State Delay Of Education Funds Is Not The Worst Alternative

He noted that although the rollovers are not ideal, without them the state would likely reduce the spending authority of schools, leaving them in a financial bind. The rollovers take state funds owed to schools this fiscal year and keep them in the general fund until next fiscal year, when payments are finally made to schools. Since payments don’t come out of this year’s funds, the state can appear on paper to have stayed within the budget, but starts the next fiscal year out already owing money to the schools. Under Governor Jan Brewer’s proposed budget, even larger amounts would be deferred this year as part of a measure to make the budget appear balanced.

McDowell noted that the tactic is based on the hope that eventually the economy will rebound enough for the state to get caught up on payments to the schools, which would mean forwarding both the payment for the previous year and paying the full sum due to schools within the fiscal year.

One alternative, McDowell noted, would be for the state to not make the payments and reduce the spending authority of schools. He noted that Holbrook schools have a more diverse funding base than many districts, but still depend heavily on state payments. State aid accounts for roughly $10 million of the Holbrook district’s budget, while property taxes raise about $2 million and federal impact aid is around $4 million.

Since districts continue to accrue expenses while state payments are delayed, Navajo County Treasurer Manny Hernandez explained that the county has asked each school district to open a line of credit. This would supply the necessary cash to meet costs, like teachers’ salaries, until the state payment arrives.

“Every year for the last few years the state has been holding payments until next year,” Hernandez said. “Typically, the May and June payments don’t come in until August. This year, we don’t know what the state is going to do.”

Hernandez noted that he is not sure which school districts may need to use the line of credit, but each has one available if needed. Schools would be required to pay interest on the amount borrowed. The interest payment would reduce the amount of cash available for education once the state payments finally do arrive.

McDowell pointed out that the lines of credit given to schools are based on the state’s ability to make the deferred payment to schools, which in turn use the money to repay the bank. If banks began to doubt the state’s ability to pay schools, the lines of credit could disappear.

According to McDowell, the Holbrook district has not yet needed the line of credit. It’s typically happened in other counties,” he remarked.

He explained that the rollovers by the state are not new, noting that such tactics were used in the early 1990s. Eventually, the economy recovered enough that payments to schools were brought current. During the current economic crisis, the tactic was revived.

Hernandez pointed out that although no one is sure what the state is going to do to balance the budget, schools will receive property tax payments in June, which could help some districts stretch their budgets until the next state payment is made. He also noted that currently, no districts in the county are using the line of credit.