LOS ANGELES - Gov. Jerry Brown's proposed state budget for 2014-15 is a credit positive for California's school and community college districts, according to Moody's Investors Service.

The budget includes the elimination of a $6.2 billion backlog of deferred state aid payments and adds $4.8 billion in new funding for schools.

This "materially improves their liquidity, makes them less reliant on short-term borrowing and bolsters cash reserves," Moody's analyst Eric Harper wrote in the report, released Jan. 17.

The state had delayed a larger amount of aid payments to districts during and after the recession to avoid permanent cuts. As the state paid off prior-year deferrals, it created new ones and began to develop a backlog of payments.

At the height of deferrals in fiscal 2011-12, the state owed districts $10.2 billion — 22% of annual state aid.

Districts that are heavily reliant on state aid, generally those with lower wealth and property tax values, were most affected by the deferrals and would benefit the most from the governor's proposal, Harper said.

The largest affected districts include Los Angeles Unified School District, Long Beach Unified School District, and Fresno Unified School District. Other districts with larger portions of their funding coming from property taxes will receive little or no benefit from the early deferral payments.

"The governor's plan to eliminate all aid deferrals will strengthen districts' liquidity compared with our earlier expectations and could be the beginning of several years of on-time payments," Harper said. "Furthermore, we expect school and community college districts to be significantly less dependent on short-term borrowing and have healthier cash reserves."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.