Two bills to be introduced in the New Jersey Legislature today would allow school districts to execute promissory notes to cover budget gaps created by the state's decision to delay aid payment to school districts.
The state is delaying final aid payments totaling about $300 million to July 7, which is after the beginning of fiscal 2004, in order to help balance the current fiscal 2003 budget.
According to the bills, a school district may borrow through commercial banks an amount up to their delayed state aid payment before June 30. The state will reimburse the districts for the interest on the amount borrowed and for any other approved borrowing costs.
Assembly Budget Committee chairman Louis Greenwald, D-Camden, and Assembly Appropriations Committee chair Bonnie Watson-Coleman, D-Trenton, drafted the legislation set for consideration by the Appropriations Committee today.
The Senate bill will be sponsored by Budget Committee chair Wayne Bryant, D-Camden. Under current law, school districts cannot borrow after Jan. 1 to cover operating costs.
Edwina Lee, executive director of the New Jersey School Boards Association, called the state's plan to delay the final aid payment, both this year and next, "a fiscally risky and perhaps irreversible precedent."
"All of us in New Jersey are trying to cope with economic realities," Lee wrote in a letter to Gov. James E. McGreevey. "Forcing school districts to borrow money to make up for lost state aid will only make matters worse."
Districts able to tap their reserves rather than borrowing will see their surplus funds "dip to perilously low levels." Those districts would also lose interest income and may have to ask vendors to delay bills, Lee wrote.
But Treasury spokesman Tom Vincz said the plan would not disrupt school district operations and was a practical and fair solution for helping New Jersey bridge a $1.1 billion budget gap. School districts had plenty of lead time to prepare for the delayed state aid payments, he added.
"School districts will be receiving every penny of aid that they were promised in the budget for this fiscal year. The last payment is just coming 10 days later than they anticipated," Vincz said. "It's not something we'd choose to do in good times, but given the fiscal circumstances, it was a solution we had to explore."
The head of the state's school board association urged McGreevey to follow the example of Illinois Gov. Rod Blagojevich, who has instructed the state treasurer to make the final two school aid payments for the current fiscal year on time.
In her letter to McGreevey, Lee quoted Blagojevich, saying he rejected any delay, particularly in times of fiscal crisis, because the Illinois governor said school districts must have the opportunity to "plan for the upcoming fiscal year without the uncertainty of knowing when or how much they will receive from the state."
Illinois must close a $4 billion budget gap in fiscal 2004; New Jersey faces a $5 billion hole.
In a poll of 183 districts by the New Jersey School Boards Association, 26 districts said they would have to borrow to cover the delayed payment. New Jersey has more than 600 school districts.
According to the NJSBA, Bayonne would need to borrow $1.6 million, West New York $3.1 million, East Orange $5 million, Passaic $6.4 million, and Trenton up to $10 million.
