Explaining Deferrals

The state's decision to use local school property taxes to fund bond repayment and meet its obligation to backfill reduced Vehicle License Fees has been described as a 'simplifying' or 'cost-saving' measure by those there in 2004.  In light of the State's fiscal crisis, these decisions may have seemed logical and necessary at the time. However, the global meltdown in 2008 dramatically increased the instability in state general fund income.  With the economy in a tailspin, revenue became increasingly scarce and cash hard to come by. 

 

In contrast, the transfers of local school taxes quickly grew to almost $2 billion a year greater than VLF backfill required

 

Thus, over $6 billion a year is being taken from the schools' revenue to meet a VLF backfill obligation of less than $4 billion.

 

Despite the 'hold harmless' guarantees they'd received, schools were then told that their needs could be deferred -- or, rather, their revenues could.  No one looked at these trends next to one another:

Constructed from the Governor's Budget Summaries, Schedule 12 E State Appropriations Limit Excluded Appropriations, and California State Controller's Office Assessed Valuation Annual Reports for each year.  

"To Defer or Not Defer" LAO, January 2011. Here we see the State unable to find the funds in unstable times to cover excess VLF distributions. 

Read more about the decisions that the Legislature had to make -- to cut school budgets even more deeply or to hand out IOUs.  To Defer or Not Defer: An Analysis of the Effects of K-12 Payment Deferrals from the California Legislative Analyst's Office.  Note the section entitled Places Increasingly Heavy Cash Burden on School Districts and read about the "seemingly questionable" Odd Accounting and Borrowing Practices.  By 2011-12, California K-12 education was spending $50 million a year on interest alone as it had to borrow to make up for the deferred funds.

 

The effect of the VLF swap alone was an excess transfer of $7.0 billion cumulatively by 2010-11, $8.4 billion by 2011-12.  Consider the findings of the LAO survey (below) of school districts representing two out of every three schoolchildren in California, circulated in January 2012. They outline how school districts have dealt with the funding cuts thrust upon them -- and worsened by the deferrals that the excess VLF backfill largely created.

... approximately $1.5 billion is shifted from schools ... to repay the Economic Recovery Bonds, and approximately $6.1 billion ... to replace Vehicle License Fee revenue losses ... [of] $4.1 billion.

— Governor's Budget Summary 2013-14

 

In 2012‑13, the estimated value of the VLF backfill to local governments is $6 billion. The value of the tax reduction ... $4.3 billion.

— Governor's Budget Summary 2012-13

 

The estimated value of the VLF backfill to local governments is $5.7 billion in 2011‑12. The value of the tax reduction ... $4.3 billion.

— Governor's Budget Summary 2011-12