The District Has an Improved Cash Position, But Will Not See Additional Revenue This Year –
The Governor announced on Monday that California will receive about 6.6 billion dollars in “surprise” tax revenues through June 2012, due to higher than expected growth expectation for next year.
Nevertheless, the Governor wants to maintain the higher tax rate on sales and vehicles, in addition to a small income tax credit for dependents over the next five years.
Local leaders greeted the news warmly. Davis’ Assemblymember Mariko Yamada issued a state on Monday stating, ““While we welcome the Governor’s new proposals, the Legislature still must address the continual structural deficiencies in providing education, health, and public safety services to California’s residents.”
“We need to engage in an honest discourse about the costs of maintaining standards for the delivery of core services to our children, seniors, and other vulnerable populations,” she continued. “I stand with Governor Brown in his quest to save our state’s critical programs through revenue generating strategies.”
The Governor announced that he will be increasing education funding by $3 billion, the first increase since 2006. While this is all good news, what it means for the school district is much more mixed.
For those who believe that this negates the need for Measure A funding, that view is incorrect. At best, this means that there will not be another $3 million to cut at the district level.
According to Associate Superintendent Bruce Colby, who is the director of the business office, the May revise will mean flat funding for the Davis school district, not additional funding.
It is even more tricky than that. The plan as laid out by the governor is dependent on the extension of taxes until there is an election in the fall. Without extensions, there would have to be funding cuts.
Instead of increased revenues for schools, the extended increased state taxes would eliminate the use of revenue deferrals. Right now, schools are receiving their funding so late that they have to borrow money in order to make payroll. The increased revenue would mean that school districts could stop borrowing money and actually put together budgets based on cash.
Right now, there is about $2.1 billion in the state budget for deferrals, and that revenue would take away those deferrals.
“While the budget line for education at the state level is going to go up, there is not going to be new funding for the school to spend,” Bruce Colby told the Vanguard last night. “It’s just basically going to give us cash to pay the bills.”
“There is no additional funding for education at the district level, it is creating a sustainable funding and cash payment level for next year,” Mr. Colby added in an email.
What does this mean for Measure A funds and their necessity? According to Mr. Colby, “Measure A funds are covering the impact of prior year reductions, it is being used to mitigate the layoff of employees that were funded from one-time sources this year from the Davis Schools Foundation and a reduced school year.”
The result, as we knew last week, is that the district rescinded all of the employee layoffs. Some at the time called it a ploy, since it seemed likely that the district may need to cut positions later.
However, there was too much uncertainty at that time to come to a conclusion for sure, and now we see that there will need to be no layoffs due to the revise in the state budget and local voters supporting the district with $200 in additional money per parcel.
“It means we will not be $3 million short,” he said. “What it means is that Measure A and the flat funding is that we’re balanced for two years until Measure A goes away. So we need to figure out where the revenue is going after Measure A.”
He added that will largely depend on where the revenue is going two years from now. And of course it depends heavily on voters renewing the current Measure P and W. Right now it would appear that the district would not need to increase that $320 baseline.
Unfortunately, Mr. Colby does not believe that this means the state crisis is over.
“This is a plan that has many details and contingencies that need to be approved and come to fruition over the course of the fiscal year,” he wrote. “We can’t say it is over until the state economy and revenue has stabilized. The budget is still dependent on taxes both local and statewide that are not fully stable. If approved and it comes to reality after 12 months of actuals, it is a big step in the right direction.”
One of the least well understood or explained parts of the budget crisis was a cash flow crisis.
Back in January, Bruce Colby explained the cash flow crisis at a school board meeting.
“What started as a single deferral of $1.3 billion in 2002-03 that delayed funds just a few days – from June to July – has evolved into a routine cash management tool to mask the state’s structural budget problems.”
He continued, “The state managed to operate without additional deferrals until 2008-09,” but “since 2008-09 deferrals have become a staple of the State Budget.”
The deferrals have increased each year.
This is what it looks like.
The problem with deferrals is that, unlike the state, the local school districts (depicted by the LEA – Local Educational Agencies – designation in the graph) cannot defer their payments. They still have to make payroll and cover their operating expenses.
What that means is that the district has to basically borrow money at the beginning of each school year to cover operating costs both in payroll and maintenance.
But what has happened over time is that they have depleted their cash reserves to the critical level. Basically, they just have enough cash on hand to make the loan they need to operate. And that is a dicey proposition at best. Prior to this news, and based on the cash flow problem alone, the district may have had to cut personnel just to be able to borrow enough money to make payroll.
Restoring the district’s cash flow along with the passage of Measure means that a huge potential problem has been averted. The District may not be getting more money as the result of this revise, but it is now in a much strong fiscal shape and again, it is not going to lose money from the state for the first time in half a decade.
For the first time in several years, there may be light at the end of the district’s tunnel.
—David M. Greenwald reporting
[quote]He added that will largely depend on where the revenue is going two years from now. And of course it depends heavily on voters renewing the current Measure P and W. Right now it would appear that the district would need to increase that $320 baseline.[/quote]
In other words, we need to make “emergency” Measure A a permanent “emergency”?
[quote]What does this mean for Measure A funds and their necessity. According to Mr. Colby, “Measure A funds are covering the impact of prior year reductions, it is being used to mitigate the layoff of employees that were funded from one-time sources this year from the Davis Schools Foundation and a reduced school year.”
The result as we know last week is that the district rescinded all of the employee layoffs. Some at the time called it a ploy since it seemed likely that the district may need to cut positions later. [/quote]
[quote]But what has happened over time is that they have depleted their cash reserves to the critical level. Basically, they just have enough cash on hand to make the loan they need to operate. And that is a dicey proposition at best. They may have cut personnel just to be able to borrow enough money to make payroll.[/quote]
So which is it – they won’t have to lay off employees; or they may have to lay off employees? You can’t have it both ways…
“In other words, we need to make “emergency” Measure A a permanent “emergency”?”
Only if you believe that the state revenues won’t improve in two years. I think they will and that we will be able to cut back no only Measure A but Measure W.
BTW, there is a typo in there, it should read, “not need to increase” the baseline.
“So which is it – they won’t have to lay off employees; or they may have to lay off employees? You can’t have it both ways… “
That was sloppy by me, that was the analysis from January that I wove in to explain the crisis of cashflow.
[quote]Only if you believe that the state revenues won’t improve in two years. I think they will and that we will be able to cut back no only Measure A but Measure W.[/quote]
Do you really believe there will be no attempt to extend Measure A permanently? LOL
[quote]But it does bear reminding that all of this is based on the governor extending the tax hikes from two years ago.[/quote]
In other words there is the distinct possibility that lay-off notices may have to be reinstated…
Here’s the Sac Bee article on the May revise:
[url]http://www.sacbee.com/2011/05/17/3631897/jerry-brown-recasts-tax-push-targeting.html[/url]
Although I see the argument that increasing revenues means we don’t need tax extensions, the “smoke and mirrors” budgeting accrued from past years is still in place. In the case of this article on DJUSD, that refers to the payment deferrals from the state. That’s not stable budgeting.
I am glad that Brown is focusing on reducing the “wall of debt”, as he called it. To me it’s the same as paying down the credit card. If we don’t address it now, the next smaller recession will hit us as hard as the bigger most recent one.
I agree with Elaine that we will need another measure or something similar or maybe stronger. I think it is extremely unlikely our long term fiscal situation will improve, though we might have a short term reprieve.
Jerry’s plan also still requires voter approval and the people I have spoken to say it is still not polling well. Jerry will have to sell the plan hard and as people adjust they may be less inclined to vote for continued taxes.
So we are at the end of the beginning, but not the beginning of the end.
[i]So we are at the end of the beginning, but not the beginning of the end.[/i]
Well said Dr. Wu.
The City of Stockton votes tonight to declare a “fiscal emergency” which allows them to abrogate certain contracts. This is the second time Stockton has done this.
The City is being sued by the police union (or perhaps firefighters) who claim they can sell off assets first or otherwise further destroy the City.
~80% of general find revenues in Stockton go to police and fire (of course Stockton has one of the highest murder rates per capita in the country so perhaps they need those police!)
A couple of observations:
1. We are lucky to live in Davis though that does not excuse any further fiscal negligence.
2. THe “fiscal emergency” route may be more efficient (cheaper) than chapter 9 bankruptcy and easier to do.
From May 18 Stockton Record:
[quote]STOCKTON – City Hall and its police officers union continued to negotiate pay cuts as elected leaders Tuesday declared another fiscal emergency aimed at avoiding deep service cuts and putting pressure on labor groups over the next month.
Before the unanimous vote, City Council members implored unions to agree to concessions as the city struggles to balance a projected $37 million deficit by July 1.
“I believe we have value in this city,” Mayor Ann Johnston said, “and we don’t want to be on the side of the road in a heap when this is all over, unable to get up.”
In a separate action, the City Council also unanimously hired lawyer John Knox of Orrick, Herrington & Sutcliffe LLP, the law firm that handled the city of Vallejo’s 2008 bankruptcy. City Manager Bob Deis has said Knox, who charges $875 an hour, will assist the city on disclosures to the financial markets.
If the city and its labor groups don’t strike deals before the end of the fiscal year, officials will likely use the fiscal emergency declaration to impose pay and benefit cuts on workers.[/quote]
I think given how difficult it was to pass that they will not even attempt to renew Measure A even if things haven’t improved by a lot in two years.
“I think given how difficult it was to pass that they will not even attempt to renew Measure A even if things haven’t improved by a lot in two years. “
they will always attempt to renew measure A. They are greedy like that.
I disagree. (A) I don’t think they are greedy. They asked for the amount of money that would balance the budget unless there were additional cuts. That’s not the definition of greed. (B) They would not have community support to do it absent a demonstrated budgetary need.
Recent interview with Diane Ravitch, commenting on NCLB, business models for education reform, national standards, among other things:
[url]http://toped.svefoundation.org/2011/03/02/diane-ravitch-on-education-reform-and-misguided-reformers-part-2/[/url]