2025-108 California Community Colleges Reserve Funds

Recommendations to the Legislature

Recommendation 1

To ensure that community college districts transparently disclose and substantiate
their reserves, the Legislature should consider requiring, similar to elementary and
secondary school districts, each community college district to include the following
in its annual budgets:

• The minimum and maximum recommended reserve amounts established by that district.
• The combined assigned, unassigned, and committed ending fund balances that fall short of the minimum or exceed the maximum reserve amounts established by that district.
• A statement of reasons that substantiates the need for a projected ending fund balance that falls short of the

Recommendation 2

To ensure that districts develop and implement plans to spend funds that exceed
their reserve goals, the Legislature should direct the Chancellor’s Office to do
the following:

• Ensure that districts develop risk‑based reserve policies.
• Review a selection of districts’ reserve policies and supporting analyses every year to ensure that it agrees with the district’s minimum and maximum reserve levels.
• Annually review appropriate data to ensure that districts adhere to their own reserve policies.
• Develop a mechanism, such as requiring quarterly reporting, establishing spending timeframes, or appointing a special trustee, by which to require districts to develop plans to spend unrestricted funds that exceed their reserve goals.

Recommendation 3

To ensure that districts appropriately implement spending plans for excess reserves, the Legislature should direct the Board of Governors to establish a policy to require the Chancellor’s Office to adjust a district’s apportionment in subsequent years if the Chancellor’s Office determines that the district did not develop a maximum reserve policy, did not develop a spending plan for excess reserves, or did not implement its spending plan for a duration of three consecutive years.

Recommendations to the CA Community Colleges Chancellor’s Office

Recommendation 4

To ensure that it can consistently and accurately monitor districts’ fiscal stability, the Chancellor’s Office should, effective immediately, revise its calculation of the districts’ reserve percentages to reflect their unrestricted general fund balances as a
percentage of their total general fund expenditures, as stated in its guidance.

Recommendation 5

To ensure that districts maintain appropriate levels of reserves, the Chancellor’s Office should, by January 2027, develop a process to monitor districts’ reserve levels annually. If a district falls below its minimum or exceeds its maximum reserves, the Chancellor’s Office should require the district to provide a plan to bring its reserve levels within those required by the district’s policy.

Recommendation 6

To ensure that districts develop and implement comprehensive risk-based reserve policies, the Chancellor’s Office should, by January 2027, develop a process to require all districts to conduct a risk-based assessment of their reserve needs and develop or revise their reserve policies and procedures to quantify the minimum and maximum reserves they should maintain.

Recommendation 7

To ensure that districts develop and implement comprehensive risk-based reserve policies, the Chancellor’s Office should, by January 2027, develop a process to require all districts to specify the reason for the reserve limits they set, the circumstances under which they can use reserves, and the actions they will take when reserves fall short of or exceed the designated reserve range.

Recommendation 8

To ensure the sufficiency of districts’ reserve policies, the Chancellor’s Office should, by January 2027, develop a process for reviewing these policies to determine whether they are reasonable and whether the districts have performed risk analyses to support them.

Recommendation 9

To ensure that districts comply with its guidance and report accurate financial information, the Chancellor’s Office should, by January 2027, develop comprehensive policies, procedures, and practices for monitoring districts’ financial reporting, including ensuring that the districts maintain and report accurate and consistent financial records. Policies, procedures, and practices should include verifying that revenue, expenditures, fund balances, and classifications of fund balances that districts report in their adopted budgets are consistent with those they report in their fiscal reports to the Chancellor’s Office.

Recommendation 10

To ensure that districts comply with its guidance and report accurate financial information, the Chancellor’s Office should, by January 2027, develop comprehensive policies, procedures, and practices for monitoring districts’ financial reporting, including ensuring that the districts maintain and report accurate and consistent financial records. Policies, procedures, and practices should include verifying that revenue, expenditures, fund balances, and classifications of fund balances for all fund types that districts report in their audited financial statements are consistent with those that they report in their annual fiscal report to the Chancellor’s Office.

Recommendation 11

To ensure that districts comply with its guidance and report accurate financial information, the Chancellor’s Office should, by January 2027, develop comprehensive policies, procedures, and practices for monitoring districts’ financial reporting, including ensuring that the districts maintain and report accurate and consistent financial records. Policies, procedures, and practices should include that to the extent that the Chancellor’s Office identifies reporting inaccuracies or inconsistencies, it should notify the district and require it to correct the errors.