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State Forces San Diego Schools To Shift Money Around To Pay Bills

Aired 11/30/12 on KPBS News.

In California, school districts borrow from one account to pay back another while they wait for payments the state is obligated to provide.

— Like families trying to make ends meet in a down economy, years of deferred payments from the state have forced school districts to get creative with their accounting.

San Diego Unified, for example, has borrowed out of workers’ compensation and construction funds to keep the lights on. It paid at least $4.7 million in interest last year on short-term bonds to cover operating expenses.

San Diego Unified School District

San Diego Unified School District borrows funds from variety of funds to cover payroll and other operating costs.

In South County, Sweetwater Union High School District is paying teacher salaries and busing students with money it has borrowed from accounts meant for new school construction and maintenance.

The districts will be able to pay that money back -- with interest -- when the state comes through with money it’s obligated to provide.

San Diego Unified School District

San Diego Unified School District's cost of short-term borrowing.

“It’s like saying, your checking account is short, so you move money over from your savings account to your checking account,” said Rick Knott, interim chief financial officer for Sweetwater. “Only for school districts, we have different funds.”

Knott said by June 2013, the state will owe Sweetwater $47 million.

The state began deferring payments to districts -- postponing them, in effect -- back in 2001. Like most bad habits, it started with a small step in the wrong direction.

Eleven years ago, state legislators moved a small number of payouts to schools from June to July, pushing them into the next fiscal year. Lora Duzyk, the assistant superintendent for business services with the San Diego County Office of Education, said the shift allowed the state to pass a balanced budget, but it started a trend.

“When the budget crisis hit in 2007-2008, the state started running into cash problems and they remembered they had the ability to do this,” she said.

The state’s action forces districts to regard their budgets like a game of chess – figuring out which fund to raid and which one has to be paid back first, she said.

Many school districts have cash reserves in a number of different accounts, and to cover the shortfall waiting for the state money, districts use those reserves to cover daily operating expenses.

But the reserves aren’t always enough, so some districts issue short term bonds to cover daily expenses, a move that can cost millions of dollars in interest payments and administrative fees.

“Borrowing from your own funds is the cheapest form of borrowing that you can get,” Duzyk said. “It saves districts money if they have the capacity to borrow within their own funds and pay back.”

A couple years ago, Sweetwater got in trouble for borrowing money from a building fund to pay its operating expenses and not paying it back on time. That was the beginning of the scrutiny and scandal that have since befallen Sweetwater’s finances.

It is no longer able to borrow from its building fund, known as Prop O, but it is borrowing from other funds including its Mello-Roos account. That money, accumulated through special fees paid by homeowners, is supposed to pay for tangible items like schools, buses and computers.

The San Diego County Department of Education says districts can borrow from Mello-Roos funds if they pay it back with interest and if the district has legal control over the fund.

“As long as the [Mello-Roos] fund is made whole for any economic loss it would have suffered, like the interest, there’s no consequence to that,” Knott said.

Sweetwater has enough in those accounts so it doesn’t have to issue the types of bonds San Diego Unified and others have resorted to.

Duczk and other administrators hope that the voter-approved Prop. 30, the initiative that raises taxes to fund schools, will enable the state to start making good on its promise to pay districts on time.

Still, Knott said he isn’t holding his breath waiting for cash to flow from state coffers. He’s got plenty of questions for state lawmakers about next year’s budget, and where it will leave districts like his.

“Prop 30 meant that the state stopped digging our hole any deeper. It didn’t fill in the hole,” Knott said. “We’re still in the hole, and they’re still standing there with a shovel in their hand so they can resume digging any time that they want.”

KPBS Reporter Joanne Faryon contributed to this report.

Comments

Avatar for user 'anniej'

anniej | November 30, 2012 at 9:14 a.m. ― 1 year, 11 months ago

the fiscal crisis facing all school districts is well documented.

the issues sweetwater is plagued with goes far beyond borrowing -

- at a time when they cry poor they offer their superintendent a ridiculously rich contract
- at a time when they cry poor they set up an 'elementary' charter school which they are bankrolling
- at a time when they cry poor their superintendent debarks on a spending frenzy in the hiring of friends and calling them consultants
- at a time when they cry poor they decide to get into the business of college eventhough 99% of their middle and high schools are under program improvement
- their superintendent makes the unilateral decision to eliminate home school boundaries which resulted in an influx of students from the west side to the east side - those east side schools such as eastlake, now overcrowded
- two of their current, one of their past, and their old superintendent are facing trial for felony indictments
- now, a new county grand jury appears to be involved in a new investigation - how many new board members will be taken down, will the current super be caught in the web that is investigating alleged corruption

read enough - WELL WE HAVE HAD ENOUGH - and the above - that is only a sampling of what is wrong with sweetwater and their leadership, or should i say lack thereof.

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Avatar for user 'Missionaccomplished'

Missionaccomplished | November 30, 2012 at 9:43 a.m. ― 1 year, 11 months ago

Yeah, that's when Cheatwater was taking money from Prop O.

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Avatar for user 'Missionaccomplished'

Missionaccomplished | November 30, 2012 at 9:58 a.m. ― 1 year, 11 months ago

Can't wait for the trials in January. Unfortunately, Gandaya appointees and lackeys are still well entrenched in the District.

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Avatar for user 'Mmikey'

Mmikey | December 1, 2012 at 8:22 a.m. ― 1 year, 11 months ago

In view of recent events ( expos'e) I wonder how much is lost in each shift?

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