SAN FRANCISCO - The California Department of Finance has developed a strategy to smooth out the state government's cash-flow needs and therefore reduce the amount of cash-flow borrowing it will need over the next year.
But it looks like that plan may increase the amount of cash-flow borrowing school districts need to do, according to a financial adviser who works with K-12 districts.
When Gov. Arnold Schwarzenegger announced his revised fiscal 2009 budget proposal May 14, it included a plan for "state cash management improvement," which would "smooth out general fund disbursements throughout the fiscal year to better align receipts and disbursements," according to budget documents.
At the time, no details were available, but the finance department has begun to share them.
One proposal would delay $2.5 billion in so-called categorical payments to school districts - for specific programs such as elementary class-size reduction - to April 2009 from August 2008, said Jeffrey Small, managing director at Sacramento-based financial advisers Capitol Public Finance Group LLC.
Moving these payments toward the end of the coming school year, instead of the beginning, would have a clear impact on school districts' cash-flow requirements.
One way to manage those requirements is the issuance of tax and revenue anticipation notes. The deferral of the "categorical" payments could result in Trans being issued by districts that otherwise wouldn't issue them, as well as larger borrowings by districts that normally issue Trans, Small said.
The administration's plan to smooth out the state's cash flows comes amid concerns that the state's liquidity position is weakening amid continued budget deficits and an economy that is running out of gas.
That's exacerbated by concerns that the state's budget may not be in place by the beginning of the fiscal year July 1.
Late budgets are more the rule than exception in California, largely because they must be enacted with two-thirds votes in each house. With a big budget deficit, it may be even harder than usual to bridge the gaps between the GOP and Democrats over spending and taxes.
The administration's cash flow management plan would reduce the state's need for external borrowing to $10 billion from $13.6 billion, according to a report published Thursday by the Senate Republican caucus.
The administration is planning $10 billion in revenue anticipation notes in September, assuming its cash management plan is enacted and the budget is adopted on or close to schedule, the report said.
Those projections can probably be realized if the budget is enacted by Aug. 1, according to the Senate GOP analysis, which found that further delays could be expensive.
"It appears that a budget stalemate that lasts beyond August 1 would create significant pressure for more risky and expensive borrowing (e.g., RAWs)," the report said, referring to revenue anticipation warrants that the State Controllers Office could issue in the absence of a budget.
As the state debate continues in Sacramento, school districts and other governments are beginning to issue the Trans they use to manage their cash flow.
Small said one of his clients, the Santa Clara Unified School District, kicked off the note season Thursday by issuing $13 million in Trans through a competitive sale. He said the result was excellent for his client.
"Our Tran sale drew seven bids and the range was huge," he said.
Banc of America Securities LLC won with a true interest cost of 1.6511%. Bids were as high as 2.23%.
The district carried Standard & Poor's top SP1-plus short-term rating, and its long-term bonds have an underlying AA long-term rating with a negative outlook.
"It's going to be a benchmark," Small said.