Late allocations from the state are forcing districts to borrow more; officials say it wastes money on interest payments

 

BY DAYNA STRAEHLEY
STAFF WRITER
dstraehley@pe.com

Published: 29 May 2012 06:27 PM

Inland school and community college districts are borrowing more and paying more interest and fees because their state payments are arriving late, officials said.

The problem is that the late payments, called deferrals, are growing while districts’ cash reserves are shrinking after five years of state budget reductions.

“We’ve seen the deferrals get bigger and bigger every year,” said Stan Scheer, superintendent of the Murrieta Valley Unified School District.

To borrow $40 million, Scheer’s district is spending about $300,000 in interest and transaction fees, money that would otherwise go toward paying teachers and staff, painting classrooms or providing training to improve science and math instruction, he said.

The interest payments aren’t reimbursed.

Officials say the state is deferring allocations because it doesn’t have the cash and the state’s alternative would be to slash the payments.

Paying back the state’s debt to school districts is part of Gov. Jerry Brown’s plan if voters approve his tax initiative in November, they said.

Instead of the state borrowing to cover its own cash-flow shortages, it has forced about 1,000 school and community college districts to pay the interest and other costs to borrow, said Vince Christakos, vice president of the California Association of School Business Officials and chief business official for Hemet Unified School District.

Dennis Meyers, assistant executive director of governmental relations for the California School Boards Association, gave an example.

“Imagine your employer says you’re going to be paid $60,000 a year,” Meyers said. Then the boss says, “We’re going to give you your January and February paychecks in June.”

About a third of the monthly state payments due to school and community college districts aren’t even scheduled to be paid until the next fiscal year, he said.

That third is on top of payments coming months later in the same fiscal year. For example, payments due in July, August and October won’t be paid until January, said Ted Alejandre, assistant superintendent of business services in the San Bernardino County Superintendent of Schools office.

The state and school districts’ fiscal year begins July 1 and ends June 30.

School districts can spend the whole amount they’re supposed to get but have to borrow to cover what they won’t receive until later, he said.

The late payments and borrowing are growing.

For example, the Riverside-based Alvord Unified School District raised its borrowing authority from $15 million in 2010-11 to $20 million in 2011-12 and to $40 million in 2012-13.

The district is already spending $125,000 a year on interest, about the cost of two or three teachers or five or six classified workers, Superintendent Nick Ferguson said.

Sherry Mata, assistant superintendent for business services for Corona-Norco Unified School District, said districts are required to first look at borrowing from other internal accounts. Strict legal guidelines determine how much they can borrow from various accounts before they go to outside sources.

However, school districts are depleting their cash reserves, so they can’t borrow as much internally to cover cash flow, several officials said.

“Everybody has drained every nickel of cash they have,” Scheer said.

Most school districts spend about 90 percent of their budgets on people, mostly teachers, Meyers said.

BETTER THAN ALTERNATIVE

The Riverside Community College District will spend up to $60,000 to borrow up to $25 million this year and probably next, said Aaron Brown, associated vice chancellor of finance. But spending that much on interest and fees is better than cutting another $25 million from a general fund that’s now about $135,000, he said. Brown’s estimate included interest the college district has earned

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