Put students first – return $12.5 billion in deferrals to schools

The Legislative Analyst Office recently reported a $26 billion windfall. And, some are suggesting California should restore across-the-board cuts. But politicians must recognize solutions embedded in the June budget did not embody shared sacrifice – kids and teachers took a disproportionate hit.

June revenues were deliberately pessimistic. As a result, the Legislature could low-ball the Proposition 98 minimum school funding guarantee. In addition, the state relied heavily on payment deferrals to schools to close the budget gap. $12.5 billion in IOUs were established requiring schools to wait until next year to get paid what they are owed today. 

IOUs were used to avoid deeper cuts in non-school accounts and avoid unpopular votes to suspend Prop. 98. School accounts were again used as an ATM machine for the rest of the state. With a simple majority required to pass the budget, California politicians failed to muster the courage to keep children and teachers from harm’s way from deeper cuts under the illusion that deferrals have no consequences.  

But the LAO explains, “when the state defers payments from one fiscal year to the next, it can reduce spending while allowing districts to maintain programs by borrowing or using cash reserves,” or, schools must cut programs for students.

School deferrals were first used during Gov. Gray Davis’ administration. Then, Gov. Arnold Schwarzenegger put IOUs on steroids in the Great Recession. By Gov. Jerry Brown’s administration, they became the largest component of the wall of debt. 

The Department of Finance reported in January 2015, “some school districts were able to borrow to manage these deferrals, while others had to implement deferrals as cuts. Districts that were able to borrow incurred substantial interest costs, which led to dollars taken out of the classroom.” The IOUs and uncertainty caused millions in ongoing cuts, depleted school reserves and forced more than $100 million in unreimbursed borrowing costs. More than $20 billion owed was never repaid in arrears.

An IOU with a promise to pay back next year is a sham solution when the reimbursement comes directly from money schools are already owed. And, deferrals result in unequal pressure for reductions in current levels of service in low-wealth districts, including teacher layoffs, fewer library hours, fewer counselors and elimination of music, arts, sports, tutoring and after school programs. 

Accordingly, IOUs are regressive and inequitable making it even more difficult to maintain current programs designed to help disadvantaged students and English learners. And, with layoff rules, fewer novice teachers are retained, including fewer new teachers of color, which research finds produce positive outcomes for students of color.  

Failure to eliminate the IOUs to schools will unnecessarily plunge many struggling districts into projected insolvency and deeper cuts. This will lead to further inequities for low-income students short-changed even before the pandemic. A 2019 state audit found billions of dollars earmarked for high-need students could not be determined to effectively support increased or improved services for these students.

When the state has funds to reverse IOUs and knows about these inequities, it is irresponsible to continue unneeded pressure on educators and limit services to students who each have a constitutional right to a basic education. 

Balancing the budget on the backs of kids and teachers is never a good idea. It’s unconscionable if the state can reverse it and fails to do so. Schools need predictability in planning for 2021 and beyond, for reopening, addressing learning loss and reimagining a system that puts kids-first and gives every child an equitable opportunity to learn.

There’s more than enough funding to erase all $12.5 billion of the deferrals. 

Rarely does a governor and Legislature get a second chance within the same fiscal year to correct bad policy. It is time politicians immediately put the money back where it belongs and pledge to never disproportionately balance the budget on the backs of kids and teachers.

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Bill Lucia has also written about how the pandemic reveals the need for schools to utilize technology for online classrooms and about students struggling to read.