BILL ANALYSIS
SB 1136
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Date of Hearing: June 30, 2010
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
SB 1136 (Cox) - As Amended: June 1, 2010
SENATE VOTE : 36-0
SUBJECT : Education finance: revenue limit apportionments
SUMMARY : Creates an urgency statute that lowers the limit on
the amount of a small school district's state apportionments
that can be deferred at any time within a fiscal year.
Specifically, this bill :
1)Prohibits a school district's apportionment deferrals within a
single fiscal year from exceeding, at any time during a fiscal
year, an amount equal to $225 multiplied by the 2009-10 second
principal apportionment average daily attendance (ADA) for
that district if the district's ADA, excluding charter school
ADA, is equal to or less than 500.
2)States legislative intent that this limit on a school
district's apportionment deferrals within a single fiscal year
not increase the deferral amount of any other local
educational agency in order to meet the statewide deferral
amounts specified in statute.
EXISTING LAW :
1)Provides for school district revenue limit funding that is
based on a per pupil base revenue limit multiplied by ADA.
2)Requires that a total amount up to $2.5 billion in state
apportionments to school districts, county offices of
education, and charter schools be deferred within the 2010-11
school year, that a maximum of three deferrals be made during
the fiscal year, that those deferrals begin in the months of
July 2010, October 2010, and March 2011, and that the period
of deferment be no more than 60, 90 and 60 days, respectively.
3)Requires any apportionment to a school district, county office
of education, and charter school that is deferred within the
2010-11 school year to be paid no later than April 29, 2011.
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4)Authorizes the deferral of various state payments to other
local governments during the 2010-11 fiscal year, with no more
than $1 billion being deferred at any point in time, and
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.
5)Requires that a total amount up to $300 million in state
apportionments to community college districts be deferred
within the 2010-11 school year, and that payments by the state
to the California State University system and University of
California not exceed one-twelfth of the annual appropriation
for each month from July 2010 through April 2011.
6)Authorizes a school district to receive scheduled
apportionments from the State Controller in the event
payments are deferred in March 2011, if the county
superintendent of schools certifies to the Superintendent of
Public Instruction and to the Director of Finance on or before
January 5, 2011, that the deferral will result in the school
district being unable to meet its expenditure obligations for
the time period during which warrants are deferred; requires
that the criteria used by the county superintendent to make
this certification be the same as those used to determine that
a school district requires an emergency apportionment.
FISCAL EFFECT : According to the Senate Appropriations
Committee, "by restricting the deferral of funds from the over
300 districts with fewer than 500 ADA, the General Fund absorbs
a loss of interest for up to 6 months. Assuming interest at 3
percent for this time period, costs to the state would be at
least $200,000."
COMMENTS : Persistent state budget deficits throughout most of
this decade led to the 2003 enactment of a deferral of revenue
limit apportionments to school districts and county offices of
education; this "inter-year" deferral pushed apportionment
payments that the state was obligated to make into the
subsequent fiscal year, thus creating a one-time budget savings
for the state equal to the amount of the deferral. Deferrals
such as this have been used through the rest of the decade as a
tool to deal with budget shortfalls. More recently the state
has enacted "intra-year" deferrals that push state obligations
to school districts, county offices of education and charter
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schools to a point later in the same fiscal year. Such
intra-year deferrals do not cross fiscal years and thus do not
generate a direct budget savings; intra-year deferrals, however,
do reduce cash flow pressure on the state, reduce the need for
the state to borrow in the short-run to bridge past that cash
flow pressure, and thus reduce the state's debt service. The
down side to intra-year deferrals is that the cash flow pressure
is transferred from the state to school districts and other
recipients of apportionments, since revenues are received on a
deferred schedule even though current expenditure obligations
remain. In most cases a school district would react to this
increased cash flow pressure by borrowing either from i) other
internal fund sources, ii) the county office of education, or
iii) the private capital market.
According to the author, "Very small school districts with small
budgets do not have the same fiscal flexibility for internal
borrowing to meet the loss of cash flow caused by deferrals.
Larger school districts have developer fee accounts, capital
fund accounts and other types of accounts such as self-insurance
that are available for cash flow borrowing. The Education Code
allows school districts to use borrowing from internal funds as
long as the funds from which the money is borrowed is paid by
the end of the fiscal year. Consequently, school districts that
have such supplemental funds available for internal borrowing
have greater ability to meet the state cash deferrals. Small
school districts that typically do not have self-insurance
funds, developer fee accounts, bond fund accounts, and other
types of supplement funds available have less ability for
internal borrowing. Small districts, because of their small
budgets, are disproportionately affected by cash flow deferrals
authorized in current law." At the same time, most small school
districts are located in rural areas in counties with small
county offices of education; also small districts generally pay
higher interest rates for loans in the capital market, if they
have access to those loans at all. This means that the cash
flow pressure caused by intra-year deferrals of apportionments
is more likely to create a greater burden for small school
districts, than for larger local educational agencies. The
author's stated intent of this bill is to "provide partial
relief from" intra-year revenue limit deferrals "for school
districts that have 500 or fewer students."
AB 14 X8 (Committee on Budget), Chapter 10, Statutes of 2009-10
Eighth Extraordinary Session, requires that a total amount up to
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$2.5 billion in state apportionments to school districts, county
offices of education, and charter schools be deferred within the
2010-11 school year, and that these intra-year deferrals be paid
no later than April 29, 2011. AB 14 X8 also authorizes the
deferral of various state payments to other local governments
during the 2010-11 fiscal year, and exempts small counties with
a population less than 50,000 or a small city within a county
with a population less 50,000 from any deferral of funding. In
addition, AB 14 X8 authorizes a school district to receive
undeferred March 2011 apportionments if the county
superintendent of schools certifies that the school district
would otherwise require an emergency apportionment in order to
meet its fiscal obligations during the period of the deferral;
effectively this would exempt such a school district from the
March deferral. However, the standard that a district must meet
in order to qualify for this exemption, which applies to only
one of the three possible intra-year deferrals, is so high that
it requires the district to hover precariously close to
insolvency in order to qualify; a less risky means of providing
partial relief for small school districts, as well as a means of
providing partial relief from the two additional intra-year
deferrals, would seem to be called for.
Rather than exempting small school districts from any intra-year
deferral, this bill places a small school district cap, equal to
$225 per unit of ADA in the district, on the amount that can be
deferred within a fiscal year, and defines a small district to
be a district with ADA equal to or less than 500. The impact of
imposing this small school district cap would be minimal in
terms of impacting the state's cash flow. Using ADA data from
the 2008-09 Second Principal Apportionment (under this bill,
eligibility and the actual effects of the bill would be
determined by ADA at the 2009-10 Second Principal Apportionment,
which is currently unavailable but expected to be slightly lower
than 2008-09), there would be 307 school districts with ADA
equal to or less than 500, with a combined total ADA of 55,667.
Total statewide ADA was 5.987 million, so small school
districts, as defined by this bill, account for approximately
.92% of statewide ADA. If the maximum $2.5 billion intra-year
apportionment deferral, that is the focus of this bill, were
made it would amount on the average to approximately $418
deferred per ADA; under this bill the 307 small school districts
would not be subject to approximately $10.74 million in
deferrals beyond the cap [that is $418 - $225 (the cap)
multiplied by ADA of 55,667]. Since this is a reduction in
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intra-year deferrals, this is not a direct cost to the state;
however, the state would potentially be in the position of
borrowing an additional $10.74 million because of the additional
cash flow pressure. $10.74 million borrowed at 3% interest for
6 months would increase the state's debt costs by approximately
$190,000.
The impact of imposing this small school district cap would be
significant, however, in terms of reducing the impact of the
intra-year deferrals on the school districts' budgets. For
example, in a district with ADA equal to 500, the largest
district covered by the proposed cap, the cap could result in a
reduction in deferrals approaching $100,000. A total operating
budget of $3 to $4 million would not be an unreasonable estimate
for a 500 ADA district, so the deferral reduction could amount
to between 2.5% and 3% of the district's total budget - an
amount potentially equal to the level of budget reserves that we
have historically required of small districts. On a more
practical level, a $100,000 reduction in deferrals would allow a
small district to keep one to one and a half classroom teachers
employed for the full year; since a 500 ADA district might
employ something on the order of 20 classroom teachers, the
reduction in deferrals proposed for small school districts in
this bill might allow a district to maintain full-year
employment for 5% or more of its certificated teaching staff.
Committee amendments: Committee staff recommends technical
amendments to:
1)Provide additional clarification that the small school
district cap on apportionment deferrals only apply to the
intra-year apportionment deferrals enacted for the 2010-11
fiscal year pursuant to Government Code Sections 16325.5 and
16326.
2)Add language making this provision inoperative and repealing
it, in order to conform with the inoperative and repeal dates
that apply to Government Code Sections 16325.5 and 16326.
REGISTERED SUPPORT / OPPOSITION :
Support
California School Boards Association
California Teachers Association
SB 1136
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Camino Union School District
Central Valley Education Coalition
Leggett Valley Unified School District
Mendocino Unified School District
Pioneer Union School District
Riverside County Schools Advocacy Association
Shandon Joint Unified School District
Small School Districts' Association (Sponsor)
Opposition
None on file
Analysis Prepared by : Gerald Shelton / ED. / (916) 319-2087