State extends overdraft protection to schools

The Office of the Arizona Treasurer has authorized relief for school districts that may not have enough cash reserves on hand to pay expenses for the rest of the year.

Because of a weakening economy and continued falling tax collections, the state Legislature passed and Gov. Jan Brewer signed legislation delaying $300 million in state aid to public schools due on May 15. The state is "effectively broke" Dean Martin, state treasurer, said.

Payment was deferred until the new fiscal year, July 1. In order to manage a drought of what amounts to 25 percent of annual school apportionment funding, the state treasurer's office will now back up any checks issued for school district expenses.

Martin explained the state had several options. Brewer could have drawn down federal funds from the stimulus package, but she decided she wanted to save that for next year. Or the state could have cut the funding, delay payment or borrowed 100 percent of the money.

There was a danger in borrowing the money because there was a chance it could not be repaid by June 30, Martin said. And if the money was not repaid by then there was a question of whether such action violated the state constitution.

However, many school districts still have significant cash balances and do not need any help, Martin pointed out. He wanted to put a plan into place now where his office would be a lender of last resort to avoid financial stress on school districts and county treasurer offices, he said.

The state treasurer's office was going to lend $300 million to the general fund but since the state does not have that payment now because it was delayed to the new fiscal year, they will make money available to any county treasurer's office, Martin said. Most school districts handle expenses through the county treasurer.

In order to receive funding state statute requires the county treasurer to have exhausted all cash balances and lines of credit as well as to submit an application. County treasurers will issue registered warrants and then the state treasurer's office will cover checks already written, Martin explained.

"That way teachers, staff or vendors don't have to worry about their checks bouncing," Martin said.

A year ago he cautioned then-Gov. Janet Napolitano of a such a scenario occurring as is happening now but she accused him of being "a chicken little," he said.

"We planned for the best and prepared for the worst. Financial planning is complex yet extremely important so we want to make sure we can back up the county treasurers if they (run) out of reserves."

It was actually a legislative committee meeting last week with the Arizona Association of School Business Officials that mostly prompted action, Martin noted. Chuck Eggis, the association's director of government relations, said the legislature made the problem more severe by rolling over the $300 million to the next fiscal year yet they were out of options.

"They either did that or cut spending by $300 million," Eggis said. "And there's no way this late in the school year you can cut expenses without additional harm."

He added, the association's primary issue was concern over the deferred payment which was in effect a loan. Yet the amount repaid to school districts will be reduced by dollars some lawmakers have called "excess" unspent funds in schools' accounts. Therefore, some of the school districts would never receive any of the rollover money and be forced to raise property taxes to fund schools for the next year.

"It's very nice the state's treasurer's office is doing this to help schools in this difficult time," Eggis said. "It could be a life saver to some districts."

Anna Hernandez, Yuma County chief deputy treasurer, noted the county is already registering warrants for school districts who don't have enough cash reserves and that it is a common practice to make sure checks are honored.

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William Roller can be reached at wroller@yumasun.com or 539-6858.