State forces schools to shift money around to pay bills

By Kevin Crowe | inewsource

Like families trying to make ends meet in a down economy, years of deferred payments from the state have forced school districts to get creative with their accounting.

San Diego Unified, for example, has borrowed out of workers’ compensation and construction funds to keep the lights on. It paid at least $4.7 million in interest last year on short-term bonds to cover operating expenses.

In south county, Sweetwater Union High School District is paying teacher salaries and busing students with money it has borrowed from accounts meant for new school construction and maintenance.

The districts will be able to pay that money back — with interest — when the state comes through with money it’s obligated to provide.

“It’s like saying, your checking account is short, so you move money over from your savings account to your checking account,” said Rick Knott, Interim Chief Financial Officer for Sweetwater. “Only for school districts, we have different funds.”

Knott said by June 2013, the state will owe Sweetwater $47 million.

The state began deferring payments to districts — postponing them, in effect — back in 2001. Like most bad habits, it started with a small step in the wrong direction.

Eleven years ago, state legislators moved a small number of payouts to schools from June to July, pushing them into the next fiscal year. Lora Duzyk, the assistant superintendent for business services with the San Diego County Office of Education, said the shift allowed the state to pass a balanced budget, but it started a trend.

“When the budget crisis hit in 2007-2008, the state started running into cash problems and they remembered they had the ability to do this,” she said.

The state’s action forces districts to regard their budgets like a game of chess – figuring out which fund to raid and which one has to be paid back first, she said.

Many school districts have cash reserves in a number of different accounts, and to cover the shortfall waiting for the state money, districts use those reserves to cover daily operating expenses.

But the reserves aren’t always enough, so some districts issue short term bonds to cover daily expenses, a move that can cost millions of dollars in interest payments and administrative fees.

“Borrowing from your own funds is the cheapest form of borrowing that you can get,” Duzyk said. “It saves districts money if they have the capacity to borrow within their own funds and pay back.”

A couple years ago, the Sweetwater got in trouble for borrowing money from a building fund to pay its operating expenses and not paying it back on time. That was the beginning of the scrutiny and scandal that have since befallen Sweetwater’s finances.


It is no longer able to borrow from its building fund, known as Prop. O  – but it is borrowing from other funds including its Mello-Roos account. That money, accumulated through special fees paid by homeowners, is supposed to pay for tangible items like schools, buses and computers.

The county department of Education says districts can borrow from Mello-Roos funds if they pay it back with interest and if the district has legal control over the funds.

Knott said, “As long as the [Mello-Roos] fund is made whole for any economic loss it would have suffered, like the interest, there’s no consequence to that.”

Sweetwater has enough in those accounts so it doesn’t have to issue the types of bonds San Diego Unified and others have resorted to.

Duzyk and other administrators hope that the voter-approved Prop. 30, the initiative that raises taxes to fund schools, will enable the state to start making good on its promise to pay districts on time.

Still, Knott said he isn’t holding his breath waiting for cash to flow from state coffers. He’s got plenty of questions for state lawmakers about next year’s budget, and where it will leave districts like his.

“Prop 30 meant that the state stopped digging our hole any deeper. It didn’t fill in the hole,” Knott said. “We’re still in the hole, and they’re still standing there with a shovel in their hand so they can resume digging any time that they want.”

Joanne Faryon, of KPBS, contributed to this report.

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About Lorie Hearn

Lorie Hearn is the founder and executive director of inewsource.

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