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Redevelopment agencies’ exit creates $900 million problem for schools

Complications in transferring tax increment money from dissolved redevelopment agencies to schools have created an unanticipated three-month delay and a $900 million funding gap for districts.

Officials at the California Department of Education confirmed late last week to Cabinet Report that the recent February apportionment would include a proportional reduction as a result of the transfer delay.

Acting on directions from the governor’s Department of Finance, CDE officials said the smaller payments to schools will continue through the end of the fiscal year but lost funds would be made up by August.

Thus, monthly payments through June will be reduced reflecting each district’s share of the $900 million problem.

There is an expectation that county assessors will begin fulfilling their tax increments payments to schools by April.

“I think the issue for some school districts will be cash flow,” said Paul Hefner, CDE spokesman. “Some might be scrambling to fill the hole; some might have to borrow the money they will need. We understand that some counties have indicated that they will be offering to loan to the districts.”

The delayed transfer comes as something of a surprise to school officials who had expected a reasonably simple process to unfold following a ruling in December by the California Supreme Court upholding legislation that dissolved redevelopment agencies statewide.

But the courts have given “successor agencies” – typically cities and counties – until March 1 for finalizing a schedule to pay off any existing debts and obligations. Each county’s auditor-controller is in charge of setting aside a portion of the property taxes that previously went to redevelopment to pay off the redevelopment agencies’ obligations.

Successor agencies then have until April 15 to submit their payment schedules to the state Department of Finance and state controller for approval.

But most of the attention for the successor agencies has been on how they would manage closing out a myriad of obligations outside the tax increment itself – such as bond debt and physical assets. Some fiscal experts said last week  they did not understand why it would take county assessors three months to sort out the increment transfer to schools.

For the governor, the transfer problem is just the latest in another trying budget year as the California economy slowly climbs out of the deep recession. Tax collections for January came in $528 million below estimates; that shortfall, if it remains through the end of the fiscal year, would add to the forecast deficit of $9 billion this year.

Although a warning last month that the state could run out of cash next month seems to have been avoided as a result of legislation giving more options for cash management – the Brown administration would seem to have few options for dealing with the $900 million tax increment problem.

The fact is, however, the administration has simply created yet another school funding deferral – a solution for the state that has added increasing costs and complications to school budget. The nonpartisan Legislative Analyst has noted that deferrals have been used so frequently by the state over the past four years, that now 22 percent of K-12 Proposition 98 payments are paid late.

Ed’s Note: Cabinet Report is dedicated to covering K-12 education issues in California. To subscribe visit http://www.siacabinetreport.com/home.aspx Selected stories have been shared with Capitol Weekly with permission from School Innovations & Advocacy, owner and publisher. Reporter Kim Beltran can be reached at kimb@sia-us.com and reporter Tom Chorneau is at tomc@sia-us.com.

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