Deferrals, The Devil is in the Details
•California K-12 public schools face a major funding crisis. Because of reduced economic activity due to the COVID pandemic and the resulting loss of state tax revenue, Proposition 98 payments for schools in California are currently being deferred (See the Deferrals Schedule here) from February through June of 2021 into the 2021-2022 school year, to the tune of $13.5 billion.
• More than 1/3 of the school’s total LCFF revenue will not be fully recovered until the end of the 2021 calendar year. In addition, over $1.3 billion of special education funding is currently being deferred to 2021-2022.
• With the economic outlook still uncertain, as the pandemic continues to affect our daily lives, it is unclear how these numbers may change in the months ahead. It is best to be prepared and have a strategy in place. A few schools may be able to weather this storm by relying on significant cash reserves to carry them through this time.
• From February to November 2021, the vast majority of charter schools and small to medium school districts will need to find financing solutions that will allow them to manage this cash flow deficit so that teachers can continue to be paid and schools can remain open.
• This is not just a one-time problem. A decade ago when the state also began to defer payments to schools, it took 5 years to fully reverse the apportionment deferral policy even as the economy recovered. So deferrals at some level will be around for a while, as will the need for financing.
• Making the situation even more challenging, schools received no cost of living increase (COLA) to this year’s state funding levels, and future year COLA increases are problematic at best. Also, schools now have the additional expense of financing their cash flow deficits. In summary, there are difficult times ahead concerning the day-to-day business of running a school, both the large and the small.