What Happens to the District if the State Runs Out of Cash on February 1?

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For those who are hulled up somewhere away from media communications, perhaps Antarctica or the Serengeti, the state is facing a budget crisis the likes of which we have not seen before. This is not simply business as usual. To make matters worse, there seems to be no willingness for the “leaders” in Sacramento to come together on a budget that will inevitably contain bad news, decisions people do not want to make, they will have to do things that will anger their constituencies.

Just yesterday the State Controller John Chiang said that the things are on a “downward spiral.” Every day of inaction is making matters worse and no one expects an agreement any time soon.
So with that good news out of the way, here is how this mess in Sacramento will effect this community and your children.

Associate Superintendent Bruce Colby presented his non-budget budget talks. No PowerPoint slides this time because, well, we don’t have actual numbers because there is no real proposal to work with. And as was made clear by Linda Legnitto from the Yolo County Office of Education, the district is going to have to come up with a budget by March 15, 2009 regardless of whether there are actually real numbers to work with. People are going to be given pink slips. Students are going to protest. 2008 is going to repeat itself.

The district because of strong fiscal management and the passage of Measures Q and W is in better shape than it was in 2008, but not by as much as we would hope.

Mr. Colby told the district:

“The biggest thing to note and the big headlines out there is that the state is running out of cash. If they don’t do anything and get a budget for this year, they are out of cash on February 1. After February 1, they start issuing IOUs to state employees, to vendors, and people they send checks to.

There is a question as to whether they have to legally fund and give apportionments to schools. The apportionments for revenue are actually in the constitution so there is a question with the constitution if they have to pay us in cash, the question if they don’t have the cash, do they not have to pay the cash?

So the big question is what’s going to happen on February 1 when they run out of cash?

And this is the real problem—no matter how good a job the District has done managing its money, if the state ends up defaulting on its commitments to school districts we are in a world of hurt.

Mr. Colby continued:

“So we’re back to not just deficits and fund balance and all this accounting, we’re now in the cash mode for the state level and the district level.”

Ms. Legnitto however held out the hope that due to Title 16, the schools would get their money.

She told the board:

“Hopefully Title 16 will protect the ongoing apportionment and we’ll be able to squeak through… There is at least some law on our side to get that apportionment. My recommendation is for people to conserve as much cash and be as conservative as possible in the event that the state really does default on that.”

Title 16 is the statute that makes the apportionment of money to schools a priority for the state. That statutory requirement occurs whether there is a budget or not. So if there is money, schools would get it first. But is there money? That is the open question that is going to keep many people up all night as February 1 marches upon us. More on Ms. Legnitto’s comments shortly.

Assuming we have cash, what is our cash position?

Bruce Colby projects that in the current year the state funding will fall somewhere between $2 and $2.5 million short of that which was budgeted. It gets worse. Next year we will face a $2 million ongoing deficit plus an additional $1 million to $1.5 according to governor’s proposal.

“That we do know, we’re going to have that kind of range. It gets bigger every time they look at it.”

He continued:

“The real question is not really how much at this point; it’s really where the cuts are going to come from. There are big philosophical differences with the Democrats wanting to be more controlled on the categorical side. The Governor’s plan wants to be more flexible and takes away the wall between categorical and restrictions… He threw a volley about taking away all state mandates… He is actually volleying out there saying that we don’t have to do that any more.”

In previous discussions, Bruce Colby indicated that from the district’s perspective, more flexibility was better.

As mentioned previously, the prognosticators believe that the budget situation will not be resolved any time soon.

“Talking to those in the know… the feeling in Sacramento was that he doesn’t see a short-term closure on this where people come together. In fact what he sees is that there will be just as prolonged a budget process this year as last year. So we’re probably sitting at the same place we were last year with the January revise that we have to then march through all the progressions and deadlines for that. We don’t know how that’s going to come together.”

The uncertainty makes it even more difficult to plan for next year. Mr. Colby said that he will be at a workshop next week and will understand the Governor’s plan at that point, but the problem is that it’s the governor’s plan and who knows exactly what the actual plan will look like. There is quite a distance between the governor’s plan, the Democrat’s plan, and the Republican’s plan.

The bottom line is that the district knows that we have to plan for cuts from the general fund and get ready for what comes down the pike.

Bruce Colby then addressed the end year fund balance of $10.8 million—a figure unfortunately that is quite misleading in terms of the actual district’s position.

“When we closed out the year last year, we had $10.8 million of fund balance. That’s an accounting fund balance. It’s not necessarily cash in the bank. That was split between categorical and unrestricted account ledger. $5 million was restricted categorical.”

How much of this would be available if there were additional flexibility in the budget from the governor?

“The numbers are down to about $4.4 million of that would be available at the end of this year. So there’s not $10.8 million available. Some of that has already been spent because we are deficit spending. We already had plans for some of that money and it has been spent already. When we did the budget, only $4.4 million of that is available. We don’t have $10.8 million to play with, we have what’s ever left at the end of this year’s budget. The midyear cuts in the $2 to $2.5 million range will come out of that.”

The $4.4 million includes categorical—so the district would need to gain the categorical flexibility in order to even use this.

However as Mr. Colby cautioned, the categoricals have been built up over years of legislation that has set aside money for specific purposes. Full flexibility means wiping out years of legislation and programs.

“We’d like to have as much flexibility as possible; the question is how much that’s going to happen.”

Also these bad numbers are reliant on the eventual agreement by the state to raise tax.

“The other thing I forgot to put on here is that all of these plans are dependent on new taxes. The Republicans who are the minority, but hold the swing vote, their stance is no new taxes.”

One proposal is to cut the school year by five days. Right now the requirement is for 180 days, this would cut it to 175 days. According to Mr. Colby, that would save the district around $1 million for the five days in staff compensation alone.

Linda Legnitto of Yolo County Office of Education was asked about the County’s fiscal condition.

“We are as dependent on the state revenue as the districts. In fact, I put a spending freeze in place a month ago to try to conserve our cash, in a worst case scenario, just in case the state defaults on their apportionments that we could possibly make it through the year. I’ve also had some preliminary discussions with the County of Yolo, but if you’ve read anything about their budget it’s unlikely that they are going to have sufficient revenue to really make loans either.

Once again, she laid out how bad things look:

“The state budget crisis is very real. A $40 billion deficit is nothing to take lightly. Traditionally schools base their budget projections on the Governor’s January proposal. In this his may be the best case scenario. If in fact no revenue is included in the budget solution the cuts would be greater than what he has proposed. You have to prepare for that. And unless they actually give zero COLA, you have to reach that March 15 deadline. Traditionally they give the COLA and then deficit it back to zero. That is to your benefit because when they do that, that COLA is eventually restored. It’s an obligation for the state to bring Prop. 98 back up to that at some point. If they actually give zero, it’s never restored.”

The bottom line here appears to be as follows. First, the uncertainty of the budget situation is probably worse than the actual budget. But if the current proposal is the best case scenario, we are not going to have a good time this spring.

Second, the district is in far better shape than last year. I will say that members of the Davis Schools Foundation were at the meeting. They will be working hard again to raise money, but it is a very different economic climate than a year ago.

Bottom line, it looks like no matter what, the district will be fine this year as long as the state does not start giving schools IOUs. If they do, I do not know what happens. It would be devastating. Hopefully we do not find out what happens. Next year, it looks like if the state gives the districts categorical flexibility, and if the state perhaps cuts the number of school days by five (which is not a good thing but perhaps necessary), the district should be able to use that $4.4 million to soft land us. If that scenario pans out, then we can plan for another $2 million for 2010-11 and hopefully get us through this crisis relatively unscathed.

However, that rosy scenario depends heavily on the state getting a budget passed and fixing the $40 billion hole before it gets worse and it depends on them not defaulting on money to schools.

—David M. Greenwald reporting

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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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29 thoughts on “What Happens to the District if the State Runs Out of Cash on February 1?”

  1. wdf

    Good summary, David.In other news, the Da Vinci charter proposal at the Valley Oak campus doesn’t quite have a clear path to passage. The biggest obstacle presented was not addressing issues of neighborhood traffic brought up by residents in the area. Unlike an elementary school, high school students more likely bring their own cars to school from all parts of Davis, increasing neighborhood traffic. Tim Taylor especially, but also Richard Harris, seemed insistent that the district satisfy neighbors with an EIR that addrressed traffic issues. This attentativeness to neighborhood seemed to be a partial compensation for the closure of VOE.Hammond was left scrambling to propose a timeline for approval in order to implement the charter by next school year, but it was clear that it may be almost too late to get off an EIR soon enough. Approval of the charter was potentially going to take place at next Thursday’s meeting, but it may very well be postponed.

  2. Mitch Mifkin

    This mess is made worse by the 2/3rds requirement to pass a budget. Get rid of that and we’d have a budget. Not that it wouldn’t be painful, but at least it would exist and we could deal with real numbers rather than gridlock.But yes, this will be painful and constituents will be upset. No way to avoid people being upset so long as things they support are cut.

  3. In disbelief of the pettiness

    There can’t be any more traffic than the 100’s of parents from Mace Ranch and elsewhere who drove their kids to school and back each day when Valley Oak was there. Delaying the school move because of traffic concerns from less than 150 students who may have their drivers license (remember they have to be 16 years old, which wipes excludes the 9th graders and most of the 10th graders?) This is just plain hogwash.

  4. Disgusted

    Bruce Colby, who just had himself voted a nice fat raise, and the School Board that approved it, and improvements to the DHS stadium over improvements to Emerson at a time of fiscal crisis have no credibility with me. Neither does Hammond, who appears to be looking for ways to …reconfigure… schools, which is by way of hiding that he aims to close Emerson. Does it surprise anyone that the DaVinci Charter proposal looks doomed? The Board doesn’t like charter schools – they want complete control of the money, and they are not about to let a scintilla of it go. Color me disgusted!

  5. agree with disgusted

    All this handwringing has a purpose. Scare us witless, so we will cough up more money. How many blank checks are we expected to write, before the schools act responsibly? I agree with the above comment about Colby getting a raise. Shame on him and the School Board.

  6. Rich Rifkin

    …the district is going to have to come up with a budget by March 15, 2009 regardless of whether there are actually real numbers to work with. People are going to be given pink slips. Students are going to protest. 2008 is going to repeat itself….One thing some private companies are doing to cope with the downturn is, instead of cutting employees, they are reducing their wages. Here is one example where the Teamsters union agreed to having its members take a 10 percent wage cut. Rather than firing needed teachers and needed staff (like librarians and so on), maybe it’s time that all district employees (including Bruce Colby, James Hammond, Mike Cawley, etc.) take a wage cut — say going back to the salaries they all enjoyed two years ago.I don’t see how it is better for education or children to keep firing necessary employees. And I don’t see how it is less friendly to workers to have 15% of them take a 100% loss in wages, so that the highest paid 85% can keep all the money they make.

  7. Davis parent

    …All this handwringing has a purpose. Scare us witless, so we will cough up more money. How many blank checks are we expected to write, before the schools act responsibly?…Everything I hear in the news, apart from issues with the Davis schools, tells me that this is a really bad economic and fiscal crisis, both in our nation and in this state. Yet your comment is akin to saying that this is a Chicken Little ploy. Are you suggesting that these aren’t really bad economic times? Please explain.

  8. another DJUSD parent

    Are you suggesting that these aren’t really bad economic times?No, she/he is suggesting that she/he is tired of having to pay taxes to provide a decent education for the children of Davis.Bottom line, that’s what this is about, an unwillingness to pay taxes to support social needs. That’s a big reason why our state is in the hole it’s in, too, because so many Californians feel the same way.

  9. Disgusted with disgusted

    …Does it surprise anyone that the DaVinci Charter proposal looks doomed? The Board doesn’t like charter schools – they want complete control of the money, and they are not about to let a scintilla of it go. Color me disgusted!…That’s right… Respond to impressions before actually reading the details of what’s actually going on. I’m sick of this reactionary bullhocky that goes on this blog.This charter school proposal will be run by the DJUSD administration, employees will be represented by DTA in their collective bargaining activities. The district will control the money. It is the Valley Oak neighbors, some of the very individuals who supported the presence of VOE, who are pushing the traffic issue.

  10. agree with disgusted

    …Yet your comment is akin to saying that this is a Chicken Little ploy. Are you suggesting that these aren’t really bad economic times? Please explain….Let’s wait and see what the legislative budget will be, before we make all sorts of dire predictions. The School District/Board have a nasty habit of crying Chicken Little, to extort more money from the taxpayers. If they are in such dire straits, and I think they are, then giving raises to a top administrator is unconscionable, as is making improvements to a high school stadium.Rarely do I agree with Rich Rifkin, but I believe his suggestion of having all teachers/adminstrators/staff take a proportional hit, rather than laying anyone off, is a better alternative than mass firings. However, I don’t see any discussion of such a possibility – unless cutting school days is just this in disguise. I think cutting school days could be a huge mistake. It could jeopardize a students ability to get into college here and elsewhere, if they did not complete the required number of public school hours. Do we really want to go there?

  11. agree with disgusted

    …No, she/he is suggesting that she/he is tired of having to pay taxes to provide a decent education for the children of Davis….Wrong. I am tired of the taxpayer’s money being wasted on paying a raise to a top administrator in times of fiscal crisis.

  12. FastFwed

    To Mitch Mifkin: If you think the 2/3rds protection is a bad idea, say goodbye to your house because the property taxes will drive you out of it! If Prop 13 had not passed can any of you imagine how much you would be paying today? With home values in the tank today, your property tax bill would still be increasing WAY beyond the 2% max…probably 4-6% every year. And once the 2/3rds requirement is gone, its gone forever. Your children and their children will have you to thank….and since you would ALL be under ONE roof they wouldn’t have to travel very far!

  13. an eastsider

    …It is the Valley Oak neighbors, some of the very individuals who supported the presence of VOE, who are pushing the traffic issue….What does this mean? Are neighbors …pushing… the issue? I was unable to go to the neighbors meeting on Wednesday night, so I am not sure what was said at that meeting. I am a VO neighborhood resident, and I sent a very supportive email to Mr. Best, the Board and Mr. Hammond. In my message, I also raised some concerns about traffic and parking. We did have a lot of parents in and out during the VOE days, but 150 cars parked all day on the neighboring streets is alot. My question was simply what is the plan to mitigate the impact on the neighborhood streets. Regarding traffic, I have seen the DHS students coming and going at lunchtime from their campus. If I lived in that neighborhood, I would want the DJUSD to do something about the choices made by their students in their cars. With that said, I raised the question of what the plan will be for the coming and going of the DaVinci students during the day. I felt these were reasonable questions to ask. After speaking with neighbors and friends, I have not found anyone who would want a lengthy EIR process to delay the VO campus from once again becoming the home of a wonderful learning commmunity, but we would like some care and thought taken in the planning for the increased student traffic and parking in the neighborhood.

  14. Anonymous

    1. Reducing the school year – bad idea. There is already not enough time in school to cover everything. Will result in dumber students.2. Removing 2/3 majority budget approve – HORRIFIC idea! Property taxes will go up guaranteed, especially now that there is an excuse of a fiscal crisis (I can hear it already… these taxes will be promised to sunset… and magically won’t.)I think we should look at:- cutting nonessential programs. this will suck but if times are that hard, then music, sports teams, etc. will have to wait until there is more money (or you could make it so if a student wants to do this, they have to come up with money to pay for the program, as a monthly fee)- cut/reduce salary on administrators- leave teacher pay same and try to not fire anyone- PTA or whoever needs to step up with a very organized effort to raise money for the schools from the PARENTS, not the taxpayers. The taxpayers have given plenty of money with all these Measures of the past few years. If that isn’t enough, then the parents need to take up the slack. It is their kids so they should want to do this.- Anything that is a luxury, can possibly have a fee on it. For example, if a student wants to drive, they have to pay for a parking permit (same as UCD).

  15. David M. Greenwald

    A few quick points that need to be made:First, Colby’s original contract was for $150,000 with built-in increases of 5% annually. He didn’t get a …fat… raise, he got basically the same contract as before except his starting salary is now at $173K instead of $150K. Someone in the paper inferred that this was a $23K raise, it’s not. It’s more like about $8000. I opposed that, I think his salary should be frozen not because it’s going to kill the district fiscally but rather because it sends the wrong message now.That said, his information is completely accurate, the state situation is as he describes, but things are bad. And schools are on the front line of how bad things are.There are going to be no more taxes added from the local district. They’ve put themselves in decent position to weather this for right now.Second point, it was interesting and maybe I will do a separate story on this, but Cathy Haskell of the DTA basically got up there and said that they don’t want to go through pink slip notices again and seemed to indicate that they are willing to work with the district in order to avoid that. Does that signal a willingness to take pay cuts rather than face layoffs? I don’t know.People are going to have tough choices to make. People are going to have to take pay cuts. Programs and services on a statewide basis are going to be cut. And the taxpayers are going to pay more in taxes in some form or another. And the worst news is, we don’t even see the bottom of the current crisis yet. This is going to be far worse than anything most have ever seen before.

  16. David M. Greenwald

    A few more points:…- cutting nonessential programs. this will suck but if times are that hard, then music, sports teams, etc. will have to wait until there is more money (or you could make it so if a student wants to do this, they have to come up with money to pay for the program, as a monthly fee)…I’d have to look at it, but certainly with the music program, that’s already funded through W and as is some of the sports programs. So those are not options now….Removing 2/3 majority budget approve – HORRIFIC idea! Property taxes will go up guaranteed, especially now that there is an excuse of a fiscal crisis…Well what’s going to happen is that the 2/3rds majority requirements are going to delay the decisions that are made, which means that they are going to drive up the costs and cause the economy to get worse and the deficits to expand. You are going to end up paying for that indecision every bit as much as you would for getting rid of a 2/3rds vote.The only people that can get rid of a 2/3rds vote are the voters, we’ll see if after this year, they are finally ready to do that.

  17. MItch Mifkin

    The 2/3rds vote has nothing to do with my house property taxes, at least not at the state legislature level. My house taxes go up 2% a year, and any new taxes on property require a 2/3rds majority. But as far as passinga state budget, this also requres a 2/3rds, which has nothing to do with my house. 2/3rds is undemocratic, and the scare of telling people they will lose their housee is nothing but straw man fearmongering.

  18. Rich Rifkin

    – leave teacher pay same and try to not fire anyoneI do believe in paying good teachers well. If enough money can be cut from non-classroom expenses to avoid teacher layoffs, then I could agree with your sentiment. However, teacher salaries and benefits m

  19. Anonymous

    To Anon on 1/9/09 at 12:08 p.m., …Will result in dumber students…? Are you suggesting the students currently in the school system are only dumb at this point? The school system in Davis does it’s best to educate it’s students. Do you have children in school here? The problem students in Davis go to …King High…. If any part of the school system is forced to close, due to budget issues, it should be King High. That would put the …problem students… back into a real educational system. Please look up the word,…dumb…, in the dictionary and then resubmit your opinion on this blog.

  20. Anonymous

    Are you suggesting the students currently in the school system are only dumb at this point? The school system in Davis does it’s best to educate it’s students.I don’t think the school system in Davis does it’s best to educate it’s students. Rather, I think the school system in Davis does its best to educate its students.

  21. Anonymous

    Are you suggesting the students currently in the school system are only dumb at this point?Jeez, simmer down. I was not implying they were dumb. They just would not learn as much with five fewer days of instruction. Just trying to be pithy…

  22. Anonymous

    From the WSJ–SACRAMENTO, Calif. — California’s school year could be shortened by a week under increasingly Draconian proposals being considered by state lawmakers seeking to close a projected $42 billion budget shortfall by the middle of next year. California schools chief Jack O’Connell called the proposal …devastating,… noting that California would have one of the shortest school years in the country. A spokesman for Mr. Schwarzenegger said …getting through this crisis requires very difficult decisions that the governor does not want to make, but he has the responsibility to lead us through this crisis….

  23. Anonymous

    And then add approx. 360,000 children of ILLEGAL ALIENS to the California school roster, at $8500.00 each, and how how much do you come up with? Spare me your liberal bleeding heart, …Already Here…, comments. A part of this issue began a long time ago. Should we allow this to continue along with the useless legislators and union greed on top of it. This politics? No, it is criminal activity.

  24. David M. Greenwald

    Sorry but you can’t make them disappear. It costs about $8500 per year to educate them assuming the state doesn’t cut funding for education next year.It costs about $45,000 to house people in jail for a year.I think you’re complaining about the wrong thing.

  25. Anonymous

    I know it costs about 45k/year to house a prisoner in Calif. I mentioned a portion of the problem and you chimed in with a second, well known, issue. Yes, I realize your mother in-law worked in the fields, as did I. What is it that you are trying say? Both issues are major problems. It does not surprise me that you are unrealistic. Keep’em outa here, make their own country responsible for them instead of the U.S. taxpayers. Is that too much to ask? And while you’re on the topic of prisoners, send all the ILLEGALS in Calif prisons back and that would save the taxpayers another 10billion or more a year. I await your written justification for you complaining about the wrong thing.

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