New legislation would defer billions in payments to schools next year

SEE PUBLIC COMMENTS BELOWJust days after California's striking $16 billion budget deficit attracted national attention, lawmakers moved ahead Tuesday on legislation that would protect the state's cash flow next year by deferring $3.5 billion in payments to schools during the 2012-13 fiscal year.

The bill, AB 103, would authorize the payment delays to schools, as well as deferring hundreds of millions more due local governments and the state university system.

Officials said all of the steps are likely to be taken even if voters approve the governor's tax measure in November.

Members of the governor's staff said the deferrals are consistent with cash management schedules employed over the past two years and need to be adopted now to give local officials time to make their own adjustments.

The whole idea that we are asking for the bill now, as opposed to June 15 or some other time during the fiscal year, is to allow schools to plan and adjust their own cash flow borrowing," Michael Cohen, chief deputy director of the governor's Department of Finance told members of the Assembly budget committee Tuesday.

"The point of our cash management is that we can pay our bills when they come due," he said. "This will allow the entire fiscal structure to work."

The new deferral plan is unlikely to surprise many school administrators, who have struggled to deal with the increasingly common practice.

Gov. Jerry Brown had hoped to be in a position to begin paying back some of what the state owes schools, but given the magnitude of the problems the state still faces he said Monday he has few options.

Indeed, the non-partisan Legislative Analyst reported earlier this year that during the 2011-12 fiscal year, the total K-12 inter-year payment deferrals increased from $7.4 billion to $9.5 billion - roughly 20 percent of the Proposition 98 payments - with some being delayed by as much as nine months.

Coupled with four years of big funding cuts by the state, the payment delays have forced most districts to seek short term loans to cover the shortfalls - creating a debt burden that is becoming increasingly difficult to carry.

Just last week, the state's watchdog on school finance - the Fiscal Crisis Management Assistance Team - forecast that the number of districts in California at risk of insolvency would reach a record number this year.

The bill, which won passage out of the state Senate last week, is now ready for a concurrence vote on the Assembly floor - likely to take place in the coming days.

Republican lawmakers, whose support is not needed to pass the bill, have criticized the plan.

"We've generally been supportive over the years of the deferrals," said Jim Nielsen, R-Biggs. "There's a need to address cash flow and the borrowing has been helpful. But it's getting to be too much of a habit and there needs to be something of a hold.

"We would argue that action on some of the governor's cuts should have been taken earlier this year, instead of waiting and hoping," he said.

As proposed, the bill would put into motion a series of deferrals and repayments where no more than $1.9 billion would be held back from schools at any time.

The moves would begin in July, when $1.2 billion would be deferred. In August, another $600 million would be held. In September, $700 million of the outstanding payments would be paid back. And in October, another $800 million would be deferred.

In January 2013, the state would return $1.9 billion. Then, a $900 million payment due in March would be delayed until April.

There is an even bigger deferral being contemplated if voters approved the governor's tax measure in November. As part of the revised May budget, Brown has committed to paying back $2.6 billion of the $9.5 billion in total payment deferrals.

But, based on a scheduled released by the Department of Finance this week, that repayment is not likely to happen before May or June of 2013.

PUBLIC COMMENTS:

From Kathleen Daugherty, superintendent, Newcastle Elementary School District

It is sad the Legislature has adopted the same attitude as Popeye's friend, J. Wellington Wimpy, who promised: "I will gladly pay you Tuesday for a hamburger today." That doesn't work with electrical companies, phone, water, garbage, transportation, Internet, publishers, not to mention our employees who have to make payments for rent and food. We are staffed at the minimum, ask parents to "donate" classroom supplies, and even pick up the cost of daily custodial through fundraisers. I am not sure what else we can do, or how we can operate if we can't pay for the basic necessities. I guess I am happy our buildings are in relatively good repair, as we will not be able to fix them without funding.

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