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State misses $2.5-billion payment to schools because of budget delay

August 23, 2010 |  4:27 pm

California's top fiscal officials Monday ordered the deferral of $2.5 billion in payments to the state’s public schools next month to conserve cash and stave off the need to begin issuing IOUs.

The state’s budget is 54 days late, and that delay has stretched the state’s depleted treasury to the breaking point. Issuance of scrip could come within weeks.

The deferral announced Monday “was not taken lightly,” state Controller John Chiang, Treasurer Bill Lockyer and Department of Finance Director Ana Matosantos wrote in a joint letter to the Legislature.

The payment delay –- which comes atop another $2.5-billion deferral in July –- was not unexpected, said Kevin Gordon, an advisor to school districts on state financing. Lawmakers approved the deferrals back in February.

“There was early warning to school districts about what the state's intentions were … giving districts enough time to make other arrangements,” said Gordon, president of School Innovations and Advocacy, an education consulting firm.

But the deferral will force districts to borrow more funds to cover their bills until the state pays up, driving up costs and taking money from classrooms, said Rich Pratt, assistant executive director of the California School Boards Assn.

“The more you borrow, the more interest you have to pay,” Pratt said.

State officials acknowledged the added hardship. “The lack of a state budget is levying additional fiscal stress on schools … deferral of state payments will further exacerbate the situation,” Chiang, Lockyer and Matosantos wrote.

Fiscal officials also ordered that a $400-million payment to counties be delayed; $700 million in county funds were pushed off in July.

The latest skipped payments to counties and schools must be repaid within 90 days, said H.D. Palmer, a spokesman for the Department of Finance.

-- Shane Goldmacher in Sacramento