School District: ‘Borrowing Money the State Owes Us’

While school districts brace for what some surmise to be catastrophic budget cuts, the state continues to defer much of the money owed to districts to the following year.

These state cash deferrals, essentially state IOU’s, has left school districts turning to alternative measures to continue to cover payroll and other expenses until the state finally pays back the money owed to them.

During Thursday’s School Board meeting, Charter Oak Unified School District followed suit by voting to approve up to $5 million in Tax and Revenue Anticipation Notes, or TRANs, to compensate for a potential shortfall of funds from the state’s cash deferrals.

According to Charter Oak Superintendent Dr. Mike Hendricks, the TRANs are short term loans from the Los Angeles County Office of Education through other agencies. The loans must be paid back by the end of the school fiscal year.

TRANs are a quick fix to the seemingly more frequent trend the state has been practicing over the years as its budget had ballooned to a $25 billion deficit. Many school districts across the state have resorted to TRANs loans as a response to the state's deferrals, which have cut school budgets by 25 percent by the end of the fiscal year.

For Charter Oak, which has lost $20 million in annual revenue in the last four yeas, the TRANs are further challenges to contend with. The district could see about 35 to 40 percent of its budget reduced by deferred funds.

According to Kathy Perkins, director of fiscal services, taking on a TRANs is a precautionary measure, “just in case there is not enough cash to make payroll.” She noted that although the district also approved a TRANs loan for the 2009-2010 school year, the district did not use any of the funds.

Hendricks said the TRANs should be paid back as deferred monies become available. Should they not come in time, Hendricks said there may be an extension on the payment deadline.

On top of repaying the loans, districts are also responsible for paying interest. Depending on the rate achieved, districts could pay at least $50,000.

Still, the fact that districts must borrow money at all has many scratching their heads.

“Once again I find this extremely ironic,” said Charter Oak school board member Don Davis. “We’re borrowing money the state owes us.”