Up to $2.5 billion in State Payments to Public Schools Delayed

Over the objections of public schools, the Assembly narrowly passed a bill February 25 that would allow the state to postpone up to $2.5 billion in payments to kindergarten through Grade 12 districts between July 2010 and March 2011.

Public schools, which have shouldered $14 billion of the $35 billion in spending reductions approved by lawmakers and Gov. Arnold Schwarzenegger over the past two years, already have $5 billion in state payments to them deferred — $2 billion due in February but paid in July, $1.7 billion due in April and May pushed to August and $1.4 billion payable in June pushed to July.

Local districts worry that if cash from the state comes late, they could default on short-term loans they use to smooth out the ups-and-downs of their cash flow.

“Schools are already cash-starved,” Mike Ricketts, a lobbyist for the California County Superintendents Educational Services Association, told a special Assembly committee debating the bill, ABX8 5. “Under existing deferrals that aren’t subject of this bill $2 billion that grows to $5 billion that is not paid the schools by June.”

Under the bill, which squeaked out of the Assembly on a bare two-thirds 54 to 14 vote, up to three payment deferrals to schools can be made in the fiscal year that begins July 1. If the state has adequate cash flow, no deferrals would occur.

If deferrals do occur, no more than $2.5 billion can be outstanding at one time.

Payments due schools in July, October and March 2011 could be postponed 60, 90 and 60 days, respectively.

Dennis Meyers, a lobbyist for the California Association of School Business Officials, asked that the deferral window be limited to 30 days to make it easier for districts to plan their cash flow needs.

“We need clarity and definitive timelines and dates,” Meyers testified. “It would be very helpful to know the specific amount of money.”

The bill, which the GOP governor is expected to sign, also defers payments to cities and counties as well as some state agencies to improve the state’s cash flow and allow it to pay bills instead of issue IOUs as it was forced to do last year.

Payments to counties and cities with populations of 50,000 or less would be exempted from payments delays. So would small vendors.

Fifteen of California’s 58 counties have populations under 50,000 including Calaveras, Lassen, Mono, Plumas, Siskiyou and Trinity.

Included on the list for payment deferral is the University of California, California State University and community colleges, which will have $300 million in payments postponed under the bill.

“We’re already wrestling with $1 billion in deferrals. That’s 17 percent of our funding,” said Eric Skinner, a lobbyist for the state’s 110-campus community college system. “This delay, which could be as long as a month, would put 25 of our community colleges at risk of defaulting on their (borrowing) agreements.”

Assemblywoman Noreen Evans, a Santa Rosa Democrat who chairs the lower house’s budget committee, told educators the problems would be resolved in subsequent legislation before passing the deferral bill out of her committee to the Assembly floor. 

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