BILL ANALYSIS
SENATE COMMITTEE ON EDUCATION
Gloria Romero, Chair
2009-2010 Regular Session
BILL NO: SB 1136
AUTHOR: Cox
AMENDED: March 22, 2010
FISCAL COMM: Yes HEARING DATE: April 14, 2010
URGENCY: Yes CONSULTANT:Daniel Alvarez
SUBJECT : Education finance: revenue limit apportionment
deferrals.
KEY POLICY ISSUE
Should small school districts, like small counties, be
provided relief from scheduled apportionment deferrals?
SUMMARY
This bill, an urgency measure, limits the amount of revenue
limit funding that can be deferred -- not to exceed the level
of the school district's required reserve for economic
uncertainty -- if a school district meets specified criteria.
BACKGROUND
Current law (ABX8 14, Chapter 10, Statutes of 2010), relating
to Local Educational Agencies (LEA's) and the deferral of
apportionment funding:
1) Specifies that LEA's shall have up to a total of $2.5
billion in statewide revenue limit apportionment funding
deferred during the 2010-11 school year; with a maximum
of three deferrals during the fiscal year. The first
possible deferral is scheduled for July 2010. However,
the latest any funding deferral can take place would be
March 2011; in this instance the deferral would be paid
by April 29, 2011.
2) Requires that by March 31, 2010, the State Treasurer,
State Controller and the Director of the Department of
Finance determine and jointly provide a written
declaration to the Legislature and the California
Department of Education (CDE) about the amount and
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timing of K-12 apportionment deferrals in 2010-11. The
CDE is required to convey this information to school
districts, county offices of education and charter
schools.
3) Authorizes limited exemptions from the deferral for
LEA's where the county superintendent of school
certifies to the State Superintendent of Public
Instruction (SPI) and the Director of Finance by May 15,
2008, that the deferral would result in the LEA
qualifying for an emergency apportionment.
Current law, ABX8 14, Chapter 10, Statutes of 2010, specifies
that various state payments to local governments may be
deferred up to three times during 2010-11, with no more than
$1 billion being deferred at any point in time. In addition,
current law exempts counties with a population less than
50,000 or a city within a county with a population less
50,000 from any deferral of funding.
ANALYSIS
This bill :
1) Limits the amount of revenue limit apportionment funding
that can be deferred to not exceed a school district's
required reserve for economic uncertainties, if a school
district meets specified criteria.
2) Specifies that the limitation on the deferral is
activated if the school
district meet either of the following criteria:
a) The school district's average daily attendance
(ADA), excluding
charter school ADA, for the prior year second
apportionment is equal or less than five hundred.
b) The school district's annual general fund
revenues are less than
$5 million.
STAFF COMMENTS
1) Need for the bill : According to the author, small
school districts do not have internal borrowable
resources similar to larger school districts. Small
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school districts do not have the same internal resources
for cash flow borrowing nor do their counties.
Consequently, to meet the deferral these school
districts must make further reductions to 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.
2) The State's cash flow Issues . The purpose of the
deferrals, among other things, is (a) to improve the
State's cash position throughout the 2010-11 fiscal
year, (b) provide a higher level of certainty to state
bondholders, (c) preserve external borrowing
capacity and affordability for the State's bond
programs, and (d) provide a level of predictability to
affected programs and entities where deferral or delays
are required.
3) Workable options for school districts - typically based
on size . To alleviate cash shortfalls, many school
districts consider the following options:
a) Interfund borrowings . Current law provides
that moneys held in any fund or account may be
temporarily transferred to another fund or account
for payment of obligations, with certain
limitations, such as repayment of any transferred
funds in the same fiscal year, or in the following
fiscal year if the transfer takes place within the
final 120 calendar days of a fiscal year.
(Education Code 42603)
b) Short-term borrowings from external sources .
If it is not possible to alleviate temporary cash
shortfalls by interfund borrowing, it may be
necessary for LEAs to borrow funds on a short-term
basis from external sources. Following are some
possible sources:
Tax Revenue Anticipation Notes .
Tax Revenue Anticipation Notes (TRANs) are
short-term, interest bearing notes issued by
a government in anticipation of tax revenues
that will be received at a later date. The
notes are retired from the tax revenues to
which they are related. Many LEAs issue
TRANs for cash flow management purposes
every year.
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County Office of Education .
Current law authorizes county offices of
education to loan funds to school districts.
The funds must be repaid either within the
fiscal year or within the next fiscal year,
depending on the type of loan that is
granted. Certain other restrictions apply,
as indicated in the applicable statutes.
Such loans are discretionary and are subject
to availability of funds at the county
office level. (EC 42621 and 42622)
1) School district reserves for economic uncertainties. As
part of the 2009 Budget Act package the required reserve
for economic uncertainties in fiscal year 2009-10 was
reduced to one-third of the percentage in the Criteria
and Standards adopted by the State Board of Education
(EC 33128, as of May 2009). School districts are
required to make progress in returning to compliance
with the Criteria and Standards during the 2010-11
fiscal year. Compliance with the requirements for a
reserve for economic uncertainties must be fully
restored during the 2011-12 fiscal year.
2) Qualifying for an emergency apportionment . If a school
district governing board determines during a fiscal year
that it has insufficient funds to meet its current
obligations, it may request an emergency apportionment
loan. Statute specifies legislative intent that
emergency apportionment loans are to be provided only
through a legislative appropriation.
Statutory oversight conditions for acceptance of a loan
vary depending on the amount of loan. Generally, if a
loan is less than 200 percent of a district's
recommended reserve, then; (1) the SPI appoints a
trustee to monitor and review the operations of the
district, and (2) the school district governing board
shall retain governing authority but the trustee shall
have the authority to stay and rescind any action of the
local district governing board that, in the judgment of
the trustee, may affect the financial condition of the
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district.
However, if an emergency loan exceeds 200 percent of the
amount of the district's recommended reserve, then; (1)
the SPI shall assume all the legal rights, duties, and
powers of the governing board of the district; (2) SPI
shall appoint an administrator to act on behalf of the
SPI; (3) the school district governing board shall be
advisory only and report to the state administrator; and
(4) the authority of the SPI and state administrator
shall continue until certain conditions are met. At
that time, the SPI shall appoint a trustee to replace
the administrator.
The authority of the SPI and the state-appointed trustee
shall continue until the loan has been repaid, the
district has adequate fiscal systems and controls in
place, and the SPI has determined that the district's
future compliance with the fiscal plan approved for the
district is probable.
1) Suggested amendment . In order to ensure that every
district utilizes all available revenue at its disposal
to effectively address cash flow issues at the local
level, staff recommends the following technical
amendment that on page 2, line 13 the term "general
fund" should be replaced with "total" in reference to
revenues.
SUPPORT
California Teachers Association
Camino Union School District
Central Valley Education Coalition
Leggett Valley Unified School District
Mendocino Unified School District
Riverside County Schools Advocacy Association
Shandon Joint Unified School District
Small School Districts' Association
OPPOSITION
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None received.