When the state "runs out of money" in February/March, will school districts get IOUs and be able to pass them on to school employees?

School Districts will not get IOUs from the state – school districts are part of a continuous apportionment and ultimately must be paid and cannot receive IOUs from the state.  However, that doesn’t preclude deferrals of cash. Some of a school district’s general fund dollars will likely be deferred from April to July.  School Districts who are about to be cash insolvent must borrow locally in one of the four following ways:

1.  
   1. From themselves as in use reserves from other funds
   2. From the banking & credit world in the form of Tax Revenue Anticipation Notes (TRANs)
   3. From the County Office of Education, if funds are available
   4. From the County Treasury – if funds are available, County Treasurer’s must lend to school districts, but there are considerable hoops and timelines to wade through.

All of these sources must be paid back within the fiscal year – since the deferral is a cash issue and school districts will still account for the funds in 2008-09, on the books the monies will be back in the correct fiscal year.

If a school district is still going to be cash insolvent after exploring all of these options, they must ask the State of California for a loan. This requires legislation and results in a state take over where the superintendent loses his/her job, a state trustee is assigned and the school board is relegated to an advisory board with no power. The state trustee makes all of the decisions and has “stay and rescind” authority. However, the state trustee cannot abrogate collective bargaining agreements, but is who the union will be bargaining with when the CBA expires.

Unless a district has virtually no reserves, including categorical reserves and no monies in other funds (Cafeteria, Special Reserve, Facilities, School Building, Retiree Benefits, etc.) they should be able to borrow from themselves to get through this cash crunch. Districts have know all year that this was coming and should have been preparing with plans for taking out TRANs (SSC has warned them several times). The COE and County Treasury are other options to help as well. It is definitely not in a district’s best interest to ask the state for a loan considering the magnitude of changes that will occur because of that choice. Also as a result of AB 1668 back in 2000, interest must be paid to certificated employees if they are not paid within statutory time frames (E.C. 45048 & 45049). So it will cost districts more in the long run if certificated pay in particular is delayed more than 5 days after the end of the working month.