Push for deferral reform

Given a choice between school funding cut and funding delayed, districts until now have preferred late payments, known as deferrals. They now total about $10.4 billion or 30 percent of state funding for K-12 and community colleges. While bailing out the state short-term, they have created cash flow havoc for charter schools and for many of the state’s nearly 1,000 districts.

Many, but not all. Basic aid districts – those that fund their schools totally from their own property taxes – and those districts more dependent on property taxes than state dollars for their Proposition 98 funding have largely escaped the impact of deferrals. But those districts with small tax bases that rely on state revenues for most of their money have gotten hit disproportionately hard.* That’s because deferrals only affect the state revenue portion of a district’s total funding. And districts most affected tend to serve large numbers of poor children,

Districts with large percentages of low-income students tend to have the largest percentages of low-income students. Click to enlarge. (Source: Stephen Rhoads)
Districts with large percentages of low-income students tend to have the largest deferrals per student. Click to enlarge. (Source: Stephen Rhoads)

according to Stephen Rhoads, a policy consultant for school districts who is working with State Sen. Gloria Negrete McLeod, a Democrat from San Bernardino and Los Angeles counties, on the issue.

Negrete McLeod is sponsoring SB 1491, the Fairness in Education Deferral Funding Act. For future deferrals, it would require that the state pay the interest on the money that districts and charter schools have to borrow because of the deferral. And it would spread the cost of the deferral equally among districts on a per-student basis, so districts funded largely by property taxes would share the pain. Districts serving mostly low-income students would get an extra break.

That’s fine and good, you might say, but isn’t Gov. Jerry Brown promising to wipe out K-14 deferrals over the next four years, if his temporary tax initiative, which would raise the sales tax and income tax on the wealthy, passes? Yes, Brown’s first priority for the extra money would be to pay down the state’s “wall of debt,” starting with eliminating $2.4 billion of the late payments to school districts and community colleges, next year.

But if the tax initiative fails (the latest Public Policy Institute of California poll shows it favored by just over 50 percent of voters), Brown is proposing to cut Proposition 98 funding by $4.8 billion or about $450 per student. If he’s serious, then once again districts may be faced with a familiar choice: a cut or a deferral, in which districts budget the spending but don’t receive the money from the state until the next fiscal year, borrowing from the outside market if they can’t borrow internally. If that happens, then Negrete McLeod’s bill would kick in.

Those districts with small property tax bases, relying more on state revenue to fund schools, get hit hardest by deferrals. Clike to enlarge. (Source: Stephen Rhoads)
Those districts with small property tax bases, relying more on state revenue to fund schools, get hit hardest by deferrals. Click to enlarge. (Source: Stephen Rhoads)

In a comparison of four districts, Rhoads illustrates the disparate effects that deferrals have had on poor districts. Take San Bernardino Unified (one of Rhoads’ clients), where 87 percent of students’ family incomes qualify for free or reduced lunches, and Capistrano Unified, where only 20 percent do; both serve 51,000 students. Because of Capistrano’s strong property tax base, it relies on the state for only $386 per student of its revenue limit, with $174 per student of that deferred. San Bernardino gets $4,783 per student from state revenue, with $2,149 deferred – a huge burden.

Although SB 1491 would apply only to future deferrals, Rhoads created worksheets to illustrate the impact had the bill been in effect today, for $8.6 billion of revenue-limit deferrals. By spreading deferrals uniformly, per student, among all districts, then giving added help to low-income districts, San Bernardino Unified would have seen the amount of money deferred go from $110 million to $72 million or from $2,149 per student to $1,401. Capistrano’s deferrals would have increased from $174 per student to $1,327, which would have been more than it gets in state revenue – and probably grist for litigation. Fresno Unified would have seen $143 million in deferrals drop by $43 million or $612 per student.

There have also been $900 million in deferrals in funding of categorical programs.

* A school district’s allotment of unrestricted dollars – its revenue limit – is funded by a combination of property taxes and state revenue. Because of Proposition 13 restrictions on increasing property taxes, state revenues now comprise about two-thirds of Proposition 98 funding, but the proportion varies from district to district.

Author: John Fensterwald - Educated Guess

John Fensterwald, a journalist at the Silicon Valley Education Foundation, edits and co-writes "Thoughts on Public Education in California" (www.TOPed.org), one of the leading sources of California education policy reporting and opinion, which he founded in 2009. For 11 years before that, John wrote editorials for the Mercury News in San Jose, with a focus on education. He worked as a reporter, news editor and opinion editor for three newspapers in New Hampshire for two decades before receiving a Knight Fellowship at Stanford University in 1997 and heading West shortly thereafter. His wife is an elementary school teacher and his daughter attends the University California at Davis.

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