serve as the formal agreement(s).

The establishment of the District’s Fiscal Stabilization Fund was made possible by the sale of the Cabello site and by Education Code 17463.7, which was a temporary relaxation of previous law regarding sale of unused school property. The District deposited $9.8 million from the Cabello sale proceeds in to the General Fund in order to establish the fund, and, subsequently, transferred to the Special Reserve Fund by Board Resolution No. 024-1920.

School funding is perilously dependent on the State economy. The District was in desperate need to be able to sustain itself, having gone through years of either zero cost of living adjustment, or deficit factors imposed by the State, massive cuts, and cash loans twice within a year just in order to make payroll.

The Fiscal Stabilization Fund was established for the purpose of stabilizing the District's fiscal condition and maintaining fiscal solvency, which the District was able to do without taking from General Fund dollars by way of the sale of Cabello property.
Selling unused school property is a complex process that has specific sets of requirements that must be met and steps that must be followed, and as required by law, except for price negotiations, which take place in closed session, the property sale was conducted in open session by way of public hearings and adoption of all required and relevant documents. The process undertaken by the District to sell the Cabello site started in 2012 and was finalized in 2015.

California went through a recession starting in 2008, and in order to meet financial obligations and comply with State required reserves, Districts up and down the State implemented various ways to reduce spending and looked for ways to enhance revenue locally, one of which is to sell unused property. Note: The Cabello property was closed (as an Elementary Site) in 2007.

Despite budget reductions implemented during the recession, including reduction or elimination of programs, expenditure freezes, increased class sizes, staff reduction, furlough days, salary cuts and freeze of step and column, the District from year to year was at risk of not meeting the State reserve requirement. This placed the District in the County watch-list as “fiscally troubled”, which was one step away to being negatively certified by the County.

In addition to these severe budget reductions that affected all employees and many District programs, the District also resorted to cash borrowing twice a year in order to make payroll and pay its bills. The District took out cash loans twice each year. One loan from the County Treasury, and the other in the form of Tax and Revenue Anticipation Notes (TRANs) to pay back the County Treasury; yes, the District was borrowing from Paul to pay Peter, due to repayment statutes and timelines. These loans have associated costs. The District did this for a few years in a row.

At one point, the District also borrowed from the Employee Retiree Trust Fund just to be able to close out the fiscal year with a balanced budget. The District was that desperate. The Retiree Benefit Fund was established in 1988 by the District in its effort to provide some level of support for health benefit costs to retired employees. The District continues to make annual contributions into the fund. This loan was interest-bearing and was mutually agreed with the Retiree Fund Trust Board.

  1. The net sale proceeds from the Cabello sale was $13.763 million. Below is the allocation breakdown, as approved by SAB:
    Up to $9.8 million to establish a 7% Fiscal Stabilization Fund
    (This is the line item deposited in to the General Fund. The excess of the calculated 7% in any given year is allocated to the Minimum Reserve Fund, thus providing relief to the General fund. To date the calculated 7% has not exceeded $9.8 million.)

  2. $2.8 million to pay for retiree benefit cost
    (Drawn down annually until fully spent. This line item is held in a separate fund and provides relief to the General Fund as well. The current remaining balance is approximately $918,000.)

  3. $1.163 million for capital facilities needs
    (Drawn down as needed until fully spent. This line item is held in a separate fund and allows for capital needs that are outside of or not approved as part of the Bond Measure. The current remaining balance is approximately $864,000)

Fourteen (14) school districts across the State were granted approval by SAB under EC 17463.7. Of the fourteen, almost all used portions of their sale proceeds for one-time purchase of books and supplies and capital facilities expenses. Below is additional information on the type of one-time need the fourteen Districts utilized the flexibility on:

9/14 Capital facilities expenses
9/14 Retiree Benefits
7/14 Services and other operating expenses
6/14 Books and supplies
3/14 Reserves
2/14 Restoration of furlough days
The Governing Board had the authority in determining the allocation of the full sale proceeds of the property, including the amount deposited into the General Fund for establishment of a Fiscal Stabilization Fund, as permitted by EC 17463.7. Pursuant to this code, that authority ended once SAB approved the allocation. Additionally, as that authority was created due to a legislative action (ABX4 2) that expired in 2016, redirecting use of the funds outside of what was approved by SAB places the District in legal jeopardy.
The District’s total reserve designation is 10%, of which 7% (up to $9.8 million) is Fiscal Stabilization and 3% for the State-required Reserve for Economic Uncertainties (REU).
The 3%, approximately $4 million, is required by the State for “Reserve for Economic Uncertainties” (REU), and while our Board Policy allows some flexibility in the use of some of this reserve designation under specific circumstances, the District does not meet the criteria to draw down any portion of this reserve level. For context, this 3% level of approximately $4 million is not adequate to pay the cost of one month’s payroll.

The District finances, including reserve level updates, as well as topic regarding the proceeds from the sale of Cabello and relevant updates are consistently included in the District’s periodic fiscal reports for Adopted Budget, First and Second Interim, and Year-End Unaudited Actuals, which are presented to the Board for approval.