While education leaders are encouraged to see minimum funding requirement to schools will be maintained in the state budget agreement, questions are arising about plans to defer payments and the possibility of mid-year cuts.

Part of the tentative agreement to fill the state’s $26.3 billion budget gap includes $4.3 billion in education spending and $1.7 billion in deferred payments. Education leaders are encouraged that Proposition 98, a voter-approved initiative setting minimum education funding, was not suspended. However, worries are arising about the potential for mid-year cuts and cash flow shortages due to payment deferrals.

"Deferrals are going to put a lot of pressure on cash flow,” said Peter Burchyns, special advisor to the board and superintendent of the County Office of Education.

Depending on the district, reserves may be able to cover the gap since school districts will get the funds. However, it could be a problem for districts without much extra cash, Burchyns said.

Robert Clark, chief business officer for the Burlingame Elementary School District, agreed noting the potential effects of deferrals often does not get much attention.

"It’s like a monthly pay check you’re expecting. If you don’t get it or only get half, that could be a problem,” said Clark, who added districts countywide are closely monitoring cash flow.

Cuts to cities are also noteworthy to school districts, since many have agreements with cities for some services. Burlingame fits into this category, leaving Clark to wonder how cuts to the city will affect the district.

Mid-year cuts are another lingering fear facing education leaders. Burchyns warned if the economic downturn continued making mid-year cuts necessary, school districts could be in this situation again next year.

Raul Parungao, Redwood City Elementary School District chief business official, explained the district was able to absorb previous mid-year cuts using reserves. If the state made mid-year cuts, the district would be forced to cut programs mid-year, a potential situation Parungao described as disruptive to the classroom.

Parungao added the proposal in general seems a bit shaky as it relies heavily on borrowing.

One bright spot in the education funding proposal includes maintaining Proposition 98 minimum funding requirements.

Proposition 98, passed by voters in 1988, requires the state to provide a minimum level of funding for public schools annually. The governor and Legislature can override the requirement. Doing so takes a two-thirds vote from each house and approval by the governor.

Education was slated to be cut more than $5 billion over the last and current fiscal year. However, without approval before June 30, last year’s cuts were not made. To make the same dollar amount in cuts, the state must suspend the Proposition 98 requirement. The threat of suspension alone raised fear in local leaders.

Elizabeth McManus, associate superintendent of business services for the San Mateo Union High School District, was ecstatic to see the proposal included funding Proposition 98. She noted the district created a conservative budget with a fair share contribution built in.

California public school districts can be funded in one of two ways. Basic aid districts rely on local property taxes with less state support. A revenue limit district receives a set amount of money for each student from the state. State cuts mean revenue limit districts receive less cash, while basic aid districts may need to give money back to the state, known as a fair share.

For now, school business officials are just waiting to see what is actually passed before making any changes to district budgets adopted last month.

"We’re all a little more weary,” said Nellie Hungerford, associate superintendent of business and operations for the Belmont-Redwood Shores Elementary School District. "There were so many updates and we responded to each. It’s a little like crying wolf.”

Hungerford continues to put away every additional dime the district has into savings in preparation for whatever budget is finalized.

Heather Murtagh can be reached by e-mail: heather@smdailyjournal.com or by phone: (650) 344-5200 ext. 105.

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