BILL ANALYSIS
SB 1136
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Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1136 (Cox) - As Amended: August 2, 2010
Policy Committee: Education Vote:9-0
Urgency: Yes State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill limits the amount of GF/98 funding the state can defer
within a fiscal year (intra-year deferrals) from small school
districts and sunsets this limitation on September 1, 2011, as
specified. Specifically, this bill:
1)Defines small school districts as those with an average daily
attendance (ADA) equal to or less than 500 (excluding charter
school ADA) for the 2009-10 principal apportionment.
2)Prohibits a small school district's apportionment deferral
from exceeding $225 multiplied by the 2009-10 principal
apportionment ADA, at any time during the fiscal year (FY).
This bill further establishes this prohibition only applies to
deferrals within a single FY.
3)Specifies the provisions of this bill are not meant to
increase the deferral amount of any other local education
agency (LEA) to meet the statewide deferral amount specified
in existing law.
FISCAL EFFECT
If a small school district's apportionment deferral does not
exceed $225 per ADA, there are increased GF interest costs, of
approximately $180,000. This assumes the state would need to
borrow an additional $9 million for up to six months at a rate
of four percent. Approximately 300 school districts with a
combined ADA of 55,667, which equals 0.93% of total state ADA (6
million), qualify under the provisions of this bill.
COMMENTS
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1)Background . Due to the state's fiscal crisis, cash management
at the state level has become key to balancing the budget. In
order to have more cash on hand, the state enacted a series of
apportionment deferrals for school districts and local
governments in the 2008-09 FY. These deferrals are scheduled
to continue, with some changes, into the 2010-11 FY.
The state has enacted two types of deferrals: inter-year
(across FYs) and intra-year (within the FY). Inter-year
deferrals defer payments required to be made in one FY to the
subsequent FY. For example, in 2003-04, the state moved the
second principal apportionment payment for K-12 schools from
June 2003 to July 2004. This enabled the state to score
approximately $1.1 billion in one-time GF/98 savings.
Intra-year deferrals defer state payments within a FY. For
example, prior to the enactment of the cash management
legislation in the 2008-09 FY, the state paid school districts
at several points in the year, with large allocations
occurring in July, October, and March. Legislation enacted in
2009-10 deferred these payments to later in the same fiscal
year, which allows the state to conduct less internal
borrowing for the purposes of having available cash.
2)Purpose . In order to mitigate the deferral of state
apportionment payments, school districts have enacted internal
borrowing measures or borrowed from outside sources, such as
the county office of education, the county treasurer, or
issuing tax and revenue anticipation notes, to remain solvent.
According to the Small School District Association (SSDA),
sponsor of this bill, "Very small school districts have very
small budgets and do not have the internal borrowing resources
similar to large school district. Internal borrowing can come
from developer fees accounts, school bond capital accounts,
and other accounts within a school district such as general
funds. The internal borrowing has to be repaid by the end of
the year but does provide a significant source of cash flow
and flexibility for school districts. Small school districts,
however, do not have the same internal resources for cash flow
borrowing nor do their counties. They typically do not have
short term lines of credit with local banks because there are
no local banks. Consequently, to meet the current potential
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deferral these school districts must make further reductions
in their educational programs in order to have borrowable
resources to meet the cash flow requirements of paying
contracts and salaries during the time of deferral."
3)Existing law . AB 5 X8 (Budget Committee), Chapter 1, Statutes
of 2009 and AB 14 X8 (Budget Committee), Chapter 10, Statutes
of 2009, established intra-year and inter-year deferrals for
K-12 apportionment payments and other local government
payments for the 2009-10 and 2010-11 FY.
Statute authorizes intra-year deferrals of K-12 apportionments,
not exceeding $2.5 billion at any given time that must be paid
back by April 29, 2011. The following chart displays the
intra-year deferrals enacted for the 2009-10 and 2010-11 FYs.
-----------------------------------
| | |
| 2009-10 FY | 2010-11 FY |
| | |
|-----------------+-----------------|
| | |
| July to October | July to |
| | September |
| | |
|-----------------+-----------------|
| | |
| August to | October to |
| October | January |
| | |
|-----------------+-----------------|
| | |
| October to | March to May |
| December | |
| | |
|-----------------+-----------------|
| | |
| November to | |
| January | |
| | |
-----------------------------------
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In addition to the intra-year deferrals, AB 14 X8 permanently
rescheduled K-12 revenue limit and categorical program
payments to provide five percent payments in July and August
and nine percent payments for all remaining months in the
fiscal year. This change will better align K-12 funding with
local program expenditures and provide more predictable GF
allocations at the state level. Current law sunsets the
authorization for intra-year deferrals on September 1, 2011.
Existing law exempts small local governments from intra-year
deferrals in the 2010-11 FY. For the purposes of this
exemption, small cities and counties are defined as having
populations of less than 50,000.
This bill limits the amount of K-12 apportionments deferred
from small school districts as part of intra-year deferrals,
as specified.
4)Is this bill necessary ? AB 14 X8 authorizes school districts
to seek a hardship waiver if they did not receive
apportionment payments as part of the intra-year deferrals, as
specified. In order to qualify for this waiver, the county
superintendent of schools is required to certify to the
Superintendent of Public Instruction and the Department of
Finance (DOF) that the school district is unable to meet its
expenditure obligations for the time period of the deferral.
According to DOF, eight school districts received a waiver.
This existing waiver process continues until September 2011.
The committee may wish to consider whether or not this bill is
needed, given a waiver exists in current law.
5)K-12 principal apportionments . Approximately 80% of state
payments to school districts are distributed through the
principal apportionment system. Under this system, school
districts receive payments for 21 programs, with funding
distributed according to monthly payment schedules set by law.
The apportionment schedule for most school districts is
generally uniform throughout the year, but has smaller
payments in July and larger payments in August and February.
(Current law also authorizes two alternative payment schedules
that provide larger payments in the beginning of the fiscal
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year. These schedules are used for small school districts that
receive a large percentage of their funding from property
taxes and, therefore, are more cash poor at the beginning of
the fiscal year.)
State revenue limit payments, which provide general purpose
funding for districts, represent about 80% of the principal
apportionment payment. In addition, current law requires that
15 specified categorical programs be paid using the principal
apportionment system. At its discretion, SDE makes payments
for five other categorical programs through the principal
apportionment.
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081