Pennsylvania’s budget impasse may force the Red Lion Area School District into bankruptcy, its superintendent said.
“Our cash flow analysis for the remainder of this school year is dire,” Scott Deisley said in a letter posted on the district’s website. “Unless we take some extraordinary measures right now, the district will likely face bankruptcy by the end of the fiscal year.”
Gov. Tom Wolf, a Democrat, and the Republican-controlled legislature remain stalled over a fiscal 2016 budget that is now nine months late. Wolf approved three-fourths of the spending plan in December while holding out for an increase in basic education aid.
Red Lion sits nine miles southeast of York.
According to Deisley, the district has received less than 50% of the basic education funding the state owes it. Pennsylvania, he said, still owes about $9.7 million.
Deisley recommends the district withhold payments for cyber and charter tuition expenses, effective immediately, to preserve cash flow. At its March 3 meeting, the Board of School Directors allowed the administration to withhold vendor payments.
Additionally, said Deisley, the district will delay all requests for purchases until funds become available. “Our focus will be essential classroom needs, first, debt service and utilities, followed by payroll,” he said. “All other expenses will be denied.”
Borrowing to cover expenses is too risky, he said.
“When a public school district takes a loan out for operational cash shortfalls, those bonds are not transferrable from one fiscal year to another,” he said. “This option is not viable since the repayment of any loan would correspond with the same timeframe in which we are at risk for running out of money. The risk associated with taking out a loan and hoping that the state budget impasse will be resolved in time for us to make our repayment is too uncertain.”
Moody’s Investors Service last month downgraded three struggling Pennsylvania school districts and withdrew their enhanced ratings based on the commonwealth's pre-default intercept programs.
It lowered the pre-default enhanced ratings of Chester Upland to Ba2 from Baa1, Duquesne City to Ba2 from Baa1, and Steelton Highspire to B1 from Baa1 and assigned negative outlooks.
Standard & Poor’s last week placed its AA-minus general obligation rating for Pennsylvania on credit watch with negative implications, in what could be the first of several rating actions against the commonwealth in 2016.
“There is no problem with GO debt service payments, but there have been problems with other issuers for which the state has some financial responsibility such as school districts,” Alan Schankel, managing director of Janney Capital Markets in Philadelphia, said after S&P’s latest action.