Deferred payments to California schools and community colleges will fall to their lowest level in five years this academic year, and repayments for previous deferrals are starting sooner than expected. Instead of waiting until January, the state will pay back $1.57 billion it borrowed from K-12 schools next week, and the $300 million owed to community colleges is all scheduled to arrive this Friday rather than half this month and half next.

“It’s yet another indicator that the state’s fiscal condition is continuing to improve,” said State Finance Director Ana Matosantos, giving credit to “a sound budget, diligent debt management, and the passage of Proposition 30.”

But the eye-catching gift-wrap of this early holiday present may overstate what’s inside. “It doesn’t rise to the big public policy announcement that [Gov. Jerry Brown’s administration] has given us,” said Robert Miyashiro, Vice President of School Services of California, an education management and advocacy company. “It’s certainly welcome, but it shouldn’t be interpreted as some windfall or bonanza.”

That’s because paying down deferrals – early or not – doesn’t give school districts more money; it’s the same money they were owed by the state, which borrowed it to pay its own debts. That, in turn, forced many K-12 and community college districts to take out loans in order to get by.

The early repayment might help districts by defraying a little bit of their borrowing costs but, “operationally, it’s not really that big a deal,” said Dan Troy, Vice Chancellor of Finance for the California community college system. Schools won’t be able to rehire laid-off teachers or restore programs.

There’s also another potentially confusing aspect to the state’s announcement. The deferred funds being repaid to districts this month are for intra-year deferrals, when the state borrows from schools within the academic year because it’s running short of cash for that month.

Those deferrals are less drastic, and distinct from the nearly $10 billion borrowed from schools and community colleges to help get the state through massive deficits in recent years. Those are known as year-over-year deferrals, which are more difficult for schools to absorb because they lose the money in one fiscal year and don’t get any of it back until the next fiscal year. This affects their ability to borrow and also, potentially, their creditworthiness. The good news is that because Proposition 30 passed, they have already been reduced by more than $2 billion.

There are indications that the state is easing off intra-year deferrals as the economy improves and the anticipated Prop. 30 funds are about to start coming in. At the same time the administration informed districts about the early repayments, it also told them that it’s entirely eliminating the $900 million intra-year deferral scheduled for March 2013.

“It’s nice that there is some cash in the bank,” said Troy. “The most positive sign, frankly, is that the state is not doing so badly; it’s on better fiscal footing than we’ve seen in recent years.”

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