University of Southern California Dissertations and Theses

Beginning Cash Balances, Temporary Borrowing, And Contingency Reserves Ofcalifornia School Districts

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Beginning Cash Balances, Temporary Borrowing, And Contingency Reserves Ofcalifornia School Districts

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Content This dissertation has been
microfilmed exactly as received 67-17,704
SMUTZ, Verne Lamontv 1935-
BEGINNING CASH BALANCES, TEMPORARY
BORROWING, AND CONTINGENCY RESERVES OF
CALIFORNIA SCHOOL DISTRICTS.
University of Southern California, Ed.D., 1967
Education, administration
University Microfilms, Inc., Ann Arbor, Michigan
CO PYRIGHT B Y
V E R N E L A M O N T
1968
S M U T Z
BEGINNING CASH BALANCES, TEMPORARY BORROWING,
AND CONTINGENCY RESERVES OF CALIFORNIA
» ■
SCHOOL DISTRICTS
A Dissertation
Presented to
the Faculty of the School of Education
The University of Southern California
In Partial Fulfillment
of the Requirements for the Degree
Doctor of Education
by
Verne Lamont Smutz
June 1967
This dissertation, written under the direction
of the Chairman of the candidate’s Guidance
Committee and approved by all members of the
Committee, has been presented to and accepted
by the Faculty of the School of Education in
partial fulfillment of the requirements for the
degree of Doctor of Education.
May 24-, 1967
Guidance Committee
TABLE OF CONTENTS
LIST OF TABLES
Page
iv
Chapter
I. THE PROBLEM AND THE PROCEDURE 1
The Problem
The Procedure
II. REVIEW OF THE LITERATURE 17
The Fiscal Year
Local Tax Collection
State Aid Payments
Short-Term Borrowing
Reserves
Budget Planning and Administration
Related California Studies
III. INTERIM FINANCING IN CALIFORNIA AS VIEWED
BY COUNTY SUPERINTENDENTS, COUNTY
AUDITORS, AND SPECIALISTS IN SCHOOL
FINANCE...................................................................... 67
Sources of the Data
Extent of Temporary Borrowing
Types of Temporary Loans
Factors Influencing the Need for Temporary
Borrowing
Timing of Temporary Loans
Suggested Practices in Interim Financing
Contingency Reserves
Summary of the Chapter
Chapter Page
IV. ANALYSIS OF CASH FLOW IN SELECTED
CALIFORNIA UNIFIED SCHOOL DISTRICTS 155
Cumulative Percentage of Total Receipts
Total Outgo as a Cumulative Percentage of
Total Receipts
Total Receipts (Exclusive of Beginning Cash
Balance) Minus Total Outgo at Low Point
of Each Month
Cash Balance Requirements of Twenty-One
School Districts
Summary of the Chapter
V. SUMMARY, MAJOR FINDINGS, CONCLUSIONS,
AND RECOMMENDATIONS....................................... 189
Summary
Major Findings
Conclusions
Recommendations
BIBLIOGRAPHY................................. 219
APPENDICES..................................................................................... 225
APPENDIX A .............................................................................. 226
APPENDIX B .............................................................................. 233
APPENDIX C .............................................................................. 236
APPENDIX D.............................................................................. 239
APPENDIX E .............................................................................. 242
APPENDIX F .............................................................................. 245
APPENDIX G.............................................................................. 250
LIST OF TABLES
Table Page
1. Extent of Temporary Borrowing by California
School D istricts............................................................... 76
2. Responses of County Superintendents to Question
Regarding Temporary Transfers of Funds from
the County T reasury....................................................... 91
3. Typical Causes of Need for Temporary Loans as
Reported by County Superintendents............................. 125
4. 1964-65 A. D. A. and Assessed Valuation per A. D. A.
of Districts Selected for Analysis of Cash
Balance Requirements.................................................... 158
5. Ranking of Districts from Smallest to Largest
According to 1964-65 A. D. A......................................... 159
6. Ranking of Districts from Smallest to Largest
According to 1964-65 Assessed Valuation per A. D. A. 161
7. Cumulative Percentage of Total Receipts, 1964-65. . . . 165
8. Cumulative Percentage of Total Receipts, 1 9 6 5 -6 6 .... 166
9. Cumulative Outgo Expressed as a Percentage of Total
Receipts for the Fiscal Year 1964-65.......................... 170
10. Cumulative Outgo Expressed as a Percentage of Total
Receipts for the Fiscal Year 1965-66.......................... 171
11. Total Receipts (Exclusive of Beginning Cash Balance)
Minus Total Outgo at Low Point of Each Month,
1964-65 175
iv
Table Page
12. Total Receipts (Exclusive of Beginning Cash Balance)
Minus Total Outgo at Low Point of Each Month,
1965-66 176
13. Comparison of Actual Beginning Cash Balance with
Beginning Cash Balance Required to Avoid
Temporary Borrowing, 1964-65 ................................. 179
14. Comparison of Actual Beginning Cash Balance with
Beginning Cash Balance Required to Avoid
Temporary Borrowing, 1965-66 ................................. 180
v
I
| CHAPTER I
i
i
| THE PROBLEM AND THE PROCEDURE
i The Problem I
----------------- I
i
i
; i
Introduction
The two major sources of income for California school j
i I
I districts are local secured roll taxes and state apportionments. j
; While a small percentage of the state apportionment is received dur- j
ing each month of the fiscal year, no secured tax money is available i
I
until late November or early December. |
With the fiscal year beginning July 1, most school districts
j are faced with a situation in which expenditures far exceed income
t
during the early months of the fiscal year. In order to meet expendi
tures, additional money must be available to supplement the income
of the district until local tax moneys become available. Typically, j
i
i
districts attempt to provide a beginning balance which is adequate for |
this purpose. The beginning balance in a school district budget is
i
made up of (1) the general reserve, (2) unexpended budget classifica-
: !
tions, (3) unexpended undistributed reserve, and (4) unanticipated j
i i
I !
! :
1
income received during the previous year. When adjusted for previ- j
ous year liabilities and accounts receivable, the above amounts are !
carried forward and are available for expenditure during the next
i
]
| fiscal year.
i
| Revision of the time schedule for apportioning state aid now
;
permits districts to receive part of their state apportionment during j
each month of the fiscal year. Even so, rising costs, low statutory I
i
I
j tax ceilings, rapid growth, and a declining proportion of state support!
j are some of the factors which cause districts continuing difficulty in
i
their efforts to provide beginning balances which are adequate for
| their needs during the early months of the fiscal year.
Several alternatives are available to districts which are
i temporarily short of funds to meet current obligations. Money may
be borrowed on notes, tax anticipation warrants, or other evidence of
indebtedness. A temporary transfer of funds from the county
treasury may be obtained, with the approval of the county board of
i
supervisors, or from the county school service fund with the approval!
! i
of the county superintendent and county board of education (Education !
Code sections 21051-21053, 21201-21255; Government Code sections !
53820-53858; California Constitution, Article IV, section 31).
; i
| The long interval between the beginning of the fiscal year and j
! i
! j
i the date when local taxes become available apparently poses no
! serious problem for some districts, while others frequently resort to
some form of temporary loan in order to meet expenses during the
early months of the fiscal year. Some of the factors which seem
likely to have a bearing on this problem are variations among dis-
j tricts in wealth, rate of growth, sources of income, policies related
| to budgeting, and variations among counties in policies regarding
|
!
! provisions for short-term indebtedness.
i
The need for reserves, however, is not brought about
! entirely by the lack of coordination between the fiscal year and the
j
receipt of tax revenues. The budgeting of appropriate reserves is
also necessary in order to provide funds for possible contingencies.
Possible inaccuracies in the estimation of income or expenditures and
1 emergency situations of various types are factors which require con-
I
sideration in the budgeting process. An analysis of the problems of
interim financing and the need for contingency reserves will be major
concerns of this study.
Statement of the problem
The purpose of this study was to identify and analyze prob
lems of California school districts in providing reserves for contin-
I gencies and in financing expenditures during the interim from the
j beginning of the fiscal year until local tax revenues become available.
i The study sought to answer the following questions:
i
I
1. To what extent do California school districts rely on
: some form of temporary borrowing to finance expendi-
i
I
| tures during the early months of the fiscal year?
I
j 2. What policies and procedures are followed by the fifty-
eight counties of California relative to provisions for
I
j
! short-term indebtedness?
3. In unified school districts, what factors are of impor
tance in determining the size of the beginning balance
needed and whether or not temporary borrowing will be '
necessary?
I
4. What practices are followed in planning the budgets of
unified school districts with regard to providing appro
priate reserves, both for contingencies and for the
succeeding fiscal year?
5. What desirable practices and procedures can be sug
gested in relation to the problems of providing funds for
contingencies and for interim financing?
Importance of the problem
j All phases of school finance and business management should
jundergo constant study, with emphasis upon providing the highest
[
I possible educational value per dollar expended. Planning and
! administering the school district budget is a process which is under-
! going such study, and continuous efforts are being made to develop
efficient budget practices.
One aspect of budget planning which has been a persistent
problem for school business administrators is knowing what portion
, of available funds should be maintained in reserve. With educational j
I I
i
I agencies facing increasing financial pressures, effective use of all
j available resources is a topic of major concern.
| It has often been pointed out that collection of taxes in
| i
advance of need and maintenance of unnecessarily large reserves are !
inefficient practices in terms of the educational benefit received. On !
: the other hand, failure to provide sufficient reserves to meet unex-
' pected contingencies can force cutbacks which may seriously damage
i
the educational program.
Lack of coordination between expenditure needs and the
receipt of revenue is another factor of importance in considering the j
| necessary size of reserves. The intermittent flow of income result- j
ing from infrequent collection of taxes creates "dry periods" during j
i
i ]
which school districts expend funds continuously while receiving very '
little income. j
1 i
| California school districts vary considerably, not only in I
I their patterns of expenditures, but in the extent to which they rely i
6
upon various sources of income. The size of the reserve required by
a given district is affected, not only by its own financial picture, but
also by county policies relating to budgeting and interim financing.
Pressure from taxpayers and employee groups is a factor
i
i
| which tends to inhibit the establishment of excessive reserves. Some
i administrators believe that criticism s of the size of reserves are
| frequently unjustified and that there is danger of such pressures
causing districts to decrease reserves to unwise low levels. Budget j
planners face severe criticism from these same groups if an unfore
seen emergency depletes the reserves and creates a financial crisis j
j within the district. j
I
The problem of providing financial reserves presents an
i
interesting puzzle when California legal provisions, financial and
policy variations among districts and counties, the need for interim
I financing, and the need for emergency reserves are considered. It
is obvious that there is no simple answer to the problem of what por- j
I
! tion of a district's budget should be maintained in reserve. It is j
hoped, however, that this study will provide guidelines of value in
j i
i relation to the provision of appropriate reserves. j
I Definitions of terms used
i I
I i
! Fiscal year. - -That period of time beginning July 1 of a given
j ' * ,
i calendar year and ending June 30 of the succeeding calendar year is
| the fiscal year of a school district.
Beginning cash balance. - -The actual cash balance as of
July 1, the beginning of the fiscal year for California school districts,
is referred to as the beginning cash balance. It is composed of (1)
I
I the general reserve, (2) unexpended budget classifications, (3) unex-
i
t
i pended undistributed reserve, and (4) unanticipated income received
! during the previous year.
i
i __
Net beginning balance. - -The amount of money carried for-
i
ward from the previous budget after it has been adjusted for previous
I
I
year liabilities, accounts receivable, and other items specified on the
; official budget form is the net beginning balance.
Interim. - -That period of time between the beginning of the
! fiscal year and the time when the first apportionment of local tax
! moneys becomes available is the interim. For California school dis
tricts this is a period of approximately five months, from July 1 until
late November or early December.
Interim reserve. - -Money carried forward from the previous
i
fiscal year and used to supplement income in financing expenditures
! until local tax revenues become available is called the interim
i reserve.
| Short-term indebtedness. - -Indebtedness incurred for the
i
! purpose of meeting expenditures during the current fiscal year, and
which must be repaid prior to June 30 of the current fiscal year, is
called short-term indebtedness.
! Reserves. - -Funds in the General Fund of a school district
I budget which are available for expenditure for contingencies or for
i
i
i
I interim financing are called reserves. When used by itself, the term
{
I "reserves" is not limited to mean the general and undistributed
!
1 reserves, but also includes excess funds contained in the various
i
: budget categories.
The Procedure
; Endorsement of the study
The purposes of the study and the procedures to be followed
i were reviewed by representatives of the California Association of
County Superintendents of Schools and the California Association of
! Public School Business Officials. This resulted in offers of support
i
and assistance from both of these organizations. The research
| proposal was presented to the executive board of the California
I
Association of County Superintendents of Schools by Dr. Leonard
' Grindstaff, Riverside County Superintendent of Schools. The execu-
; tive board encouraged the gathering of necessary information and
| offered its support in the conduct of the study.
! Review of the literature ^ j
i
Literature related to the problem was reviewed to provide an
overview of the general problems of interim financing in school dis-
j tricts and other agencies of local government. While the remainder
! i
I of the study was delimited to California, the review of the literature i
; included an historical perspective and coverage of current problems
| on a national scale. The practical value of suggestions found in the j
i literature depends, of course, upon the extent to which they are
i
| applicable to California. When interpreted in light of California legal
i
provisions and current conditions, suggestions contained in the litera-;
i ture provided guidelines of value in the conduct of various aspects of j
the study.
j Letter to county superintendents
i
Statutes in California provide for a number of methods of
interim financing which may be used by school districts. Budget
i practices followed by individual districts are also significant factors j
j i
jfor consideration.
; It seemed that county superintendents of schools were in an
; 1
excellent position to provide information regarding certain aspects of
; i
| this problem. Considering the complex nature of the problem and the
t ’
i ,
i
j variety of possible responses, it was decided that a typical question-
i
i
inaire would not be appropriate as a means of gathering the necessary 1
10
information. Instead, a letter was developed which posed a number
of questions and permitted the county superintendents to respond in
the manner which they considered most appropriate. This provided
a degree of flexibility which was most necessary in view of the diver-
i
! sity of approaches to the problem among the various counties.
The letter was developed with the aid of selected school
I
| adm inistrators, members of the Division of Business Services, Office
; of Riverside County Superintendent of Schools, and faculty members
i
i of the School of Education of the University of Southern California.
After a number of revisions based upon suggestions of those who
i assisted, the letter was submitted in its final form and approved by
the researcher*s doctoral committee.
The first portion of the letter consisted of a brief descrip-
i
tion of the problem and the nature and scope of the study. The
remainder of the letter consisted of questions to be answered by the
county superintendents. A copy of the letter is included in Appendix
; Interviews with county auditors
Responses of county superintendents indicated considerable
, i
i variation among counties in their approach to the problems of interim j
i
financing. It was also apparent that the approach followed in a given ,
I county depended to a large degree upon the recommendations of the
! n
i
county auditor.
The repeated references to the county auditor made it
apparent that he was in a key position and in most cases was the con
trolling figure in deciding the type of interim financing which would be
j
available to school districts within the county. It was thought, there- i
; I
! fore, that county auditors could make an important contribution and
should have a major role in this study. Considering the type of infor-
i
| mation required and the desirability of exploring the problem in some |
' I
depth, it was decided that personal interviews with selected county |
; auditors would be the most appropriate method for conducting this !
phase of the study.
I
i
A letter was sent to Mr. Roscoe Hollinger, auditor-
! controller of Los Angeles County, who was serving as president of
i
i
the California Association of County Auditors. The letter (included
i in Appendix B) explained the purpose of the study and asked that he
recommend four county auditors to be interviewed. Four additional
|
! copies of the letter were included, and Mr. Hollinger was requested
\
to forward these to the auditors whom he recommended for interview. 1
| This procedure was successful, because when the recommended j
auditors were later contacted by telephone they were already informed:
| :
j as to the purpose of the study; they knew that they had been selected i
i ;
! to represent their association; and they were expecting to be
12
contacted for an interview appointment.
The auditors recommended by Mr. Hollinger were the five j
i
county auditors who were currently serving on the education com
mittee of the county auditors association. The members of this com- I
| j
I mittee represented two large counties, one medium-sized county, and!
: !
i two of the sm aller counties.
I
Considering the variation among counties in the types of
t
; interim financing available to school districts, it was believed that !
I i
there should be an effort to obtain an auditor's point of view on each
! I
of the m ajor types of interim financing. Mr. Hollinger's list was
therefore supplemented with three additional names, in order to in- j
sure that all of the major types of interim financing were represented.
The complete list of the county auditors to be interviewed was then
approved by the doctoral committee.
An interview guide was developed for use in the interviews
with county auditors. It was designed to obtain a more complete
I !
| understanding of some of the problems mentioned by county superin- ]
] I
tendents and to provide a study of these problems from the viewpoint
i
!of county government. A trial interview was conducted with Mr. W.
Allen Ladd, auditor-controller of Riverside County, who also assisted:
1 I
j in refining the interview guide to increase the effectiveness of its use :
! with county auditors. A copy of the interview guide is contained in
I Appendix F.
i
i
i
j Interviews with specialists
j in school finance
J With the background obtained from the review of the litera-
i ture, letters to county superintendents, and interviews with county
auditors, it was believed that considerable insight could be gained
from a series of interviews with specialists in school finance and
!
I
I business management.
j
j It seemed that an understanding of the more specialized and
i
I
technical aspects of the problem, especially those dealing with school
! district budget procedures, legal provisions, and recommended
I
practice in school business management, could best be attained by
i interviewing a carefully selected group of specialists^ C riteria for
i
selection of the specialists included their common interest and back
ground of experience in school finance and business management, and
their representation of diversified experience with respect to the
; specific positions which they occupied.
A conference with a professor of school finance resulted in
the identification of the following positions from which to select the
: specialists to be interviewed.
I 1. Professor of school finance
2. President of the California Association of Public School
! 1 4 I
j
! Business Officials
I
i
| 3. Past president of the California Association of Public
! School Business Officials
i
j 4. District superintendent of schools
i j
| 5. Two assistant superintendents-business services |
; i
6. Three specialists in school finance from offices of ;
i
county superintendents of schools |
j i
7. Specialist in school finance representing an organization;
i
; i
! outside of education j
; !
Ten specialists were selected, with the assistance and
; approval of the doctoral chairman, to represent the above positions.
An interview guide was developed, revised through trial interviews
I
I
j with school business officials, and approved by the doctoral com-
I
mittee. A copy of the interview guide is contained in Appendix G.
Analysis of beginning cash
balance requirements
i
| Cash control ledgers of twenty-one California unified school !
j I
districts were examined in order to determine their actual beginning |
cash balance requirements for the 1964-65 and 1965-66 fiscal years, j
The term "beginning cash balance requirement," as used in this con- j
i i
I |
| text, refers to the size of the beginning cash balance as of July 1 1
! ;
i which would have been necessary in order to avoid the need for
I 1 5
i
temporary borrowing. In most cases, copies of the districts' cash
control ledgers were obtained from the county superintendents of
schools.
The size of the beginning cash balance needed was deter-
| mined by subtracting the total outgo from total receipts (exclusive of
| actual beginning cash balance and temporary loans). At the low point
| of the fiscal year, this difference represented the size of the July 1
| cash balance which would have been necessary in order to avoid the
I
need for a temporary loan.
j
Respondents in previous phases of the study had indicated
j that there were considerable differences among districts in their flow
I
of income. This was tested by comparing the cumulative percentages
i of total receipts which each district had received at the end of each
i
i
month.
The expenditure percentages were analyzed in a sim ilar
manner in order to gain a comparison of the expenditure patterns of
| the twenty-one unified districts.
I Organization of the study
Chapter I has presented the problem and a brief outline of
I the procedure followed in conducting the study,
j Chapter II consists of a review of the literature related to
the problem.
Chapter III presents the findings obtained from the phases of j
!
i
the study involving county superintendents of schools, county auditors,'
and school finance specialists.
Chapter IV presents the findings relating to the cash balance
i j
| requirements of twenty-one unified school districts in California. |
i
Chapter V presents a summary of the study and its findings,
i ,
! conclusions, and recommendations. j
! ;
The dissertation is concluded with a bibliography and
I appendices. j
CHAPTER II
REVIEW OF THE LITERATURE
W riters in school finance and educational administration have
i
long recognized the problems resulting from lack of coordination be- |
tween the fiscal year and the tax year. Numerous solutions have beenj
suggested, but most of the proposed solutions can be summarized as j
i
follows: |
i
1. Change the fiscal year or the tax year so that they
coincide.
2. Provide for quarterly or monthly collection of local
taxes and/or revise the schedule of state aid payments
so that money will be available when needed.
3. Plan to spread expenditures throughout the fiscal year
i
and arrange bills so that they fall due when revenue is j
available. j
4. Resort to some form of short-term borrowing until taxes
are collected. !
»
5. Build up a reserve fond to finance the period between th e ;
17 i
beginning of the fiscal year and the time taxes are
| received.
The time lag between the beginning of the fiscal year and the
receipt of local tax revenues, important as it may be, is only one of
i j
! many conditions which create the need for reserves within the school j
i i
! district budget. Funds are also needed to meet possible contingen-
! i
! cies which may occur during the course of a fiscal year. School dis- !
i • i
tricts protect themselves against certain types of emergencies through
' \
| insurance, but only a limited number of the possible financial contin- |
!
gencies can be covered in this manner. The need for contingency !
i reserves is, therefore, an important consideration in school district
I budgeting.
i This chapter is divided under seven topics, the first dealing
with the possible coordination of the fiscal and the tax year. The
literature indicates considerable agreement that this is a solution
which would provide relief from the problems of interim financing.
i i
• There is considerably less agreement, however, with regard to the
t
j
practical possibility of implementing such a change. :
j The second topic is concerned with the collection of local |
taxes. Considering the extent to which California school districts i
I :
rely upon local property taxes, tax delinquency and collection proce- I
j dures become major factors for consideration.
I The third topic discusses state aid payments as they relate
i
! to the problems of interim financing. The timing of state aid pay
ments is a factor of importance in determining whether or not funds
will be available when needed. The extent to which the state provides
j funds early in the year has considerable bearing upon the amount of
j
money which must be provided from other sources.
i
I
j The fourth topic deals predominantly with the causes and
i
i types of short-term borrowing. The need for such borrowing is often
|
| the result of various types of emergency situations and other factors
I
which are not directly related to the time lag prior to the apportion
ment of property taxes.
|
Topic five deals with the need for reserves and the types of
! reserves which are maintained by school districts.
I
i
The sixth topic discusses legal provisions and recommended
practices relating to budget planning and administration.
Several previous studies of California school finance which
I are related to this study were selected for discussion in the seventh
i
and final section of this chapter.
I
The Fiscal Year
i Several writers suggest that the most satisfactory procedure
j is to synchronize the tax year and the fiscal year; that is, make the
first tax due date coincide with the beginning of the fiscal year, so
that tax collections start when the fiscal year opens. When this is
done, the problem of interim financing becomes nonexistent. It must
be recognized, however, that this particular method has often been
considered an impractical approach to the problem. Triggs pointed
| out some of the difficulties involved in changing the fiscal or tax year
I when he said:
i
I
| . . . The structure of tax assessment and collection
| is so huge and complicated in the state of California that
I this adjustment would not be practicable. Neither would
1 an adjustment of the fiscal year be possible because of
its traditional nature. (47:18)
Perko and Purdy also investigated this problem and found
; that there were many obstacles to changing the fiscal year. Respond-
j ents in the Perko and Purdy study generally believed there was nothing
i
particularly sacred about the dates prescribing the fiscal year.
"However, it was generally expressed that once the fiscal year has
been established, changing it would be extremely difficult to accom-
| plish. There was only one respondent in favor of changing the fiscal
year to a calendar y ear." (46:220-21)
Perko and Purdy learned that in Nevada the fiscal year had
; been changed in 1955. Many complicated fiscal problems arose as a
i
| result of this change, and respondents in Nevada urged that changing
!
I the fiscal year not be considered.
2 1
I
i Perko and Purdy did not suggest that it was impracticable to j
! |
| consider a change in certain of the dates relating to tax assessm ent, i
I
! One of their recommendations was that the assessm ent calendar be
i
| changed so that all taxable property is assessed as of the first day of
j
i January with the local and state rolls to be completed and delivered to
the county auditor on the first day of June. They suggested that if the
! use of computers in assessm ent procedure proved to be successful in
; I
| the future, March 1 would be more desirable.
i Thus, a change in the fiscal year does not seem to offer a
! I
practical solution. In order to move in the direction of synchronizing
the tax year and the fiscal year, whatever changes are possible would
appear to involve changes in the schedule of tax assessm ent and
! collection rather than changes in the fiscal year.
i
Local Tax Collection
In view of the extent to which school districts rely upon the
j local property tax, it is essential that due consideration be given to i
i ^ I
t
methods and procedures used in local tax collection. W riters often
cite two major problems in this regard. Delinquent taxes, of course, |
have long been a source of concern to school districts and other
I governmental agencies. A second problem has been the scheduling of j
I 1
, tax collections in a manner which would provide a consistent flow of
22
income and make funds available when they are needed.
Regarding delinquent taxes, The International City Managers*
Association published the following statement.
Borrowing against delinquent taxes would be unnecessary
if budgetary estimates of revenue receipts were in line
with reasonable expectations, or if adequate allowances
for delinquency were included in the budget, or if expendi
tures were kept in line with actual receipts. There is no |
excuse whatever in normal times and under normal condi-
! tions for failure to meet these requirements or for borrow-
! ing against delinquent taxes. (27:322)
I :
I
California law requires that the school district tax rate be
I
based on 90 per cent of the secured assessed valuation, thus assuming
i
a 10 per cent delinquency rate in secured tax collections (34: section :
20704). Certainly, it is desirable for school districts to take the
, advice of The International City Managers* Association in this regard,
i Tax delinquency should be recognized as a factor to be considered,
and the budget should be planned accordingly. Some authorities would
; question the desirability of requiring all districts to assume the same
rate of delinquency. A budget based on an assumption of 90 per cent j
i
: tax collection gives most districts a safe margin, but if a district I
i
consistently collects 96 per cent, many school officials believe that |
i !
: I
the additional 6 per cent should be recognized in estimating the income
i i
i i
i for the next fiscal year.
! I
j In the normal course of events then, it appears that tax i
| delinquency is a factor which districts should recognize in advance !
and plan for accordingly. It is not a factor which should cause a need
for districts to borrow money except in extreme cases where a sub-
i stantial drop in percentage of collection occurs unexpectedly.
| Even so, school districts have an interest, as do all govern-
! mental agencies, in the development of procedures which will help to
j assure a low rate of delinquency. With regard to property tax collec-
I :
| tions, suggestions include installment payments, better billing proce-l
i !
; dures, discounts for early payments, enforcement of penalties, and ;
i |
j prompt sale of property when taxes are unpaid. |
Corbally pointed out the advantages of an installment plan for!
; the collection of property taxes when he wrote: j
With the success of the withholding technique in the income
tax field it is often suggested that some means of collect
ing the property tax other than in one or two lump payments
should be developed. Many feel that the use of a monthly
payment plan would reduce delinquency and would also pro
vide the taxpayer with a more realistic view of his share
of the support of local government than does the annual
payment plan. Too few individuals put aside funds each
month in anticipation of an annual tax bill, so when the tax j
bill does arrive it seems to represent a greater burden
i than it should be. (10:76-77) j
i
A number of w riters believe that failure to collect taxes in
! |
| many cases results from lax adm inistrative procedures and that |
| attention should be given to better collection methods. Burke made a |
| number of suggestions with regard to the collection of taxes, as j
i follows: I
In order to improve the collection of the property tax and
to reduce delinquency the following proposals for positive
action have been made:
1. Mail tax bills to every taxpayer.
2. Permit installment payments in as small
amounts as possible.
3. Allow discounts for early payment in full.
4. Integrate collection dates for other types of
taxes; so that large property tax and other
tax payments do not come due at the same
time.
5. Allow payment by mail.
Although some states have increased the number of install
ments, a great deal of progress is possible in all states
in modernizing collection methods. The Federal Housing
Administration has set the pattern by providing for monthly
payment of the taxes on property.
Where taxes are not paid even under a liberalized collec
tion procedure, a different plan of action must be taken.
Collection dates, discounts, and penalties should be fully
advertised. Delinquent taxpayers should be given frequent
notice and it should be administratively possible to work
out plans of payment suited to the circumstances of the
taxpayer. Interest rates upon delinquent taxes should be
high enough to discourage lapse in payments. Penalties
should be enforced. Tax sales should be certain and
prompt. (5:160)
Chatters and Hillhouse added support to the idea of the
i collection of taxes in installments. They stated:
Usually taxes should be payable in installments. Four
installments a year should be permitted in communities
where the history of collections indicates that the tax
burden cannot be paid under existing arrangements.
When the tax year and fiscal year cannot be brought into
| agreement and funds are needed prior to the usual tax
| collection dates, a prepayment plan may be adopted. (9:170)
25 I
i
I
The International City Managers' Association agreed that
installment payments are desirable and presented its viewpoint in the
following quotation:
. . . The installment collection of taxes has been adopted j
by a large number of cities throughout the country, with
installments ranging from two to twelve in number.
From the taxpayer's point of view, the installment sys
tem relieves some of the inconvenience of a large lump
sum payment and allows him to budget his payments in j
conformity with his income schedule. From the stand- j
point of the city, it has two advantages: first, by distribu
ting the collection of taxes throughout the year, the city's
revenue is less sporadic, with the result that the need |
[ for tax anticipation warrants or other forms of short- j
term borrowing may be reduced or eliminated; second, |
since the taxpayer may pay in smaller amounts and in
terms better adapted to his income, some reduction in
delinquency may reasonably be expected.
As to the frequency or number of installments, semi
annual or quarterly payments are probably to be preferred
to monthly collections. Whatever additional conveniences
and benefits might accrue from further splitting of the
collections would be more than offset in most cases by
the additional bookkeeping work and expense involved.
(27:289-90)
With regard to the prepayment plan advocated by Chatters
jand Hillhouse, The International City Managers' Association !
i
i
'took quite a different point of view. Its belief that no good purpose is \
I
served by offering discounts for the prepayment of taxes is expressed I
• j I
in the reference which follows:
i
i There is little to be said in support of discounts for pre-
| payment of taxes in most cases. In most instances, the
| reason for the discount system has been to provide for |
the financing of municipal operations in the first few j
I
I
months of the fiscal year in jurisdictions where there is a
lag between the first of the fiscal year and the tax collec
tion date. i
i
To a certain extent such discounts have served to reduce
temporary borrowings, but this end could better be
attained by installment payments without accompanying
losses in the total revenue because of the discounts. I
Furthermore, the discount system is only a palliative;
it does not strike at the basic need for synchronization
of the tax due date with the beginning of the fiscal year. I
(27:294)
State Aid Payments
! Grace and Moe pointed out that one possible solution to the 1
problem of interim financing lies in advancing the date of payment of I
I state aid. They hold that in New York there are practical difficulties j
; in the way of this solution since it is difficult to compute the amount
i
I of state aid due each district and distribute checks before September
(15:391).
In California, districts receive part of their state aid during
each month of the fiscal year. This is accomplished through the use !
I of an advance apportionment which, during the early months of the
fiscal year, is based on attendance of the preceding fiscal year. Evenj
i j
so, rising costs, low statutory tax ceilings, rapid growth, and a
i |
declining proportion of state support are some of the factors which
i |
| cause some districts continuing difficulty in their efforts to provide
I cash balances which are adequate for their needs during the early
27
months of the fiscal year.
Burke pointed out that state support payments are made
according to a fixed schedule for all districts although some depend
very heavily upon the state for revenues. The quotation which
follows illustrates the problems arising from such a schedule of state
! aid payments.
The payment of state aid to school districts seldom is
coordinated with the local expenditure program or tax
collection dates. Some funds are apportioned annually.
; Although apportionments are made more frequently in
j many states, the payment dates usually are the same for
all districts. In districts relying upon local taxes for
most of their school revenues, frequent payments only
increase balances. In these districts one or two payments
at the low point in local tax revenues is all that is neces
sary. However, in districts relying upon federal and
state funds for most of their revenues, frequent payments
are essential. Management should cooperate to secure
better coordination of these dates with local tax collection
dates and local expenditure requirements. (5:452)
Burke is correct, of course, in his observation that districts
vary in the extent to which they rely upon state aid for their financial
, support. A plan which would coordinate the dates of state aid pay-
i ments with local tax collection dates and local expenditure require
ments would provide a consistent flow of income. This would provide
funds when needed and eliminate many problems resulting from
j inadequate cash balances at certain times of the year.
I
|
| Mort's statement in this regard added support to the idea
I
advanced by Burke.
| 28
i
I In the actual allotment of the funds to local districts, con
sideration should be given to the degree to which the
allotments made by the state may be made to correspond
| with low points in local revenues. It would seem to be
wiser to allot state funds at those times of year when hinds
| raised locally tend to be depleted rather than at times when
local taxes are being collected. This would obviate the j
accrual of funds in local depositories for a part of the year |
| and prevent an operating deficit at other times in the year. !
(6:223) j
i 1
Whether or not this offers a practical solution depends on a
|
! number of factors, not the least of which are the legal provisions
i
|
; governing the method of computing state aid in a particular state. As
i
Grace and Moe pointed out, it is difficult, in New York State, to com
pute the amount of state aid due each district and distribute checks j
t
before September. This particular problem can be solved, as it has
i been in California, through the use of an advance apportionment based
i on the second period attendance report for the previous year.
i
Even so, there seem to be numerous factors which affect the
' |
amount of money needed by a particular district during the first few
| months of the fiscal year. Attempting to coordinate state aid pay- j
j i
! ments with other sources of income and with expenditure require- |
I ments of the various districts may present problems which are nearly!
i i
insurmountable. Assuming that it would be possible to develop such
! a plan, it would still be necessary to determine whether or not this
| j
I plan was as good or better than other possible methods of interim
' ;
! financing. The suggestions of Burke and Mort do seem worthy of
29
consideration, however, and will receive further investigation during
the course of this study.
Short-Term Borrowing
Problems relating to the correlation of income with expendi
ture requirements have long been of concern to school districts and
other governmental agencies. Temporary borrowing is a solution
which is far from new, nor is it peculiar to school districts.
Temporary borrowing of some type is a common practice
among cities as well as school districts. According to Buck, practic
ally all cities are compelled to resort to some form of borrowing in
anticipation of the collection of taxes or other revenues (4:470).
Holmstedt pointed out that short-term borrowing by school
districts is permitted in forty-one states and that in all but two of
them, the amount is restricted to anticipated revenue. He summar
ized the requirements of the various states as follows:
In several states the limits are expressed in percent
ages of anticipated revenue ranging from 18 per cent to
95 per cent. In eight states approval of a local agency is
required, and in three states approval must be obtained
from a state agency. In fifteen states, short-term loans
must be paid from current revenues, in twenty-two states
it may be paid from revenue of ensuing years. In eleven
states there are no requirements as to payment. In
several states the approval of short-term loans is vested
in other governmental bodies and in other states the loans
are negotiated by local officials such as the county commis
sioners, county treasurer, or town board. (26:312-13)
! 30
i
I I
Castetter stated that borrowing for operating expenses may j
be justified if tax collection dates and the school fiscal year are not j
identical, and that there is also a case for borrowing for operating
expenses when unforeseen emergencies arise, since they inevitably
| occur in any financial endeavor (8:5).
- I
i i
Castetter’s point of view in this regard is in agreement with j
i
a substantial number of writers who accept temporary borrowing as a
necessary and in some cases a desirable practice. Most of those who j
j i
I accept this general viewpoint, however, believe that temporary
! |
borrowing should be on a limited and carefully controlled basis. Many
so-called ’’unforeseen emergencies" are in reality situations which
j
j
could have been foreseen and avoided through more detailed analysis
i
i and proper planning.
i
That Castetter recognized the limitations of temporary
borrowing is evident from the following statement.
t
The short-term loan, which usually matures within a
year after it is created, is a helpful instrument in local
I finance, but its use must be carefully scrutinized. j
| Chronic borrowing on a short-term basis is hardly indica- j
tive of sound financial administration. (8:17)
i j
| The most common cause of short-term borrowing is the j
i
failure of tax collections to start at the beginning of the fiscal year. |
; I
Thus, school districts, cities, counties, and other local governmental;
agencies are often compelled to borrow between the time the fiscal
31
year begins and tax collections start. In discussing municipal j
finance, Chatters and Hillhouse were critical of the waste involved in !
interest payments for short-term loans. They stated:
This is one of the greatest wastes in local government.
Often a municipality has to pay local banks 4 or 5 per i
cent for such short-term loans, whereas, later in the I
year when the municipality has surplus hinds, the same
banks may allow only 1 or 2 per cent interest. (9:167) j
DeYoung tended to agree that temporary borrowing is a com-j
!
mon practice and that interest payments for this purpose are wasteful.
i
He wrote:
Halsey found that most of the counties in Florida were
borrowing from $100 to $500,000 annually at interest |
rates ranging from 3 to 8 per cent. School borrowing
has indeed become a habit. Continual borrowing for
current operating expense is an economic and educational
waste.
. The waste is prevented in some states because it is illegal
to borrow money for current expenses. Fortunately, it is
avoided in many school districts since the city government
assumes the responsibility for the schools. Other govern
mental units, such as the township and county, also borrow
for schools. (11:363)
i
Despite the frequency of the practice and the apparent need, j
due to the late date when taxes are often collected, Chatters and Hill
house believed that as nearly as possible, all short-term borrowing
in anticipation of taxes should be eliminated.
The first time that a municipality is compelled to borrow
in anticipation of the collection of current or delinquent
taxes, or for emergencies not foreseen in the annual
32
I
budget, the officials should make a thorough investigation j
of the financial machinery to see why this occurred, and
what remedy may be applied. The necessity for such
| borrowing should serve as a warning signal that something
| is wrong. If this first occasion is taken as a matter of
I course, and nothing is done to eliminate the basic causes,
! this type of short-term borrowing is likely to become
| customary. All too often this is the first step in the general
| direction of slipshod financial administration. (9:166-67)
' I
Most of the objections of the above writers are aimed j
i i
j primarily at the interest payments which are often necessary as a |
i
i I
; result of short-term borrowing. Burke and Mort advocated a central-;
; !
| ized treasury which would serve several agencies of local government
and thus reduce the need for temporary borrowing. ’’ Much short
term borrowing is unnecessary. The treasury should be centralized
!
and if practicable should be that of a fairly large unit of government
! to reduce the necessity of short-term borrowing." (6:276)
Despite the criticism s expressed by these and other w riters, :
the basic problem of lack of coordination between the fiscal year and ;
the tax year remains unsolved. Through the use of reserves and
i
I i
: centralized treasuries, the expenditure of large sums for interest on i
; i
i
short-term loans has been reduced in many states. Whether from a
i bank or from the centralized treasury, however, temporary borrow- !
ing in anticipation of current revenues remains a widespread practice.)
! |
| Temporary borrowing takes various forms. The type used
by school districts would depend primarily upon the legal provisions
| in a particular state. Within a given state, however, it is likely that
j
| the type of loan secured by a particular district would be influenced
by local circumstances. In California, for example, policies of the
j county superintendent of schools, county board of supervisors, and
i
i the county auditor have an important bearing on the type of temporary
;
loan available to a school district.
i
i Buck lists the following as the most common types of
i
| temporary loans: "(1) short-term certificates, (2) notes and bank
I loans, (3) temporary transfers from special hinds, (4) transfer of j
' i
I
funds from larger governmental units in anticipation of state aid or
local tax revenue, (5) warrants in excess of available cash, and (6)
1
unpaid bills and claim s." (4:450-51)
| Terminology will vary, of course, but the types of temporary
i
l
loans mentioned by Buck are essentially the same as those listed by
other w riters. There is considerable disagreement, however, with
regard to the desirability of temporary borrowing, and especially with,
i
! regard to the m erits of particular types of short-term loans. j
; j
Inter fund transfers j
I i
Transfers from one hind to another are quite often suggested
i as a means of avoiding the necessity for short-term loans. This is a j
t *
i i
i practice which seems particularly controversial. Some w riters
stress the advantages of interfund transfers in term s of the flexibility i
34
and economies provided, while others point to the abuses which have
occurred and warn of the dangers which they think are inherent in
such a system.
The following statement by Buck is a typical criticism of
| interfund transfers:
; Where special funds are drawn upon temporarily to
i finance general expenditures, even the formality of
! temporary borrowing is sometimes dispensed with; sur-
| plus cash in hinds for construction or other special funds
is "transferred" and used for current financing with the
; intention of making the necessary reimbursements when
! taxes or other revenues are collected. If no separate
bank accounts are kept for such hinds, this process may
go on unintentionally and without the knowledge of the
officials, and certainly without the knowledge of the public.
It is only natural that many of these transfers and informal
borrowings should be forgotten and the special funds should
never receive the reimbursement to which they are en
titled. Cities in all parts of the United States and Canada
i have been guilty of these practices. On account of this,
some charters prohibit such transfers under any conditions.
Most authorities on municipal finance are opposed to the
use of available cash in special funds for general purposes,
regardless of the safeguards which may be set up through
careful and skillful administration. (4:482)
Buck's position is supported by Engelhardt and Engelhardt
| who also believe that transfers from one fund to another as a means
of income control should be avoided. In fact, they say such transfers
: are prohibited by law in the majority of cases (12:327-28).
I Linn took the opposite point of view. He held that such
| transfers can be properly controlled and should be permitted. In
! Linn's words:
! With some few exceptions, there appears to be no good
| reason why temporary transfers from one school fund to
another should not be made, when such transfers effect
j real economies. These transfers, of course, should be
| made according to a well formulated plan so that the funds
are safeguarded and repayments guaranteed. While it is
I true that many such transfers in the past have been mis-
i managed and the funds have been lost or permanent loans
I created, resulting in legal restrictions designed to p re
vent further abuses, it should not be concluded that such
, transfers cannot be properly controlled. (17:376)
j The extent to which interfund transfers are needed depends
i
| somewhat upon the accounting system used. An accounting system
i
I which utilizes a small number of separate funds helps to reduce the
need for temporary borrowing. Knezevich and Fowlkes recognized
this aspect of the problem in the following statement: "The greater
t
, the number of separate and distinct funds, the greater the necessity
; for borrowing. Short-term indebtedness needs can be reduced to a
|
minimum when few funds are in operation." (16:228)
Vieg presented the following illustration from municipal
finance of the type of waste which sometimes results from the use of
separately earm arked funds.
i
The following item from the Berkeley Gazette,
October 29, 1958, illustrates the problem when each
individual city has to maintain separate funds where
temporary surpluses and deficits might counterbalance
each other:
Contra Costa County has been forced into a
deficit finance system for the first time in 17 years,
j it was reported today by the County Board of Super
visors.
The Supervisors announced that the County has
sold $5,000,000 in tax anticipation notes to finance
the County Government for 51 days until new tax
receipts begin to roll in.
The notes went to the Bank of America National
Trust and Savings Association at an annual interest
rate of 1.9558 per cent, lowest of three bids sub
mitted. The loan will cost the County $13,664 for j
the seven-plus week period. j
The County has a bank balance of $40,000,000, j
according to County Auditor Bugene V. Waring, but
the money is earmarked for special use. (25:123)
The International City Managers' Association takes a middle-!
of-the-road approach to the question of interfund transfers, as |
I
illustrated by the following statement. j
. . . Temporary loans from one fund to another should be i
made only if clear legal authority for such borrowing j
exists and only upon approval by the chief finance officer, !
predicated upon the following considerations: (1) transfers
should be limited to a fixed percentage of the estimated
revenues for the fiscal year involved, with consideration
being given to the probable delinquency in collection; (2)
a definite date for repayment should be set, and it should
be determined that the amount loaned will not be required
by the loaning fund prior to that date; (3) loans should
constitute a prior commitment against the receipt of i
revenues in anticipation of which the loan was made, and
they should be repaid from the first cash apportionment
to the borrowing fund; (4) both the loaning and borrowing
funds should be under the same jurisdictional control;
(5) entries are made in the records of the funds involved
to show the amount of such loans. (27:306) j
I
Transfers among the various budget categories within a given
fund are considered desirable in order to provide a necessary meas-
ure of flexibility. Ovsiew and Castetter believe that the board of *
education should have the authority to transfer funds among and
37
between budget divisions. Without such authority, administration of j
i i
i i
| the budget becomes inflexible, denying school officials the maneuver
ability necessary to direct the budget toward established objectives
(20:100).
i I
i I
I !
j Registered warrants
! 1
One of the most common methods of creating short-term
i indebtedness is the issuance of registered warrants, sometimes |
i I
j called warrants payable. Frequent references in the literature indi- <
i
cate that this practice has been widely used in the past. In recent j
years, however, the use of this method has apparently declined, at
least in California school districts, and been replaced by other types
of short-term indebtedness.
i
Knezevich and Fowlkes' described the issuance of warrants
payable as follows:
! Warrants payable are usually in the form of written orders !
or warrants issued against the funds of the district. If the
district does not have the cash, the warrants are registered, |
| and the warrant payable becomes a short-term liability.
The law usually prescribes the method by which warrants
can be registered and the order in which they shall be paid.
This is, in effect, an I. O. U. issued by the school district,
indicating that it is short of cash but that as soon as the
cash becomes available, the warrant will be paid. The
holder of the warrant can charge interest only from the day
> the w arrant is registered. To register a warrant, one
i merely presents it to the school treasurer for payment.
| The laws of most states prescribe the maximum amount of
interest that shall be charged on warrants payable. (16:228)
38
Critics of this method point out that it tends to weaken the
confidence of the public. When warrants are registered or when bills
remain unpaid for extended lengths of time, the delay in payment may
seriously inconvenience those holding the warrants. Buck expressed
this criticism as follows:
The worst form of short-term borrowing is practiced
by those cities which issue warrants when there is no
money in the treasury or which follow the practice of
allowing bills and claims to remain unpaid for long periods
of time until funds are available. This is also the most
expensive form of borrowing, because it forces the financ
ing, that is the waiting, back to those who work for the
city or who sell supplies or services to the city. These
are the persons least able to wait. (4:482-83)
Scrip
Scrip is another form of short-term borrowing which has
been used in the past and generally has had an unsatisfactory history.
Evidence in the literature indicates that this form of borrowing has
for the most part been abandoned.
Salary scrip has been the most common type of scrip issued
by government agencies. DeYoung described salary scrip as follows:
Salary scrip is issued by municipalities to pay employees
their monthly wages. Teachers, clerical workers, and
others are frequently paid in this manner. The scrip is
based on the assumption that taxes outstanding will eventu
ally be collected and a warrant is, therefore, issued in
anticipation of such collection. (11:308)
I 39
i
I Many scrip systems have been used, and the plan used by one
| community is likely to differ considerably from that in another, j
I
| although they may be of the same general nature.
i
! DeYoung offered the following conditions as being essential
^ |
| for a successful scrip system. j
1. There must be cooperation of the entire group.
2. There must be complete confidence in the plan and ;
in the ability of the group to execute it. |
| 3. Scrip must be readily accepted on a par with currency '
throughout the cooperating group. Acceptance is
encouraged when scrip is issued in small denomina-
I tions which more rarely require the use of money for j
change. (11:308)
DeYoung further stated that scrip is less desirable than
I
direct loans and should be used only as a last resort. He pointed out
i that if scrip issued to teachers bears no interest, it is an unfair form
i
i of indirect borrowing at the teachers* expense.
The fact that scrip has been largely abandoned indicates that
it is not considered a desirable type of temporary loan and that preferr
able methods are available. Most writers opine that at best scrip j
!
: should serve only as a temporary expedient to take the place of more
formal borrowing. Preferably, it should be avoided entirely. j
i Other types of short-term loans
i Temporary transfers from a centralized treasury are a
i
i common type of short-term loan. Several governmental units deposit
j their funds in a common treasury and the comingled hinds are avail-
i
| able for temporary transfers to those agencies in need of such
advances. This avoids the payment of interest to banks and repre
sents an attempt to make efficient use of available cash. This method
! j
! is widely used by California school districts and agencies of county ;
; !
i government which deposit their funds in the county treasury.
i !
j I
' Temporary bank loans have often been used by school dis- |
| t
tricts and have been criticized by writers because of the interest pay-j
t
| ments which are required. Still, this method persists and is strongly
! I
! 1
; supported by some county officials in California who maintain that !
t
interest rates are often quite low and that this plan is preferable to
i other types of interim financing.
1 Both temporary transfers from the county treasury and
temporary bank loans are common methods of interim financing for i
California school districts. California legal provisions, procedures,
and other pertinent aspects of these methods, as they relate to Cali- !
i
fornia school districts, will be discussed in detail in Chapter 1 1 1 . I
I |
Other minor types of short-term loans mentioned by several
writers include unpaid salaries and unpaid accounts which are, in
reality, loans from employees or from vendors. This is an indirect j
i ;
! way of borrowing which DeYoung and other writers have criticized be-
i (
i cause it tends to destroy public confidence in the district and is
i 41
I
!
| harmful to the district's credit.
I
j Desirable practices in temporary
| borrowing
i
i Whether a school system should reserve adequate interim
i
• funds to carry it over periods of low income or whether it should
resort to some form of temporary borrowing depends upon a number
| of factors. Legal provisions governing such m atters in a particular
state are a prime factor, along with conditions existing at the local
| level. Engelhardt and Engelhardt believe there are times when it is
much cheaper for the school district to borrow than to create a large
reserve (12:323).
Few w riters have disagreed with Johns and Morphet's con
tention that all short-term loans, regardless of purpose, should be
i
carefully regulated. Among the controls which they advocated are
limiting loans to anticipated revenues, requiring payment from
current receipts, prohibiting long-term funding of operating debt,
I and requirement of sound procedures in negotiating loans (26:313).
Generally speaking, statutes specify (1) the amount of
borrowing that may be done, (2) the funds against which loans may be
made, (3) the maximum interest that may be paid, (4) the group or
i individual authorized to negotiate the transaction, and sometimes
(5) the purpose for which the borrowed funds may be used.
42
The consensus seems to be that short-term borrowing should
be avoided whenever possible. When such loans become necessary,
however, there are a number of guidelines for effective debt admin
istration. These are summarized by Arnold, Castetter, Reusser,
and Verhaalen as follows:
1. Borrowing should be for as short a period as possible,
preferably not over a year. The right to renew such
loans should be restricted.
2. Borrowing should be restricted to the amount of
revenues accruing to the school district.
3. Temporary loans should be accounted for in as care-
ful manner as all other financial transactions.
4. Loans should be repaid immediately upon receipt of
revenue.
5. Temporary loans should not be repaid by additional
borrowing.
6. Loans necessary to meet unavoidable deficits at the
end of the fiscal year should be repaid out of the next
tax levy.
7. Budgetary and income management should be overhauled
when borrowing for current expenses becomes an annual
practice.
8. The cost of borrowed money should be known, made
public, and economically justified.
9. If the public is responsible (because of delayed tax
payments) for the borrowing, the cost of this procedure
should be given publicity, and constructive, corrective
measures should be suggested and carried out.
10. Temporary borrowing should be used only when true
economy results, or when unavoidable emergencies
arise.
11. Temporary loans should be anticipated and planned for
as a definite part of the program of budget income.
12. Instruments used to secure short-term loans should be
Rill faith and credit obligations, but made payable
prim arily from the collection of specific delinquent
taxes if such loans are caused by tax delinquency.
! 13. Collection of delinquent taxes should be pushed by tax
collection officials. The borrower should agree, in
so far as such matters are within its control, that
during the period in which loans are outstanding, the
penalty dates on tax collections will not be extended,
penalties will not be reduced or cancelled, and tax
sales will be held as required by law. (26:434-35)
! Reserves !
i
I I
| The two major types of reserves of interest in this study are
| the emergency, or contingency, fund and the interim reserve. The !
I
I emergency, or contingency, reserve serves as a type of insurance
for certain types of risks or unforeseen circumstances which are i
;
likely to arise in school district operation. The interim reserve is
used for the purpose of financing expenditures during the interim
! between the beginning of the fiscal year and the receipt of tax revenues
*
' and state aid payments. !
I Emergency reserves
Morrison pointed out that school districts face various types j
i 1
i !
; of risks, some of which are not the proper subjects of insurance. |
; Among these in school finance are calls for school expenditures which |
i '
! i
could not be foreseen when the budget was set up, errors in estimates,
; [
I rapid or unexpected growth in enrollment, and many others (19:217). !
i
i Considering the difficulty in making a precise expenditure
i i
• plan and the various unforeseen circumstances which sometimes 1
I develop, some argue for the inclusion of emergency, or contingency,
i
I reserves within the budget. Others hold that a large contingency re-
i
| serve tends to defeat the purpose of budgeting and leads to "padding."
I Those who favor a contingency reserve respond that failure to include
| such a reserve in the budget would lead to padding within the various
! budget categories.
i
! Simpson and Lake listed several methods used by school dis-
: tricts to provide emergency funds. They are quoted as follows:
| 1. In some states funds are maintained by schools under
the heading of "general," "emergency," or "impress"
funds, while in others such funds are listed as "regu
lar account, " "other expenses, " or "contingent fund."
2. In some states school districts are allowed to provide
for emergency funds under each of the main divisions
of the budget.
3. Occasionally, school district budgets provide for funds
i for the employment of an extra teacher or teachers in
case of emergency.
4. In some areas the city government (or the town govern
ment) controls all funds and the school must seek
emergency aid from a municipal or town emergency
fund.
5. Some states prohibit by law any emergency or miscel
laneous funds in school budgets.
6. In a few states emergency funds are provided by a vote
! of the people in the district.
7. In some states school district boards are empowered
to issue short-term loans to meet emergency needs.
(26:333-34)
It is difficult to know how large a contingent fund should be,
'since nobody can tell what is going to happen. Knezevich and Fowlkes
i
contend that the amount of the emergency fund should be limited to
45
1 or 2 per cent of the total school budget and that such funds should
be utilized only with the approval of the governing board. They
further stated:
Where the expenditures must be made from the
’’emergency" or contingency fund, approval should be
sought before any obligation is incurred. Clearly, the
difficulty in precisely determining the expenditure plan
points to the need for some money for emergencies or
contingencies which are more likely to be experienced
during inflationary periods. The argument revolves
around the size of the amount budgeted for such purposes.
The practice of annually listing very large sums of money
under the "emergency" or sim ilar titles and spending
them without regard to emergency needs cannot be con
doned. Sloppy budget practices are sure to result where
large contingency or emergency funds are set aside.
Careful inventory practices and preventative maintenance
programs, as well as extended and well-developed budge
tary procedures, can hold emergencies to a minimum.
(16:21-22)
DeYoung stated that the use of emergency funds should be
very limited and urged four precautions:
1. The amount of the fond or funds should be kept at a
small percentage of the total budget, possibly less
than 2 per cent.
2. These funds should be specifically labelled "for em er
gencies. "
3. Just as the allotments for salaries, maintenance funds,
and other items in the budget are based on previous
experience and foture needs, so too the amount to be
included in an emergency fond should approximate
that of emergencies which have arisen over a period
of years or which are very likely to occur.
4. Emergency funds should be used only by a vote of
the board of education. (11:373)
A careful analysis of previous budgets will provide guidelines
as to the amount of emergency funds which might be needed. Simpson
and Lake believe that school boards should have the power to levy
special taxes in order to pay any debts created by genuine emergen-
I cies, provided such taxes are approved by the voters of the district.
1 i
! i
Such a power would necessarily involve careful definition of the term |
i
’’emergency." (26:334) i
| i
Yakel agreed with several of the above authors in their beliefs
i
| that the use of emergency funds should be authorized only under care-
| fully controlled conditions. He suggested that the emergency should
be caused by an unusual increase in population, change in the purchas-
i
; ing power of money, flood, fire, act of God, or the public enemy.
!
1 Further, such expenditures should be authorized at a special or
regular meeting of the board of education, after a notice or hearing
such as provided for adoption of the original budget. The amount of
such expenditures, or such part as the board shall direct, should then
! be included in the appropriations in the next budget to be adopted.
j
I
Yakel also suggested that if a financial contingency should cause the
closing of any schools, the state board of education should take over
; i
the schools and operate them until the local district is again finan-
| cially able to do so (26:148). j
! 47
t
I
Certainly, each state should provide some legal means by
which school districts can meet financial demands when emergency
needs arise. The best way to do this is a m atter of some speculation.
Simpson and Lake believe that research needs to be encouraged to
i
i
establish what are the best practices in this area of money manage- ;
; ment (26:335).
! i
I !
j Interim reserves j
' i
: l
An alternative to borrowing in anticipation of current
i i
| i
i revenues is the accumulation of an adequate reserve to finance cur
rent operations during the interim between the beginning of the fiscal I
i
I year and the date taxes and other revenues are received. !
The size of the interim reserve will depend to some extent
I upon the time elapsing between the beginning of the budget period and
the local tax collection date. This is only one of many factors, how
ever, which will necessarily influence the size of such a reserve.
I
The date of state aid payments and other sources of income and j
expenditures of the local district during the interim are other factors j
of prim e importance. Such factors will, of course, vary among statesj
! i
i
and among districts within a state.
In discussing interim reserves, Burke offered these
I i
comments:
t
I :
i j
48
The fact that the flow of income is not coordinated with !
expenditures has caused some school systems to create i
reserve hinds to avoid short-term borrowing during periods
when income is not sufficient to meet payrolls and other
bills. State laws vary on the creation of reserves, yet
restrictions on borrowing often make them necessary.
Sometimes the reserve is limited to a certain percentage
of the budget. It is distinguished from an ordinary balance
in that it is planned to meet a certain contingency. It may i
be referred to as an interim or interim reserve ftmd. j
There has been a tendency to condemn such reserve
hinds because of the danger of loss, the danger of lax !
budgeting and budgetary controls, and expense to the tax- :
payer. With good management and budgeting, however, j
reserve funds may be used under certain conditions. !
First, the funds must be kept at the minimum which is
essential to avoid frequent borrowing. Second, the annual
savings in interest on borrowed funds must be greater than
what the taxpayers could earn on the money at prevailing
rates of interest. Legal provisions as to the amount or
reappropriation should be complied with. (5:461) j
Grace and Moe were of the opinion that New York State
j should aim at the elimination of short-term borrowing by school dis-
j
' tricts. The two possibilities which they believed to be most practical
for New York were (1) the creation in each district of balances large
i :
enough for operation of the schools until anticipated revenues are
I received--to make loans unnecessary and to serve as a reserve for j
! j
| contingencies; and (2) borrowing by the state in bulk on its excellent j
j credit at a low rate of interest and reloan to the districts (15:390-91).!
i '
Not all writers agree with Grace and Moe about the desira-
i
I !
j bility of building up reserves in order to eliminate short-term borrow-
| ing. Linn, for example, asserted that the accumulation of a substan-
I
49
tial reserve means that taxpayers are compelled to pay taxes in
advance of needs (17:373).
| For this, and other reasons, Ketler agreed that building re-
| serves is not an economical practice from the taxpayer's standpoint.
i
i From the standpoint of the taxpayer, there is seldom
any economy in building up a reserve fund to finance the
| period between the beginning of the fiscal year and the time
taxes are received. Instead of being clear profit, the
| interest paid by the depository must be extremely high if
it is to offset entirely the differential between the cost to
the taxpayer of reserve and the alternative of borrowing.
! This interest is not unimportant but, on the contrary, is
extremely important if reserve financing is resorted to.
(47:72)
The second possibility presented by Grace and Moe--having
the state borrow in bulk at a low rate of interest and then reloan to
i
I the districts--is a concept which has been suggested in various forms
j
j by several writers.
Vieg pointed out that consolidating the balances of two or
; more units reduces the amount of stagnant cash and borrowed funds
which all of them hold in reserve.
I
i
j In this context Sacramento County merits commenda
tion for aiding in ending the expensive practice by school
districts of borrowing money to tide them over before
revenue is collected.
Thanks to action by the state to make its aid money
available to the districts at an earlier date and to County
Executive M. D. Tarshes for initiating the pooling of
! county and school reserve funds, the districts are not
| having to go to the banks for interim money.
These new policies mean Sacramento City and County
taxpayers will save this year about $40,000 in interest
charges and a great deal of bookkeeping. While this
amount is not large, it represents a cost which has been
eliminated by good planning. (25:22-23)
| Vieg recommended that the state establish a local credit
I reserve fund in which local governments, if they wished, could
i
j deposit their own reserves until they were actually needed. The state
i
! would manage this fund as productively as possible and, after deduct-
i
ing expenses, pay each city, county, school district, and special dis-
j trict its pro rata share of interest earned (25:367).
Whether a school system should maintain a substantial
interim reserve or whether it should resort to short-term borrowing
; when income runs low depends partly upon state statutes and partly
i upon local circumstances. Excessive borrowing or excessive
reserves can lead to inefficiency and waste, yet most writers state
that the legal structure must permit both balances and borrowing.
Desirable practices with regard to management of current hinds can-
! not be prescribed in all details, but must be left to the judgment of
I
those officials directly in charge of school money.
Budget Planning and Administration
Practices used in developing and administering the school
|
| district budget have considerable bearing on the problem of interim
51
financing. Desirable practices enumerated by Woodfin include the
following:
1. The budget should be developed on a line by line
basis without padding.
2. An accurate estimate should be made of receipts.
3. An adequate general reserve should be maintained.
4. Monthly financial statements should be presented to j
the board on revenue, expenditures, and unencumbered '
balances. (48:189) j
i
Woodfin's caution against padding the budget is a concern |
echoed by numerous w riters. Rosenstengel and Eastmond said: I
Some school officials operate in the belief that certain
items of the budget should be padded. There are two
apparent reasons for such practice--first, that the person
or persons who finally approve the budget will always cut
it a certain amount and second, that a padded budget is j
more easily administered because a balance for contingen
cies will be assured. Such a practice not only defeats the
purpose of the budget but also is dishonest. If an admin
istrator follows the practice of padding the budget, he may
expect the approving agent and the lay citizens to find it
out within due time and lose respect for the school officials.
The adm inistrator should make an honest attempt to p re
pare an accurate estimate of expenditures and let it be
known that services will be curtailed if the budget is cut.
Honesty will win out in the long run. (21:185)
Lovik and others have stressed the importance of continuous j
i
j
and long-range planning in budget development. In his study of budget!
i
practices in California school districts, Lovik concluded that govern
ing boards and school adm inistrators should look upon the budget as a
long-range program requiring continuous planning. A good district
budgeting program requires time, and school officials have tended to
| 52
i
| underestimate the time actually needed to develop good budget proc-
j
esses. While most unified school district chief administrators con
sider budgeting a long-range function, they do not generally have a
continuous budgeting program (45:277-79).
I
I Vieg recommended that
j . . . the state should encourage, perhaps even require,
j every local subdivision to plan each year's budget, cur-
! rent as well as capital, in the light of projections extend-
| ing at least six years ahead, except that site acquisitions
should be planned 12 years in advance whenever possible.
It would be a kindness toward them rather than a hardship
| if the state, giving say, two years notice, were thereafter
to make all local assistance conditional upon the comple
tion and adoption of appropriate m aster plans. (25:364)
Several w riters have pointed out that legal provisions relat
ing to budgeting have an important bearing upon a district's approach
! to the problems of interim financing. States vary, of course, in their
i
legal provisions relating to temporary borrowing and budgeting for
reserves. Ovsiew and Castetter summarized the legal provisions re
garding budget administration as follows:
! Legal Provisions For Administration
! Of The Budget, 1957-58
Number of States
A. Emergency Funds
1. Budget may include appropriation for
em ergencies................................................ 33
j 2. Amount of funds budgeted for emergen
cies limited................................................... 8
53
B. Budget Transfers
1. Transfer of school moneys from one
fund to another p e rm itte d ......................... 31
2. Approval of fund transfers by board
of education re q u ire d ................................. 27
3. T ransfers between budget categories
p erm itted ...................................................... 43
4. T ransfers between budget categories
require board approval.............................. 39
5. Transfers within budget categories
p erm itted ...................................................... 46
6. T ransfers within budget categories
require board approval.............................. 39
C. Emergency Borrowing
1. Borrow money for current operations. . . 34
2. Limit on amount of funds which can be
borrowed for current operations.............. 29
D. Reserve Funds
1. Reserve funds may be accumulated . . . . 40
2. Amount of reserve fund limited................. 11
E. Balances
1. Appropriation of unexpended balance to
next fiscal y e a r........................................ . 36
2. Lapse of appropriation.............................. 5
3. T ransfer of balance to another fund. . . . 6
4. Reversion of balance to general fund . . . 8
5. Decision on balance up to board of
ed u catio n ...................................................... 1
6. Cumulated in re s e rv e ................................. 1 (20:101)
Section 20601(b) of the California Education Code provides
for a general reserve to be included as part of the budget and expend
ed only during the succeeding fiscal year.
20601(b). The tentative budget shall also contain an
amount to be known as the general reserve in such sum
as the governing board may deem sufficient for the next
succeeding fiscal year, to m eet the cash requirements to
54
which the district's credit may be legally extended for that
portion of said next succeeding fiscal year, until adequate
proceeds of the taxes levied for, or apportionment of state
funds made to, the district during such succeeding fiscal
year are available to the district. (34)
It should be recognized that the general reserve is only one
of several sources within the budget which may provide funds to be j
used during the next fiscal year. The actual amount from the present ‘
budget which becomes available for expenditure during the next year j
is derived from a variety of sources and is known as the net beginning
balance. The net beginning balance is composed of (1) the general
reserve, (2) unexpended budget classifications, (3) unexpended
undistributed reserve, (4) unanticipated income received during the
previous year, (5) adjustments for previous year liabilities, and
(6) adjustments for accounts receivable.
While it is true that the total net beginning balance will
eventually become available for expenditure by the district, not all of
this amount is available as of July 1, the beginning of the fiscal year.
Accounts receivable (money owed to the district from the previous
year) are paid to the district at various times during the fiscal year. '
i
While such funds generally become available during the early part of j
the fiscal year, this is not necessarily true in all cases. In deter-
j
mining the necessary size of the net beginning balance, consideration |
must be given to the time when such funds are actually received.
| Education Code section 20601(c) permits the establishment
| of an undistributed reserve, which functions as an emergency or con
tingency fund.
20601(c). The tentative budget may also contain an !
; amount to be known as the undistributed reserve. The |
funds in the undistributed reserve shall be available for i
j appropriation by a two-thirds vote of the members of !
the governing board, to cover expenditures that have not !
| been provided for or that may have been insufficiently
i provided for, or for unforeseen requirements as they may
; arise. (34)
i
I
j If unexpended, the undistributed reserve often represents a
j
! sizable source of funds to be used during the succeeding fiscal year.
i
The amounts available from unanticipated income and unex
pended budget classifications depend upon the accuracy of the original
| income and expenditure estimates. Factors affecting the accuracy of
i these estimates will be discussed in a subsequent chapter of this
study.
, i
Related California Studies
Several previous studies have discussed aspects of California
i school finance which are related to the problems of interim financing.
i
i • ;
Some are closely enough related to m erit a more complete discussion :
i
• of their findings. Whether or not they were intended to be concerned
| j
j with interim financing, the studies which follow have produced results j
of considerable importance to this investigation. >
56
! Wright
i
| Budget planning and administration are frequently mentioned
as having an important relationship to interim financing, and Wright's
study of the administration of school district budgets revealed a num-
I j
: her of findings significant to this study. j
! I
The influence of the county superintendents was quite evident j
! i
I with respect to certain budget practices. Wright concluded that i
j j
| the county superintendent of schools, because of the
very nature of his office and his relationship with the
school districts, had more influence and effect on school j
district budget administration than any other single or
combined group of persons or situations.
This influence was evidenced by the fact that budgets
were readily grouped by counties in such m atters as
budgeting general reserves, balancing budgets, recording
records of meetings held relative to budget adoptions,
listing various income items, reduction of budgeted needs
! and transfer policies. (49:218-19)
|
Whatever the pattern of procedure followed, it was generally
found that all districts within the county followed the same general
pattern. \
i
Wright also found that the ending balances of districts bore
i
little relationship to the general reserve budgeted or to the combined
! general and undistributed reserve. The ending balances were derived j
from a variety of sources, such as extra funds unspent from the
budgeted expenditure classification and unanticipated income.
57
i I
| j
The fact that the general reserve may not be expended duringj
i !
• the year in which it is budgeted led many districts to keep this item
| low in order to keep their hinds available during the year to meet any
1
| unforeseen emergencies.
i |
! No real policy was followed regarding the proper percentage
of the total expenditures being set aside for reserve purposes. j
I I
i Approximately one-half of the county superintendents advocated no j
; |
! ;
I policy for either the undistributed or general reserves. Wright con- j
i
I sidered this as further evidence that the reserves were not serving
the purpose for which they were intended. This was a situation which j
Wright believed should be corrected, as indicated in the following
statement: "It is believed that districts either should be urged to in-
i elude proper reserves in their budgets or the law should be worded in
such a way that it would be mandatory upon the County to require com -
pliance with the law ." (49:230)
Wright pointed out that the collection of district taxes often
, exceeds that anticipated. The Education Code provides that the tax j
i :
rate shall be computed by using 90 per cent of the assessed valuation, 1
! thus providing for a possible tax delinquency of up to 10 per cent. j
Tax collections often run well above 90 per cent, with the
j result that the district receives more funds than originally contem
plated in the budget. Income in excess of budgeted expenditures i
58
becomes a factor in financing the early months of the succeeding
fiscal year.
Wright listed the following as the principal factors which
affect the net beginning balance of a school district:
1. A school district which pays its teachers on the basis
of twelve equal salary payments requires a larger
balance as compared to a district which pays on a
nine or ten month schedule.
2. A district which carries on a regular plan of main
tenance throughout the year, as contrasted to one
which perform s all maintenance during the summer
vacation, will spread this cost in a reasonably uni
form manner throughout the year.
3. The policy of whether the district makes prompt
payment of obligations, as contrasted to a policy of
meeting payments only when funds are available,
will affect the need for beginning balances.
4. D istricts which borrow funds from the County or from
other district fends may operate within a minimum
beginning cash balance.
5. The law provides for registration of warrants thus
making it possible to meet obligations pending the
receipt of taxes. This procedure requires expendi
tures for interest. Some districts prefer to pay
interest rather than place the taxpayers1 money in
large beginning balances. (49:72-73)
Wright pointed out that districts which require fends to meet j
1 j
| equally large payments for each month of the year need a beginning !
balance of not less than 25 per cent of the total budget in order to
! I
meet payments during July, August, and September (the period before !
jany state aid payments were received at the time Wright’s disserta- |
|tion was written).
! 59
i Local district policy has a decided effect on the size of the
| beginning balance needed, as pointed out in the following statement:
i
"If the district makes provision for fewer expenditures during the
summer months; if bills are not paid promptly; if money is borrowed
! from other funds or provided by registered warrants, the size of the
i
! beginning balance may be reduced in accordance with whatever policy
I is followed by the district." (49:73)
Some districts use the undistributed reserve for the purpose
! for which it was intended and also for a general reserve purpose. In
i
discussing a desirable size of the undistributed reserve, Wright
wrote:
There is no fixed standard percentage which can be said
to be the right amount. The degree of care with which a
budget is prepared will determine to a great extent the
size of the undistributed reserve. The more accurately
the budget represents the actual expenditure the lower
may be the percentage for an adequate undistributed re
serve. If the district tends to use the undistributed reserve
as a general reserve during the succeeding year, the per
centage will tend to be higher. (49:108)
Triggs
Triggs analyzed the needs of various types of districts in
Ventura County with regard to the amounts needed for an adequate
j beginning balance. As the county superintendent of schools, he was
| much concerned with the problems of interim financing.
| 60
I
Triggs examined the records of the Ventura County superin-
! <
t
j tendent of schools office in order to determine at what times during
| the fiscal year the cash balances of school districts were the lowest,
j It was found that the two periods of greatest need were during the
i
I first week of January, just prior to the first apportionment of school
i district taxes, and during the month of May, just prior to the second
I apportionment of taxes. The second period of need was not considerecj
; as critical as the first, since more than half of the taxes were appor- !
! I
i tioned in January. ;
i \
j
Since the first period of need (the first week of January) was !
i
found to be the more critical period, Triggs assumed that if the
beginning balance were adequate during that period, there would be no
problem during the month of May. His study was, therefore, limited
i
to a determination of need for the months immediately preceding
January during the 1947-48 fiscal year.
The average elementary district needed a beginning balance j
i
iof only 13 per cent of the current budget as compared to an average of
19 per cent for high school districts. Triggs studied the financial
I
1 records of the districts in order to determine the reasons for this j
difference. The reasons indicated by his analysis are listed below: j
I 1. High schools have summer school to a greater extent i
i than elementary schools.
j 2. High schools have a relatively larger administrative staff
to be paid during the summer months. '
61
i
! 3. High schools spend about 2 per cent more of the total
| budget for instructional supplies and these are pur
chased during the summer.
| 4. High schools maintain relatively larger custodian and
j maintenance staffs during the summer than elementary
I schools. (47:62,64)
j
| Representative findings and conclusions of Triggs* study are
j
i summarized below:
|
i
1. Holding back bills due to lack of funds hurts the credit
of the district and may cause a loss in discounts.
i
| 2. The availability of pre-apportionments and loans is un
certain, and these should not be relied upon in place of
an adequate general reserve.
3. It is mandatory upon each district to budget an adequate
amount in the general reserve to meet the cash require-
I
j ments to which the district's credit may be legally
extended for that portion of the next fiscal year until
taxes and state funds become available to the district.
| The legal provisions permit the governing board to
| determine what amount is "adequate" for a general
reserve.
i
i
4. The per cent of the current budget which should be set
aside as a beginning balance in high school districts is
|
j approximately 19 per cent regardless of size or wealth
I
of the district.
62
5. The size and wealth of an elementary district affect the
per cent of the current budget which should be set aside
as a general reserve. A large elementary district
needs a beginning balance of 10 per cent; an average-
sized elementary district needs 14 per cent; and a small
elementary district needs 15 per cent. A wealthy ele- j
mentary district needs a beginning balance of 14. 33 per
cent; an average in wealth elementary district needs
12.5 per cent; and a poor elementary district needs |
i
12.25 per cent. The average for all types of elementary
districts is 13 per cent.
6. The fact that wealth of the district affects the amount
needed as a beginning balance was the opposite of what
Triggs had anticipated. In examining the receipts of
districts to ascertain why this was true, the conclusion ;
was reached that poor elementary districts receive more;
state aid each month beginning with September than do j
j
more wealthy districts (at that time, districts received j
i
i
ten state aid payments per year, beginning with the
month of September). Thus, the poor districts can get j
I
by with sm aller beginning balances. I
63
7. The percentages given do not necessarily constitute the j
amount which is needed for a general reserve. Since
taxes are levied on 90 per cent of the assessed valuation,
and in Ventura County about 99 per cent of the taxes
i
were collected, some funds will be carried over from j
the previous year from "underestimating tax receipts"
required by law. Also, some unused budget appropria
tions usually are found in most districts which will also ;
I
add to the ending balance (47:71-76). |
i
Perko and Purdy
Perko and Purdy studied the interrelationship among the |
assessm ent calendar, school budget calendar, and fiscal year. A
|
; nationwide survey was conducted to obtain information concerning
current practices and procedures in the three areas under study.
Interviews were conducted with legislators, school finance special-
ists, and representatives of city, county, and state government in j
i I
j California and Nevada. The above problems were studied in consid- !
erable depth as they relate to California. I
; |
j
The work of Perko and Purdy has important implications for !
this study because many proposed solutions relating to the problems
| of interim financing involve changes in the assessm ent calendar,
; school budget calendar, or fiscal year. The findings of the California1
64
portion of the study by Perko and Purdy are presented below:
General. - - The following general findings resulted
from the interviews with California officials.
1. There has been a long standing concern over
what constitutes the proper interrelationship
among the assessment calendar, budget calendar,
and fiscal year by all taxing agencies.
2. Several attempts have been made to make legis
lation changes in California which would affect
one or more of the three factors under study
without success.
3. No combined study of the problem nor combined
effort to make changes have been attempted
involving representation from all state profes
sional associations.
4. A general lack of confidence in public school
administrators and school district governing
boards in budgeting procedures was found to
exist throughout the state of California.
5. The imposition of the present statutory tax rate
limitation seemed to compound the problem of
budget construction and adoption prior to the
availability of known assessed valuation figures.
Assessment calendar. - -The following findings pertain
to the California assessment calendar practices.
1. It was found that those not involved in the admin
istration of taxing agencies were concerned about
the possibility of taxing agencies increasing
budgetary appropriations to take advantage of
assessed valuation increases if the assessed
valuation is presented to them prior to adoption
of the budget.
2. The annual reassessm ent of taxable property
would substantially reduce annual variation in
assessed valuation.
3. The reassessm ent of fractional parts of a county
each year was found to be the general practice.
4. Los Angeles County subjects all property to an
annual reassessm ent on a sales ratio basis.
5. The equalization of the assessment roll typically
resulted in less than 1 per cent change.
6. Considerable evidence was found supporting the
concept that valuation figures should be available
prior to the adoption of the budget.
7. Administrators of taxing agencies in general
expressed a desire to have the assessment roll
completed and released as early as possible but
in any case no later than sometime between June
1 and June 15.
8. Assessing officials in general expressed concern
that the period of time between the lien date and
the date for completing the roll be no less than
it is now and if possible be increased to allow
for more time to complete their work.
9. The first day of January was most frequently
mentioned as the most desirable lien date.
10. The farming community would probably be the
only group which would object to changing the
lien date to the first day of January.
Budget calendar. - -The following findings pertain to
the budget calendar practices in California.
1. There was very little disagreement with the con
cept that the adoption of a budget prior to the
commencement of the fiscal year was an integral
part of good budgetary practice.
2. Concern was expressed that the budget not be
adopted too far in advance of the beginning of the
fiscal year so that as many facts as possible can
be collected prior to the adoption of the budget.
3. Some support was found for the adoption of at
least a tentative budget prior to or juxtapositional
to the reemployment of teachers on May 15.
Fiscal year. --The following findings pertain to the
fiscal year dates as practiced in California.
1. It was found that the majority of respondents
were apprehensive over the possibility of chang
ing the fiscal year and in general did not support
. this as a good solution to the problem.
2. There was concern over the amount of time be
tween the beginning of the fiscal year and the
receipt of the first installment of taxes because
expenditures during this period usually exceeded
revenue. (46:241-45)
66
Based on the above findings, Perko and Purdy drew the
following conclusions:
! 1. The present interrelationship of the assessment calendar,
school budget calendar, and fiscal year period in Cali
fornia is unsatisfactory for school districts, city govern
ments, and county governments.
2. Revision should be made for all three governmental
! agencies listed above. (46:245)
I
| Perko and Purdy's investigation of the assessment calendar,
j budget calendar, and the fiscal year for school districts in California
i resulted in the following recommendations:
!
i
1. It is recommended that the assessment calendar be
changed so that all taxable property is assessed as
of the first day of January with the local and state
rolls to be completed and delivered to the county
auditor on the first day of June. If use of computers
in assessment procedure proves to be successful in
the future, March 1 would be more desirable,
i 2. It is recommended that the tax rate be computed on
! the basis of the completed roll rather than the equal
ized roll.
3. It is recommended that the budget calendar for Cali
fornia school districts be changed to provide for the
, adoption of a tentative budget on or before May 15
and the holding of a public hearing and adoption of
a final budget on or before June 30.
I 4. It is recommended that the fiscal year be left as it
| is now constituted with a commencement date of July 1.
5. It is recommended that the school district tax rate
limitations either be removed entirely or at least
raised to match the present economy, including a
provision for future changes to keep in step with
current needs.
: 6. Further study of the possibility of quarterly tax
i collections is recommended.
| 7. It is recommended that further study be considered for
| determining how public school administrators can best
improve their public image for budgeting. (46:246-47)
j CHAPTER III
!
!
I INTERIM FINANCING IN CALIFORNIA AS VIEWED
I
BY COUNTY SUPERINTENDENTS, COUNTY
AUDITORS, AND SPECIALISTS IN
I i
| SCHOOL FINANCE
i
I
! I
| This phase of the study was designed to focus upon the
i
| problems of interim financing as they exist in California. Information
!
for this section of the study was Obtained from the following sources: j
1. Responses to a narrative letter to each of the fifty-eight
I
county superintendents of schools.
2. Interviews with eight county auditors.
I
3. Interviews with ten specialists in school finance and j
business management.
I
Sources of the Data
! I
I
I j
; County superintendents
; i
A narrative letter was sent to each of the fifty-eight county
! superintendents of schools requesting information regarding the >
j !
j general nature and extent of the problem of interim financing and
specific procedures followed in each county.
The county superintendent is in a position which requires
close association with other agencies of county government as well as
with school districts. He also functions in an intermediate position
between the state department of education and local school districts,
i The overlapping nature of these functions places him in a unique
!
i
position. His many opportunities to consider financial problems from j
!
i the standpoint of state and county government, as well as from the I
I i
| I
I local school district viewpoint, give him a perspective of particular j
! !
j value to this study. i
| The questions to the county superintendents dealt predomi- j
nantly with current practices in the various counties. Some questions
! were loosely structured in order to obtain the viewpoint of the county
superintendent and to permit a high degree of flexibility in the manner
of response. Other questions were designed to secure specific factual
information and required only a short answer or listing of the infor-
| mation requested.
! j
The letters were individually typed and mailed to the county
superintendents. Three weeks later, approximately one-half of the !
' county superintendents had responded. A follow-up letter with a copy I
| f
i of the original letter was sent to those who had not responded. Six '
; i
! !
I weeks following the initial mailing, responses had been received from j
91.4 per cent of the county superintendents. Three additional
responses were eventually received, bringing the total response to
fifty-six of the fifty-eight counties. This represented a return of
96.6 per cent.
! County auditors
| Responses of county superintendents indicated considerable
I
j variation in approaches to the problem among the various counties.
; Policies of the county superintendent, county auditor, board of super-
! visors, and other county officials have an important bearing upon the
procedures followed. Responses indicated that the county auditor
occupies a particularly key position, and that his recommendations
| are extremely important in determining the policies which a county
; will follow in relation to providing temporary transfers of hinds from
the county treasury. For this reason it seemed necessary and d esir
able to give further attention to the viewpoints of county auditors,
j Considering the type of information required, and the desirability of
I exploring the problem in some depth, it was decided that personal
, interviews would be the most appropriate method to use in this partic-j
ular aspect of the study.
I j
Some counties perm it temporary transfers of funds from the ;
! i
! county treasury while others require districts to obtain funds through j
i
bank loans or the sale of tax anticipation notes. It, therefore, seemed
i 70
I
| desirable, in selecting the auditors to be interviewed, to give some
consideration to the type of interim financing used in their respective
I
! counties.
i
| A letter was sent to Mr. Roscoe Hollinger, president of the
!
j California Association of County Auditors, explaining the purpose of |
! I
| the study and requesting that he recommend four county auditors to j
i
! be interviewed. In response to this request, he recommended the five
i
| county auditors who were currently serving on the education commit-
' *
! tee of the county auditors association. The members of this commit-
!
tee represented two large counties, one medium-sized county and two j
; of the smaller counties. This list was then supplemented by the addi-
1 tion of three names in order to insure that, among the county auditors
i interviewed, all of the major types of interim financing were repre-
! sented. The complete list of county auditors to be interviewed,
shown below, was then approved by the doctoral committee.
1. H. Donald Funk, auditor-controller of Contra Costa
I
• County
' 2. Edward N. Glaeser, auditor-controller of Santa Clara
; I
County
3. Walter R. Hale, auditor-controller of Sacramento j
i 1
I j
I County !
! j
I 4. Arthur M. Heasley, auditor-controller of Yolo County
71
5. A. H. Mueller, auditor-controller of San Diego County
6. Charles B . Perry, auditor-controller of Solano County
i
| 7. Maurice R. Uhler, auditor-controller of Fresno County
i
| 8. Eugene V. Waring, auditor-controller of Alameda
i
County |
j
An interview guide was used in the interviews with county j
i •
I i
{auditors. It was designed to obtain more complete information re- !
i [
! garding some of the statements which had previously been received
j i
j from county superintendents and to provide a survey of the problem |
i i
from the standpoint of county government. !
\
Specialists in school finance
The responses of county superintendents and county auditors
i
j provided considerable background information regarding the general
i
nature of the problem and the variations in practice among the coun
ties of California. It was thought that the value of this information
| could be enhanced considerably through a series of interviews with !
{specialists in school finance and business management. Such inter
views would provide more detailed information concerning specific j
I i
problems. They would provide a study of the same problems from yetj
another perspective, and perhaps would bring to light additional j
| i
'problems or proposed solutions not suggested by either of the other |
| !
groups of respondents. i
Ten specialists were selected, with the assistance and
approval of the doctoral chairman, to represent certain positions
which had been identified in consultation with a professor of school
!
| finance. Those selected for interview are listed below:
i
| 1. Dr. D. Lloyd Nelson, Professor of Educational
i
Administration, University of Southern California
i
i 2. Dr. Jack Sadler, Business Manager, Los Angeles
Unified School District (and president of the California
| Association of Public School Business Officials)
3. Dr. Edgar C. Egly, Assistant Superintendent-Business
Services, Pasadena City Unified School D istrict (and
past president of the California Association of Public
School Business Officials)
i
4. Dr. H. D. Lovik, Superintendent, Visalia City Elemen
tary and Visalia Union High School districts
5. Dr. James R. Duren, Assistant Superintendent-Business
Services, Rialto Unified School D istrict
6. Dr. William M. Purdy, A ssistant Superintendent-
Business Services, Palm Springs Unified School D istrict
7. Dr. Bertram A. Betts, Assistant Superintendent-
t
j Business Services, Los Angeles County Schools
8. Ernest R. Norton, Assistant Superintendent-Business j
i
Services, Orange County Schools
j 9. Eugene E. Stevens, Financial Advisor, San Diego
i
i
| County Schools
i
i
10. Max Benton, Schools Consultant, California Taxpayers'
Association
I An interview guide was used in interviewing these specialists.
i |
I i
The remainder of this chapter is devoted to a discussion of
• , i
j the information obtained in response to the narrative letter to county j
superintendents and from the interviews with county auditors and
school finance specialists. ;
Extent of Temporary Borrowing
It was believed that the county superintendents were in the
best position to provide information regarding the extent to which
i
school districts resort to temporary loans as a source of funds during j
! the dry period. Accordingly, the first question asked in the narrative j
I i
letter to county superintendents was as follows:
1. To what extent have districts in . . . County used some j
form of temporary borrowing during the past three
years, in order to obtain funds for current operating j
expenses? In answering this question, there is no need
| to list specific districts and amounts borrowed. A few
i statements will be sufficient, indicating the approxi-
! mate number of districts involved and whether the need
to obtain temporary loans is generally: !
74
i ‘
a. A recurring problem involving a substantial pro- ;
portion of the districts in the county. |
; b. A recurring problem with certain districts, but j
j seldom involving more than a few of the districts
I in the county.
j c. An occasional problem, never involving more than
i a few districts in any given year. j
' |
County superintendents responded to this question in various j
; ways. As stated in the question, it was not the intention to obtain an j
i i
! exact count of the number or percentage of districts involved. Rather,
j
| the question was intended to provide a general indication as to the
! i
i extent of temporary borrowing in the counties of California. The re- I
i i
, i
sponses of the county superintendents, while presented in a variety
of ways, served to provide the desired information. Consequently, no
i
I particular effort was necessary to obtain additional information relat-
' ing to this question from county auditors or school finance special-
i
ists.
!
Basically, the responses of county superintendents can be
described as being of three general types:
i i
| 1. A listing of the districts obtaining temporary loans and
the amounts borrowed; I
; I
j
2. A statement as to the approximate percentage of districts;
using some form of temporary borrowing; I
j 3. A general statement describing the extent to which j
i :
|
temporary loans have been used as a means of interim
75
financing. This statement was sometimes selected from
among the responses indicated in the question. Other
responses described the extent of the problem in such
phrases as "most districts," "a m ajority," "nearly a ll,"
|
"no problem," and so on. |
For purposes of tabulating the information, five general j
categories were established:
t
a. A recurring need for temporary loans among a sub- j
i
stantial proportion of the districts in the county. (For
purposes of this tabulation, 25 per cent or more was j
considered a "substantial proportion.")
b. A recurring need for temporary loans among certain
districts, but seldom involving more than a few districts
i
in the county.
c. An occasional need for temporary loans.
*
d. No need for temporary loans due to pre-apportionments j
i
of local taxes in accordance with Revenue and Taxation
j
Code sections 4701-4716.
i
e. No need for temporary loans--districts consistently
i
maintain sufficient reserves to avoid borrowing. j
| Table 1 indicates the number of responses falling into each
t '
!
iof the above categories. In fourteen of the fifty-six counties, the
TABLE 1
EXTENT OF TEMPORARY BORROWING B Y CALIFORNIA SCHOOL DISTRICTS
Extent to which temporary borrowing is used
County Class by A.D.A.^""
1 2 3 4 5 6 7
Total
(N=56)
a. A recurring need for temporary loans among
a substantial proportion (25% or more) of the
districts in the county.
b. A recurring need for temporary loans in certain
districts, but seldom involving more than a few
districts in the county.
c. An occasional need for temporary loans.
d. No need for temporary loans due to preapportion
ment of local taxes (Revenue and Taxation Code
sections 4701-4716).
4 5 9 2 7
2 2 5
1 1 2
2 1
27
11
4
e. No need for temporary loans—districts consist
ently maintain sufficient reserves to avoid borrow
ing. 1 2 4 3 10
Counties are classified according to A. D. A. (34:section 756)
o
77 |
I
j responses indicate that there is no need for temporary borrowing.
| Districts in these counties rely either upon their beginning balance
or upon a pre-apportionment of local taxes in order to finance the
interim period. Twenty-seven responses indicated a need for tern-
i
i
j porary loans in at least 25 per cent of the districts. Fourteen of
| these counties reported that temporary loans were obtained by 50 per S
j cent or more of the districts. Between these extremes were fifteen
! counties in which temporary loans were obtained to some extent. In
|
j these counties the practice was not widespread, rather it was
generally a consistent practice among a few districts.
Responses of the county superintendents are shown in Table 1
according to county class. The class is determined by the size
I (average daily attendance) of the county enrollment according to the
following schedule stipulated in the Education Code:
Class A. D. A.
1 750,000 and over
2 140,000 to 749,999
3 60,000 to 139,999
4 15,000 to 59,999
5 7,000 to 14,999
6 1,000 to 6,999
7 100 to 999
8 99 and under
78
Types of Temporary Loans
Various types of temporary loans are possible for those
school districts which are not able to finance the dry period from
their own reserves. This was a topic of major concern to the study, ,
i
and all three groups of participants provided significant contributions j
to this aspect of the problem.
|
County superintendents were asked the following question:
2. What procedure is followed (tax anticipation warrants,
transfer of funds from the county treasury, e tc .) by
those districts which need temporary loans in antici
pation of local revenues? We will appreciate receiving
any samples of forms or policy statements which have
been developed by your office relating to this procedure
(Education Code sections 21051-21053, 21201-21255;
Government Code sections 53820-53858; California
Constitution, Article IV, section 31).
Responses to this question revealed considerable diversity
in the methods of interim financing used by various counties. Tem
porary transfers from the county treasury are used to varying
degrees in a majority of counties. Procedures used in the remaining j
counties include registration of warrants, pre-apportionments of
i
local taxes, bank loans, sale of tax anticipation notes, and various
types of reserve fonds or contra-accounts.
Registration of warrants
Historically, the registration of warrants has been in wide
79
use as a method of interim financing for California school districts.
Today, however, this procedure is used infrequently. Three county
superintendents, representing some of the smaller counties, reported
the use of this method to some extent. Subsequent interviews with
county auditors indicated that it was also used in other counties, but
only on a limited basis.
Specific comments of county superintendents reporting the
use of registered warrants were as follows:
Size of County Extent of Use
Class 4 A number of procedures are used to
finance the interim period. The three
largest districts, requiring large sums
of money, have had to register warrants
for about a month.
Class 6 Despite many requests, temporary
transfers from the county treasury have
never been granted by the board of
supervisors. Approximately one-half
of the districts consistently register
warrants during the dry period, in
accordance with Education Code sec
tions 21201-212091
I
| Class 6 Generally, temporary transfers are
available from the county treasury. In
a couple of cases it was necessary to
i register warrants as no money was
! available from the board of supervisors.
i
From these comments, it can be seen that in only one case
was the registration of warrants used as the primary method of
interim financing in the county. The other two counties used
I 80
i
| registered warrants under certain conditions in combination with other
i
i
| methods of temporary borrowing.
The legal authority for the registration of warrants is pro
vided in California Education Code sections 21201-21209 and 21252-
1 21255. The procedures to be followed are described in detail in these
I sections. Briefly, when an order is presented for payment and the
! district does not have funds available from which to pay the order, the
i
, county superintendent registers the warrant and does not approve pay-
I
| ment. From the date when the warrant is registered, it bears inter
est at the rate of 5 per cent per annum until the district has funds j
I available for payment.
The infrequent use of registered warrants indicates a
{preference for other solutions to the problem of interim financing.
|
Certainly, a number of other possibilities exist and are used to a
much larger extent. The county auditors interviewed had a very
; i
negative opinion of the use of registered warrants. They cited five
main reasons, listed below, for their objection to this procedure.
! i
1. There is really no reason to register warrants. Plenty .
of other methods are available which are preferable. |
> t
2. The interest rate of 5 per cent is a higher rate than is i
! i
| required for other types of short-term loans. This j
j
j makes it unnecessarily expensive. •
3. The procedure is complicated and difficult. An exces
sive amount of clerical time is required.
4. The district’s creditors are forced to wait for their
money. The credit of the district is placed in jeopardy,
j and vendors increase prices if there is a chance that
I !
; warrants may be registered. j
5. It creates very poor public relations for a school dis- |
i
trict to be unable to pay its bills when they are due. |
i
|
Temporary bank loans and tax
anticipation notes
Alternative methods of interim financing are provided in !
I
i Government Code sections 53820-53833 which describe procedures
!
i for the sale of tax anticipation notes and sections 53850-53858 which
i
permit borrowing through the issuance of notes in amounts up to 85
per cent of the uncollected taxes, income, revenue, cash receipts,
and other funds which will be available during the fiscal year for pay- j
! ment of the notes and interest. The primary difference between these
procedures appears to be that tax anticipation notes may be issued
only in anticipation of tax income, whereas other types of notes may |
also be used to obtain temporary bank loans in anticipation of other i
| income which will accrue to the district during the fiscal year. j
82
Sections 53820-53833 of the Government Code provide that a
school district may borrow funds in order to pay obligations incurred
in the fiscal year before the receipt of income on the request of two-
thirds of the members of its governing board and with the approval of
the auditor and treasurer.
i
Government Code section 53822(b) provides that money may
be borrowed on notes, tax anticipation warrants, or other evidences
I of indebtedness in an amount not to exceed 50 per cent of "the esti
mated income and revenue for the current fiscal year or that portion
; not collected at the time of borrowing* where the borrowing is by a
school district or junior college district" (amended by Stats. 1953,
ch. 1151).
: In addition, a school district may borrow money between
i
'July 15 and August 30 in an amount not to exceed 25 per cent of the
estimated income to be received during the current fiscal year from
state apportionments, based on the average daily attendance for the
I preceding fiscal year. These notes must be repaid from the state
apportionments not later than December 31 of the same fiscal year
i
i
! (Government Code section 53823).
I
| Notes, tax anticipation warrants, or other evidences of
indebtedness issued pursuant to the above sections of the Government
j Code must be sold to the lowest bidder at a rate of interest not to
| 83
I
j exceed 5 per cent a year. Legal provisions relating to the repayment
i
| of such funds are contained in the following sections of the Government
Code:
53830. The repayment of money borrowed by any |
school or junior college district constitutes a first lien j
I and charge against the taxes, revenue, and other income |
collected during the fiscal year in which the money was
borrowed and shall be repaid from the first money received j
by such school or junior college district from the taxes, |
revenue, and income. j
i 53831. All such notes, tax anticipation warrants, or
other evidences of indebtedness issued for funds borrowed j
I prior to December 31st in any fiscal year shall be repaid j
| not later than that date. All other evidences of indebted- i
I ness for hinds borrowed in any fiscal year shall be repaid j
not later than May 30th of such fiscal year. Notes, tax
anticipation warrants, or other evidences of indebtedness
' shall not be issued after December 31st in any fiscal year
if funds borrowed prior to December 31st are not repaid
prior to that date.
i
i It should be emphasized that these temporary loans to school
i
districts must be solely for the purpose of anticipating income.
Government Code section 53832 states in part: ". . . In the case of a
school or junior college district, the loans shall be made solely upon j
jthe credit of income and revenue provided for the fiscal year in which j
; I
loans are m ade."
j While differing in detail, the procedures for temporary bank j
loans under Government Code sections 53850-53858 are sim ilar in
jnature.
! Ten county superintendents reported that tax anticipation
i
i
I notes and other types of temporary bank loans were major methods of
interim financing in their respective counties. Opinions varied
rather widely, both among county superintendents and among county
I
| auditors, with regard to the relative advantages and disadvantages of
| these methods as compared to other types of interim financing.
i
I
I From the standpoint of the school districts, the major dis-
i
i
!
; advantages of tax anticipation notes and other types of temporary
bank loans appear to be that districts are required to pay interest on
the loans and the procedures involved are often quite complicated and
■ time consuming. Several counties reported that the time involved in
! processing these loans was approximately forty to forty-five days.
1
I This, of course, is far in excess of the time required for most tem
porary transfers from the county treasury. While forty to forty-five
days was usually required for processing these loans, one county
reported that a procedure had been developed which generally took
i three weeks and in some cases could be completed in ten days. Dis-
tricts in this county obtained temporary bank loans in accordance
! with the provisions of Government Code sections 53850-53858.
Several county superintendents and specialists in school
| finance expressed the opinion that borrowing from the bank was an
i
j undesirable practice from a public relations point of view. It tends
j 85
i
to create the impression that the district is in serious financial diffi
culty and that perhaps the fiscal affairs are not being properly
managed. This attitude was also reported to exist among some boards
of supervisors and other county officials, who considered it a reflec
tion upon the financial management of county government when tsem-
! |
I porary transfers from the county treasury were not available and !
districts were forced to borrow from the bank. i
! !
While considerable criticism of these methods was expressed;
i
i by all groups participating in the study, this dissatisfaction was by no
! i
! t
means universal. Proponents pointed out that while interest payments j
i
are required, the notes are sold on a bid basis, and the rate of inter-
; est is generally quite low. One of the larger counties sold approxi-
' mately $14,000,000 worth of notes during 1965-66 at interest rates
i
ranging from 2.15 to 2.20 per cent. The county auditor of this
particular county pointed out that this was lower than the interest
t ;
rates being earned on hinds deposited in the county treasury. Thus, :
i
j the over-all cost to the county was less than if temporary transfers |
i j
! I
had been granted with no interest charge to the districts. Also, the
j interest on the loan was being paid entirely by the districts which had |
I borrowed the money; whereas, when money is transferred from the j
i ;
county treasury, the resulting loss of interest is shared by all \
! agencies receiving interest from the investment of county treasury
i 86 |
: I
{ balances.
i
| The county superintendent of one medium-sized county which
had been borrowing on tax anticipation notes for approximately fifteen
years took a very favorable viewpoint toward this procedure. During
j the 1965-66 fiscal year, the county sold approximately $7,500,000
! worth of tax anticipation notes for school districts. The rates of
!
| interest ranged from 2.15 to 2.34 per cent. The money not immedi-
! ately required was invested in U. S. Treasury investments at interest
i
I rates averaging approximately 4 per cent. According to the county
I
superintendent, the reinvestment of money not immediately required
more than covered the cost of interest on borrowing through tax
i
anticipation notes.
i
i
Despite this and sim ilar claims by other counties using this
procedure, most county auditors interviewed were skeptical. They
seemed to consider it doubtful that borrowing money and reinvesting
i
the amounts not immediately used offered any real financial advantage^
I
In order for the reinvestment to offset the required interest payments,!
• t
they believed that districts would need to borrow considerably more !
i
than was immediately required. Since the tax anticipation notes were j
i
usually sold by the county for the school districts, the interest earned!
i
i
on the reinvestment of hinds not immediately required apparently was ,
sometimes retained by the county rather than passed along to school
i !
! 87 |
i
districts to offset their interest payments.
! Borrowing from the bank for purposes of interim financing is
a method strongly supported by a few county officials, but they cer-
i
j tainly must be considered in the minority. Most county superintend-
i
i ents, as well as a majority of the county auditors and specialists j
j interviewed, held that borrowing from the bank should be avoided when
possible. It was their belief that, overall, temporary transfers from I
i J
! the county treasury are preferable, particularly from the standpoint
t
I
| of local school districts.
i
i
i
Temporary transfers of funds i
Authority for temporary transfers of funds from the county
i treasury is contained in Article IV, section 31, of the Constitution of
! California and section 21051 of the California Education Code.
Twenty-nine of the counties responding reported that districts
use this type of temporary loan. The extent to which it is used ranges
; from counties which have occasional transfers by one or two districts
! to counties which have 75 to 100 per cent of the districts consistently j
I
obtaining such transfers.
; |
Specific procedures for obtaining temporary transfers vary
: i
| considerably but tend to follow the same general pattern. Typically,
! i
[requirements are based upon the provisions of the California Constitu-
i i
ition, Article IV, section 31, and incorporate the following basic
88
procedures:
1. Resolution of the governing board: The request for a
temporary transfer of hinds is initiated by a resolution
of the school district governing board. Incorporated
within the resolution or attached thereto is a statement
as to the estimated income and expenditures prior to the
apportionment of secured roll taxes. In some cases,
districts are expected to be quite specific in indicating
the manner in which the money will be spent. The pur
pose of this requirement is to establish that money will
be used only for current expenses rather than for capital
outlay. Finally, the resolution contains a request to the
board of supervisors for a specific amount of money to
be transferred.
2. Approval of the county superintendent: Following adop
tion of a resolution by the governing board, the request
is forwarded to the county superintendent for approval.
The county superintendent verifies that the loan request
does not exceed 85 per cent of the anticipated tax
receipts.
3. Approval of auditor-controller and county treasurer:
The functions of the auditor-controller and the county
89
treasurer consist primarily of verifying that sufficient
hinds are available in the county treasury to permit the
| transfer of the amount requested. After this has been
i
! verified, the resolution is forwarded to the board of
!
I supervisors for consideration.
4. Resolution of board of supervisors: Upon the adoption
i
i
! of a resolution by the board of supervisors, the
! treasurer and auditor are directed to accomplish the
i transfer of funds.
I
This description represents a composite of typical procedure
followed in various counties of California. In order to develop such a
description, an attempt was made to identify practices which were
i common to most counties. Subsequent sections of the study will also
j
give attention to the identification and analysis of divergent practices
in the interpretation and administration of temporary transfers.
i
It was apparent that there were major differences among
| counties, both in the need for temporary loans and in the specific
procedures followed relating to temporary transfers from the county
treasury. In order to identify some of these differences, county
superintendents were asked the following question:
3. Please comment on the practices of the board of
supervisors relative to requests of districts for
I temporary transfers of funds from the county treasury.
90
a. Are sufficient funds readily available for such
purposes?
b. Has the board of supervisors established any
conditions or requirements relative to the pur
poses for which districts may spend money
obtained from such transfers?
c. Are districts charged interest on funds trans
ferred from the county treasury?
The responses to this question revealed a variety of prac-
! tices which were difficult to categorize in a meaningful way. Thus, |
! !
j while the results of part "a" are compiled in Table 2, explanatory
i
i comments have been included to avoid misinterpretation and over-
i
i
• simplification.
The counties in which districts seldom borrow had little basis
for knowing what practices would be followed by the board of super-
r
j visors if such transfers were requested. Some of these counties
I answered the question based upon one or two small transfers which
had been requested some years prior or based upon their best esti- I
mate of what would happen if such transfers were requested. Others
said that the question was not applicable to their situations.
i
| In some cases, the practices of the board of supervisors
I
fluctuated from year to year depending upon the size of the balances j
in the county treasury and the amounts requested. Sometimes several!
j different methods of interim financing were used within a county. Thei
i I
> decision as to the type of loan used in such cases was based upon an I
! evaluation of each situation and depended upon the amount of money !
TABLE 2
RESPONSES OF COUNTY SUPERINTENDENTS TO QUESTION REGARDING
TEMPORARY TRANSFERS OF FUNDS FROM THE COUNTY TREASURY
County
Number
County
Class
Question 3a. —Are sufficient funds
readily available for temporary
transfers?
Comments
Not No
Yes No Applicable Comment
1 1 X Various types of temporary loans are used. A
small percentage of districts are involved.
Requests for temporary transfers are consist
ently granted.
2 2 X Funds are available for transfers of less than
$50,000. Tax anticipation notes are sold for
loans in excess of $50,000.
3 2 X Transfers have not been needed due to advance
apportionment of local taxes in accordance with
sections 4701-4716 of the Revenue and Taxation
Code.
X Board of supervisors has not adopted a resolu
tion permitting temporary transfers from the
county treasury. Loans are obtained through
the sale of tax anticipation notes.
Funds are available in a contra account contain
ing the balances of school districts and various
special districts.
Approximately ten districts (15-20%) consist
ently request temporary transfers. The board
5 2 X
6 2 X
7 2 X
8 2 X
9 3 X
10 3 X
11 3 X
12 3 X
13 3 X
Funds are available in a contra account contain
ing the balances of school districts and various
special districts.
Approximately ten districts (15-20%) consist
ently request temporary transfers. The board
of supervisors has granted all such requests.
Approximately 70% of the districts requested
transfers this year. No requests have been
turned down by the board of supervisors.
50-60% of the districts generally request tempo
rary transfers. The board of supervisors has
been very cooperative in granting funds when it
can be shown that they are needed.
40-50% of the districts request temporary
transfers. Up to this time sufficient funds have
been readily available for this purpose.
The number of requests for temporary transfers
has varied from 20 to 50% of the districts over
the past three years. Funds have always been
available for such transfers.
Approximately 40-50% of the districts request
temporary transfers each year. Sufficient funds
have been available and the requests are consist
ently granted.
Sufficient funds are available in a cash reserve
fund set up for this purpose. The cash reserve
fund is composed of the balances of all special
districts.
For many years, school districts have experienced
difficulty in developing adequate reserves, and the
county has not been in a financial position to
TABLE 2 --Continued
Question 3a. --Are sufficient funds
readily available for temporary
County
Number
County
Class
transfers?
Comments
Not No
Yes No Applicable Comment
14 X
15
16
X
provide temporary transfers from the county
treasury. This year 56% of the districts obtained
loans through the sale of tax anticipation notes.
The procedure of borrowing on tax anticipation
notes has been used for approximately fifteen
years and works very well.
In previous years temporary transfers from the
county treasury were available. Districts have
not been informed that they will need to rely upon
bank loans in the future. Approximately one-third
of the districts need temporary loans.
Approximately 20% of the districts need temporary
transfers. Sufficient funds are available and
requests have been granted.
In most districts beginning balances are meager.
Sufficient funds have been available and temporary
transfers have been made when needed.
17 X Less than 10% of the districts requested tempor
ary transfers this year. Reserves in the county
treasury are limited and are loaned with careful
scrutiny as to need. Requests must be made very
early in the fiscal year because of the shortage of
available funds.
18 4 X Prior to the 1964-65 school year, temporary trans
fers were granted. Since that time, all requests
JL/ A
18 4 X
19 4 X
20 4 X
21 4 X
22 4 X
23 4 X
Less uian j l u % oi me districts requested tempor
ary transfers this year. Reserves in the county
treasury are limited and are loaned with careful
scrutiny as to need. Requests must be made very
early in the fiscal year because of the shortage of
available hinds.
Prior to the 1964-65 school year, temporary trans
fers were granted. Since that time, all requests
for such transfers have been denied by the board
of supervisors. Loans are secured by approxi
mately 25% of the districts under the provisions of
sections 53850-53858 of the Government Code.
Three districts usually need temporary loans.
Sufficient funds are generally not available in the
county treasury. In some cases, the county has
borrowed money from the bank and advanced hinds
to districts.
An overwhelming majority of districts secure tem
porary transfers from the county treasury. In no
case has a district's request been denied.
Until this year districts have been able to obtain
temporary transfers from the county treasury. At
the request of the board of supervisors the proce
dure has not been changed. Approximately one-
third of the districts borrowed this year on tax
anticipation notes.
A substantial proportion of the districts in the
county request and receive temporary transfers
from the county treasury.
For several years, nearly all schools in the county
have been forced to secure money for operating ex
penses prior to the receipt of taxes. The board of
supervisors has had sufficient funds to cover the
needs of the districts.
vo
to
TABLE 2—Continued
Question 3a. —Are sufficient funds
readily available for temporary
County County
transfers?
Comments
Number Class
Not No
Yes No Applicable Comment
24 Approximately one-half of the districts consist
ently need temporary loans. Prior to the 1964-
65 fiscal year it was necessary to obtain such
loans from private agencies. -Since that time
temporary transfers have been available from the
county treasury. The necessary funds are
borrowed by the county as part of a general county
loan.
25
26
27
50% of the districts consistently request temporary
transfers. Sufficient funds have been available
in the past, but this year it was not possible to
grant the full amounts requested. Some other
method will probably be used in the future, possibly
the sale of tax anticipation notes.
Six to ten districts use some form of temporary
borrowing each year. These are usually wealthy
districts which rely heavily upon local taxes.
Temporary transfers are usually available to small
districts requesting modest amounts. Larger dis
tricts requiring over $50,000 have had to register
warrants if the money is requested prior to
November 20.
In the past, the few districts whose reserves were
not sufficient to meet their needs obtained the funds
as part of a general county loan at an interest rate
of approximately 1.65%. Beginning this year dis
tricts will receive an advance apportionment of
local taxes in accordance with the provisions of
sections 4701-4716 of the Revenue and Taxation
27 4 X
28 4 X
29 4 X
30 4 X
31 4 X
32 5 X
33 5 X
November 20.
In the past, the few districts whose reserves were
not sufficient to meet their needs obtained the funds
as part of a general county loan at an interest rate
of approximately 1.65%. Beginning this year dis
tricts will receive an advance apportionment of
local taxes in accordance with the provisions of
sections 4701-4716 of the Revenue and Taxation
Code.
Prior to this year funds were available in the county
treasury. Beginning this year districts needing
temporary loans obtain funds through the sale of
tax anticipation notes. Approximately 25% of the
districts have sold such notes this year.
Districts are given advances on taxes. Money is
advanced and when taxes are collected this amount
is withheld.
Approximately 20% of the districts request tempo
rary transfers. Sufficient funds have been available
from the county treasury.
This whole area of temporary borrowing is not a
problem. Districts have consistently maintained
sufficient reserves to meet their cash needs. On
the few occasions when temporary transfers have
been requested, they have been granted.
All districts consistently request temporary trans
fers. Sufficient funds have been available in the
county.
90% of the districts consistently request tempo
rary transfers. Sufficient funds have been available,
even though there was concern this year that the
county might have to borrow in order to provide the
necessary funds. ^
TABLE 2—Continued
Question 3a. —Are sufficient funds
readily available for temporary
County County
transfers?
Comments
Number Class
Not No
Yes No Applicable Comment
34 X
35
36
37
No districts have requested temporary transfers
from the county treasury. Sufficient balances
are carried over from the previous year to
insure ample funds at all times. The county
superintendent feels that funds would be available
for temporary transfers if they were requested.
County auditor transfers to each district, from
the county general fund, the anticipated revenue
the district might receive. After the taxes have
been received, the necessary adjustments are
made for each district. This year, due to unusual
expenses of the county, only the amount needed to
pay operating expenses has been transferred.
The need for temporary loans has not been a prob
lem of any importance in this county. Two or
three districts need to borrow each year. To date,
sufficient funds have always been available.
The majority of districts that have run short of
funds are small two- or three-teacher schools,
that do not have a school administrator. The
larger schools have never been in serious trouble,
at least in recent years. Sufficient funds have
been available for temporary transfers. Beginning
this year, the county auditor may apportion, at the
beginning of the school year, 85% of the revenue
expected from available county funds.
38 5 X
39 6 X
40 6 X
41 6 X
42 6 X
43 6 X
L iic tL uu iiui nave c t suiuui auimiusiraior. i ne
larger schools have never been in serious trouble,
at least in recent years. Sufficient funds have
been available for temporary transfers. Beginning
this year, the county auditor may apportion, at the
beginning of the school year, 85% of the revenue
expected from available county funds.
School districts in this county rarely resort to
temporary borrowing. Only one or two districts
have done this during the past five or six years. In
both instances, the necessary funds were advanced
by the board of supervisors.
Two-thirds of the districts borrow practically every
year. Sometimes all districts request transfers.
Sufficient funds are available in the county treasury.
The largest district in the county needs to borrow
every year. This district contains 80% of the stu
dents and area in the county. One other district
borrowed this year. Sufficient funds for temporary
transfers have been available.
50% of the districts usually borrow pending receipt
of tax funds. County funds have never been avail
able for temporary transfers. Districts rely upon
temporary bank loans.
It has been many years since districts have had to
borrow for any purpose. Districts carry sufficient
reserves and no transfers have been requested from
the board of supervisors.
Approximately one-half of the districts have been
forced to borrow money from the board of super
visors. In most cases sufficient funds are available
to cover emergencies. In a couple of cases it was
necessary to register warrants as no money was
available.
NO
TABLE 2—Continued
County
Number
County
Class
Question 3a. — Are sufficient funds
readily available for temporary
transfers?
Not No
Yes No Applicable Comment
Comments
44 6 X A few districts have a recurring need for tempo
rary transfers. Sufficient funds have usually
been available in the county treasury.
45 6 X More than one-half of the districts have a recur
ring need for additional funds prior to local tax
collections. Many requests have been made to
the board of supervisors for temporary transfers
but the funds have never been granted. Warrants
have been registered to cover expenditures during
the ’’dry period. ’’
46 6 X Borrowing is only an occasional problem. Enough
reserve is on hand in the county treasury to trans
fer funds to the district.
47 6 X No temporary transfers have been requested during
the past three years. The board of supervisors has
not adopted a policy permitting temporary transfers
to school districts.
48 6 X Transfers have not been needed due to advance
apportionments of local taxes in accordance with
sections 4701-4716 of the Revenue and Taxation Code.
49 6 X
We have had only occasional borrowing in the past.
A contra-account system has been set up which pro
vides for automatic borrowing from the combined
reserves of special districts.
50 6 X
Tax anticipation notes have been issued as needed.
Funds are not available in the county treasury for
franofor tn crhnnl (Hotwow
49 6 X
50 6 X
51 6 X
52 6 X
53 6 X
54 7 X
apportionments of local taxes in accordance with
sections 4701-4716 of the Revenue and Taxation Code*
We have had only occasional borrowing in the past.
A contra-account system has been set up which pro
vides for automatic borrowing from the combined
reserves of special districts.
Tax anticipation notes have been issued as needed.
Funds are not available in the county treasury for
transfer to school districts.
None of the districts in this county have had to
borrow money within the past three years. Funds
have always been available from the board of super
visors upon request; however, our requirements
have always been modest.
Districts in this county have had no occasion to
resort to temporary borrowing. Those districts
whose reserves have dipped extremely low have had
to withhold payment on certain warrants until tax
revenues were received. The board of supervisors
has never been asked to loan money but has indi
cated that it would be willing to do so.
No districts carry a large enough reserve to carry
them through the dry period. The county treasurer,
on advice of the district attorney, is very liberal.
All districts are allowed to run in the red until tax
moneys are apportioned. The board of supervisors
has not been brought into the picture.
Districts have had to borrow very little in past
years. This year some districts have very low cash
balances and it may be necessary to obtain tempo
rary loans. There are no funds available from such
purposes from the board of supervisors.
vO
C n
, TABLE 2 --Continued
County
Number
County
Class
Question 3a. - -Are sufficient funds
readily available for temporary
transfers?
Comments
Not No
Yes No Applicable Comment
55 7 X There has been no need for temporary loans, and
a temporary transfer from the county treasury
has never been requested. On one occasion the
board of supervisors indicated informally that they
would approve a request for fends from die county
treasury.
56 7 X There has been no need for temporary loans.
v O
O s
97
needed, length of time involved, amount of money available in the
!
| county treasury, and so forth.
| There was a rather large number of differences reported
I
| among counties in policies relating to temporary transfers which j
| affect the availability of such transfers to school districts. In some j
i |
counties, funds used for such purposes are obtained almost entirely 1
i j
I from excess funds of other school districts on deposit in the county |
I !
treasury. Thus, if all districts began operating on minimum reserves^
i very little money would be available for such purposes.
i
*
In other counties, most of the money comes from county !
i
i
trust funds and bond and interest funds. In such cases, the avail-
i ability of temporary transfers is not heavily dependent upon operating
: balances of school districts. This was more often true in the larger
counties. Small counties, in which very little building was in prog -
ress, appeared to have a much more severe problem in relation to ,
providing the necessary funds for temporary transfers.
Written material provided by some county superintendents j
indicated that temporary transfers would not be granted prior to the ;
i
time when the final tax rate was set. This was presumably based upon!
the fact that transfers were limited to 85 per cent of the taxes which |
would accrue to the district, and this amount could not be known until j
jthe tax rate was set. Subsequent interviews with county auditors in
I
| some of these counties established that transfers had not been
| requested by school districts prior to that date. If such transfers
were requested in July or August, these particular county auditors
believed that at least small amounts would be made available to the
i
requesting district. j
i i
i
Another factor to be considered in interpreting the responses j
was that a few boards of supervisors borrowed money in order to have!
i
i
it available to school districts and special districts during the interim
| period. In such cases, a simple "Yes" answer to the question regard
ing the availability of funds could be misleading. It is true that money!
would be available, but only after the county had borrowed the neces-
i
sary funds.
i
I
It was common, in counties where more than one method was
j
used, to find that temporary transfers were available up to a specified
amount. Beyond the specified amount, tax anticipation notes or other j
types of loans were used.
As stated above, the tabulation in Table 2 provides a form of
i
organization for the responses, but a proper understanding of the
| I
practices followed requires study of the interpretative comments. j
Several variations in practice among counties could be traced!
I |
directly to differing interpretations of the legal provisions relating to j
temporary transfers from the county treasury. Basically, the j
99
difficulty of interpretation seems to arise from the language of
Education Code section 21051, which reads as follows:
21051. Whenever prior to the receipt by any school
district or county school service fund of its state, county,
city and county, or district funds, any school district or
county school service fund of a county or city and county j
does not have sufficient money to its credit to meet current j
expenses of maintenance, the board of supervisors of the
county or city and county shall order, and the auditor and
treasurer of the county or city and county shall make a \
temporary transfer from any hinds of the county or city I
and county not immediately needed to pay claims against :
them to the school fund of the district or county school
service hind of the amount needed, not exceeding 85 per |
cent of the amount of money which will accrue to the school j
district or county school service fund during the fiscal |
year. Upon the making of the transfer the auditor shall j
immediately notify the superintendent of schools of the j
county or city and county of the amount transferred. Each
transfer of funds requested under this section shall be
granted in order of receipt by the board of supervisors,
regardless of whether sufficient county funds are available
for transfer to meet pending or anticipated requests of
school districts. The funds transferred under this section
to the credit of a school district or county school service j
fund shall be retransferred by the auditor and treasurer
to the fund from which they were taken from the first moneys
accruing to the school district or county school service fund !
and before any other obligation of the school district or
county school service fund is paid from the money accruing. j
I
The provisions of Education Code section 21051 are based j
upon Article IV, section 31, of the California Constitution, which con- j
l
tains the following provisions relating to temporary transfers:
i
I
Article IV, section 31. Temporary Transfer of
j Public Funds. . . . Notwithstanding the restrictions con-
j tained in this Constitution, the treasurer of any city,
county, or city and county shall have power and it shall
ioo !
I
| be his duty to make such temporary transfers from the !
funds in his custody as may be necessary to provide I
funds for meeting the obligations incurred for mainte
nance purposes by *** districts *** whose funds are in
his custody and are paid out solely through his office.
Such temporary transfer of funds to any political sub-
j division shall be made only upon resolution adopted by
the governing body of the city, county, or city and county
directing the treasurer of such city, county, or city and |
county to make such temporary transfer. Such temporary
transfer of funds to any political subdivision shall not j
exceed 85 per cent of the taxes accruing to such political
: subdivision, shall not be made prior to the first day of
i the fiscal year nor after the last Monday in April of the
current fiscal year, and shall be replaced from the taxes
accruing to such political subdivision before any other
| obligation of such political subdivision is met from such
taxes. (Amendment adopted November 6, 1962)
The language of these sections gives rise to three major |
i questions which were mentioned repeatedly by county superintendents,
county auditors, and specialists in school finance. The substance of
I these questions can be expressed as follows:
: !
1. Is it mandatory that temporary transfers from the county
treasury be granted when requested by school districts?
2. What is the maximum amount of the transfers which may j
I !
; |
be granted?
3. What specific restrictions should be placed upon the
i I
capital outlay purchases of districts which have received
temporary transfers from the county treasury? j
i !
| With regard to the question of whether or not temporary
t
i j
transfers must be granted when requested, the constitutional
i provisions state that . . the treasurer of any city, county, or city
|
| and county shall have the power and it shall be his duty to make such
temporary transfers . . . ."
j Education Code section 21051, however, makes two state-
! j
i ments in this regard which have received differing interpretations. j
i One part of this section says that the board of supervisors shall order |
] i
■ and the county auditor and treasurer shall make a temporary transfer j
i I
i i
; from any funds of the county not immediately needed to pay claims !
| against them.
!
However, this section further states that each transfer of j
i
i funds requested under this section shall be granted in order of receipt
by the board of supervisors, regardless of whether sufficient county
i funds are available for transfer to meet pending or anticipated requests
of school districts.
The apparent conflict between these two statements was men
tioned repeatedly by participants in the study. Some counties have
< interpreted this section to mean that the county is actually required to j
! i
borrow money if necessary in order to provide temporary transfers :
to school districts which request them. In other counties, however, '
temporary transfers may or may not be granted, depending upon the
| current financial condition of the county. In a few counties, requests !
j I
I for temporary transfers have consistently been denied. This was true]
102
in two of the largest counties in the state (in terms of pupil popula
tion), in which the refusal to grant temporary transfers appeared to
be based on the desire of county officials to retain available funds for
investment purposes rather than to make them available for tempor
ary transfers.
i
A majority of the people interviewed believed that counties j
j were legally required to provide temporary transfers from the county
i treasury, particularly if funds were available, and perhaps even if
i
j funds had to be borrowed for this purpose by the county.
The question relating to the maximum amounts which may be
borrowed was the result of conflicting statements in the pertinent
legal provisions. Article IV, section 31, stipulates that the amount
iof the transfer shall not exceed 85 per cent of the taxes accruing to
i
the school district. On the other hand, Education Code section 21051
permits transfers not to exceed 85 per cent of the amount of money
i
which will accrue to the school district during the fiscal year.
j
| Most of the participants who mentioned this conflict between
!
the two sections believe that Education Code section 21051 exceeds the
constitutional provisions and should be reworded accordingly. That
Is, the maximum amount of the temporary transfer should be stated
i
as 85 per cent of the taxes accruing to a school district.
103
j
The purpose of temporary transfers, as stated in the Consti
tution, is to "provide hinds for meeting the obligations incurred for
maintenance purposes . . . . " The language of Education Code section
21051 is quite sim ilar, stating that temporary transfers shall be pro-
i
vided when the district " ... does not have sufficient money to its
!
credit to meet current expenses of maintenance . . . . "
i
I It was evident throughout the study that there was widespread |
i I
! i
I agreement among counties that these sections were intended to pro- j
i
i
hibit the granting of temporary transfers for the purpose of capital
! i
outlay expenditures. There were widely divergent practices, however j
with regard to specific controls used by the counties to insure that j
i
!
money obtained from temporary transfers was used for "current
'expenses of maintenance" rather than for capital outlay.
Interviews with county auditors indicated that several coun
ties place very strict controls on the capital outlay expenditures of a
district which has received a temporary transfer from the county
1 j
jtreasury. In these counties, the county auditor merely refuses to
approve any warrant for a capital outlay expenditure, until the amount j
of the temporary transfer has been repaid by the district. |
!
Materials received from county superintendents indicated
! !
I i
I that a more common procedure is to deduct the amount of anticipated j
j i
I capital outlay expenditures at the time the temporary transfer is
104
i
granted, rather than to exercise direct control over subsequent
expenditures of the district. Typically, the county provides a form to
be used in requesting temporary transfers, in which the district is
asked to justify the amount requested. Districts are asked to list
i estimated expenditures excluding capital outlay, present cash balance,
i
anticipated receipts, and the amount of the transfer requested.
! Some differences were observed in the effect of various
i
i
temporary transfer procedures upon the interest received by school
i
j districts. Only one county reported that there was a direct interest
charge on funds transferred from the county treasury. Three other
counties, however, did indicate that in order to qualify for a tempor-
i
ary transfer, districts must forego interest on their balances in the
county treasury. In two of these cases, no interest was earned on
i
balances during the period of the loan, and in the other county, no
interest was earned during the fiscal year by districts which needed
transfers. These cases were somewhat atypical,
j In most counties, receipt of a temporary transfer would have
i
no direct effect upon the amount of interest received by a school dis
tric t. Typically, districts pay no interest on the temporary transfers
which they receive. They receive interest on their average balances
jin the county treasury, exclusive of the amounts received from
tem porary transfers. There is, however, an indirect effect upon the
! 105
i
I amount of interest received. Money advanced to school districts is
i
! not available for investment by the county treasurer. Therefore, the
total amount of interest available for apportionment to school districts
and county agencies is reduced, particularly when the county must
j keep large amounts available for temporary transfers. This reduction
; in interest affects all districts and county agencies rather than just
I
I
! those receiving temporary transfers.
I
There appeared to be rather substantial differences among j
| counties in specific methods of apportioning interest on treasury
balances. It was thought that an investigation of this topic was beyond,
the scope of this study, however, further study in this area would
; seem appropriate.
i
i
i Dry period loan fond
The establishment of a loan fund within the county treasury
to be used by school districts and all special districts in financing the
]
dry period is a variation of the procedure described previously in |
i relation to temporary transfers. County superintendents sometimes |
referred to this approach as a contra-account, due to the particular
i
accounting procedures involved. It is important to recognize that this |
;
I is really a difference in procedure rather than an entirely separate |
! method of interim financing. It is, in fact, a type of temporary
t
I
transfer from the county treasury. The differences in procedure,
however, require that this approach be considered separately from
! other types of temporary transfers.
! The approach used in Sacramento County has been commend-
| ed by Vieg, in pointing out the advantages of pooling county and school
j reserve funds (25:22-23). Consolidating the balances of several
i
governmental units reduces the amount of stagnant cash and borrowed ;
funds which all of them hold in reserve.
i
| i
The procedures used in Sacramento County, while differing
! i
i from those of other counties in some details, are representative of |
( t
this approach. The Sacramento plan was adopted by resolution of the !
board of supervisors. This plan of financing was considered to be
i
mutually advantageous to all governmental agencies participating and
to result in a substantial savings to the taxpayers of Sacramento
County. In addition, the adoption of this policy served to reduce the
need for short-term borrowing through tax anticipation notes, and to
provide for the distribution of over-all county treasury interest earn-
I ings on the basis of average treasury balances to all school districts
and the county general fund.
: i
As with some other types of temporary transfers, all avail -
j able moneys in the county treasury are used as authorized by Article I
| IV, section 31, of the California Constitution and section 21051 of the i
i !
j Education Code. In Sacramento County, sufficient county treasury
| 107
balances are maintained by voluntary waiver by all participating
j governmental agencies of their statutory right to authorize specific
investment of their funds on deposit in the county treasury. Thus,
rather than exercising the option of investing their own funds, all
| school districts participate with other county agencies in the invest-
• ment program of the county treasurer.
i __
The specific procedures used in Sacramento County can be
|
summarized as follows:
1. On or about July 1, an estimate is made by the county
auditor and superintendent of schools of the minimum
borrowings necessary to finance current expenses and
maintenance of all school districts from July 1 to the
receipt of first installment tax moneys. The county
i
i
auditor makes a sim ilar estimate of the amounts neces
sary to finance salaries and operation of county depart-
!
ments and special districts during the first installment
| dry period--July 1 to December 31.
i
2. A dry period loan hind is established from available
! hinds in the county treasury, consisting of amounts whicl
will be necessary for temporary borrowing by county
j departments, special districts, and school districts.
i
j 3. On or about July 1, the county auditor authorizes the
transfer from the dry period loan fund to the operating
hind of each participating governmental agency an amount
1 sufficient to insure payment of all obligations for opera-
i
I
| tional purposes for the month of July. Thereafter, the
i county auditor authorizes month-end transfers from the j
dry period loan fond to the operating fund of each partici-l
| pating governmental agency in sufficient amount to meet j
! i
! j
the estimated operational expenditures for the succeed- i
ing month. The amounts which may be borrowed in this
i
manner may not exceed 85 per cent of the first period
tax installment for the previous year. j
! i
4. Upon apportionment of the first installment tax collec
tions, the county auditor authorizes the county treasurer
!
to repay all outstanding loans made from the dry period
loan fund. j
I
5. The same basic procedure is then repeated for loans i
: I
! i
which are necessary during the second installment dry j
I I
period--January 1 to April 30. ,
The Sacramento board of supervisors has gone one step I
further in adopting, by resolution, a procedure for alternate dry
period financing from July 1 to April 30. The resolution states: I
I :
I
t
i 109
i
i
I
| A. On or about July 1 of each year the county auditor shall
prepare and certify to the county treasurer a list con
taining the following information:
(1) Names of participating local governmental agencies.
(2) An amount equal to 42.5 per cent of the previous
year current secured tax collections for each par-
I ticipating governmental agency. These amounts
i shall constitute the borrowing limits of these agen-
j cies for dry period financing, PROVIDED, HOWEVER,
the treasurer and auditor are hereby authorized to
limit such transfer to a lesser percentage whenever
in their judgment it is necessary so to do to main
tain the solvency of over-all treasury balances.
I (3) The county treasury may permit overdrafts in the
funds of the participating local governmental agen
cies to the limits established by the county auditor.
i
Under the alternate procedure, the amount of the loan is
limited to 42.5 per cent of the total secured tax collections for the
I
previous year. This amount is approximately equivalent to 85 per
cent of the first period apportionment, which is the amount allowed
| under the previous procedure. By permitting overdrafts in the fonds
of participating agencies, the alternate procedure avoids monthly
transfers of the estimated amounts needed and allows only the exact
; amount needed to be transferred from the dry period loan fund. This
I
! feature of the plan seems particularly desirable, since when districts
are required to submit an advance request, the amount needed must
be estimated and there is a tendency to request more than is actually
| necessary. Also, districts requesting transfers in August will re -
| quest an amount sufficient to cover the lowest balance of the year,
|
I which generally occurs in December. This is not an efficient use of
110
i
available cash because funds remain in school district accounts for
several months prior to the time they are actually needed. In
Sacramento and some other counties, however, the school district
accounts are permitted to "run in the red" temporarily, with warrants
j being covered from comingled funds in the county treasury. In this j
| manner, only the exact amount of cash needed at a particular time is j
| advanced to the district.
j
Contra Costa plan
In the late 1940*8, D. M. Teeter, then auditor-controller of i
Contra Costa County, developed a unique plan which has become |
: i
I known as the "Teeter plan." The legislature approved this alternate
plan for the distribution of tax levies in 1949, and the provisions are
| contained in sections 4701-4716 of the Revenue and Taxation Code.
Four counties reported that they are currently using the provisions of
these code sections. Several other county auditors expressed interest
i
; and said that this plan was being studied. i
Basically, this plan provides a means by which school dis
tricts receive an advance apportionment of the total amount of their \
' i
tax income. Upon completion of the tax roll, the county auditor
i i
, !
determines the total amount of taxes which will be raised for each
t i
i *
j district (based on 100 per cent collection). This amount is then j
i
i i
i apportioned to the credit of each district. The counties using the plan1
I 111 I
I
reported that this generally occurs between September 15 and
| October 1.
Since the taxes have not yet been collected, the amount
credited to each district's account exceeds its actual cash balance by
! the amount of taxes as yet uncollected. Expenditures in excess of the
i
i district's actual cash balance are automatically covered from com in-
; I
i
gled funds in the county treasury or from special funds which the
;
county has made available for this purpose. County auditors using j
i I
i j
| this system stated that the total amount of cash provided by the county
for this purpose was not significantly greater than would be needed !
i
for temporary transfers, had they been using the more traditional plan
under the provisions of Education Code section 21051. From a practi-
i
i cal point of view, the advance apportionment under Revenue and Taxa-
j
tion Code sections 4701-4716 is very sim ilar to what might be called
an automatic temporary transfer. The procedure is simple and
eliminates the need for special requests by board resolution and other
complicated, time consuming procedures which are sometimes neces-
I i
; j
sary with other types of interim financing. By having "spending credit"
available three months earlier, school districts are relieved of the '
necessity of registering warrants, selling tax anticipation notes, and
isimilar measures.
i :
| From the standpoint of the county auditor, a number of pro- ;
112
!
I I
cedures are simplified in the use of this plan. The number of appor
tionments is reduced to two--one for the levy and a small year-end
reversal for cancellations, corrections, or other adjustments. In a
letter explaining this system, a former auditor-controller of Contra
I Costa County reported that the number of fond and other postings had j
; j
: been reduced at least by 80 per cent. Reports from all counties using |
| the alternate method for the distribution of tax levies indicated that
]
: those using the system believed it resulted in simplified, cleaner
| records at far less cost.
' |
A unique feature of the Contra Costa plan is that each district;
receives 100 per cent of its tax revenue, regardless of the tax delin
quencies which actually occur. The county provides funds to the
i districts to cover the amount of their tax delinquencies. This does
j
not mean that the county is giving money to the districts. The county
receives the money with interest when delinquent taxes are actually
paid or when property is sold for delinquent taxes. Thus, when a
| county guarantees each district 100 per cent tax collection, it is in |
i i
effect providing an advance on taxes which will be collected at a later ;
date.
Reports from the office of the auditor-controller in Contra
|Costa County indicated that this plan has a very favorable effect on
| :
'school district bond interest rates. The tax delinquency rate is one of I
| 113
the factors which determines the rate of interest which districts will
I
| be able to obtain on bond sales. In a county which operates under this
plan, all district bond funds are credited with 100 per cent collection.
! This often enables a small school district with a heavy delinquency
I
| record to obtain the same interest rates as large, well-established
1 |
i districts. !
j i
Despite the obvious advantages of not having to contend with j
j any tax delinquency, county auditors were not 100 per cent agreed that!
i i
I this feature of the Teeter plan worked to the financial advantage of
I
school districts. One auditor pointed out that penalties on delinquent !
i
taxes are sometimes substantial, and under the Teeter plan these tax
I penalties are paid to the county rather than directly to the school dis-
j tricts, as would be the case in a traditional method of operation.
I
Since the county has guaranteed 100 per cent collection, there has !
been no delinquency as far as the individual district is concerned. A
reserve fund in the county treasury is built up from delinquent tax ;
t
penalties, which is used to protect the cash position of the county in j
j j
'providing necessary funds for the operation of this plan. Over a
j i
i fifteen-year period--1950-1965--the tax losses reserve fund in Contra j
| Costa County was built up to approximately $1,845, 600. This is j
i i
| money which in most counties would have been paid directly to school !
i |
i |
|districts. On the other hand, this may be a small amount for districts!
j 114
to lose over a fifteen-year period, in exchange for being guaranteed
1 100 per cent tax collection. Some would consider this amount quite
small when compared to the advantages which districts may have
gained in lower interest rates on the sale of bonds.
One problem with the Teeter plan is the determination of
average balances for use in apportioning interest earnings. Since a
false balance is introduced into a district's funds when it receives
credit for the total tax levy, it is rather difficult to arrive at equitable
I average balances between tax receiving funds and those which receive
i
no tax revenue (such as trusts). The Contra Costa County auditor,
i
however, reported that solution of this problem was not impossible
!
nor prohibitive clerically, and in that county a satisfactory solution
i
has been worked out.
\
i
Some county auditors were concerned that if "spending
credit" were made available in September rather than on the conven-
\
tional apportionment dates, school districts might embark upon heavy
^pending programs early in the year and deplete the county treasury
prior to the receipt of taxes. This problem did not occur in Contra
jCosta County. A study of the cash requirements and fund.balances of
Contra Costa County for the years immediately preceding and subse-
i
i
quent to adoption of the Teeter plan revealed that there was no sub-
i
stantial change in this regard.
i
| 115
j The Teeter plan as used by Contra Costa County and modified
I
j versions of the plan as used by some other California counties have
evoked considerable interest from a number of county auditors and
| appear certain to be the subject of further study as a means of interim
! financing. j
1
i
| Factors Influencing the Need for
i Temporary Borrowing
i
| I
It was obvious from the outset of the study that there were
| |
! some rather substantial differences among districts in the extent of !
their need for temporary borrowing. While some of the reasons for
I
i these differences seemed quite obvious, it was believed that this sub- j
ject warranted further study. Accordingly, all groups participating
t
in the study were asked to respond to questions concerning factors
which influence the need for temporary borrowing. The letter to
county superintendents contained the following question:
4. What are the factors which usually cause districts to j
' seek some form of temporary loan?
a. In your opinion, is the action generally the result
of (1) inadequate planning on the part of school
administrators; (2) circumstances beyond the |
| control of school administrators; or (3) a planned j
policy, based on the belief that temporary borrow
ing is preferable to maintaining large reserves? j
Forty-two county superintendents responded to this question. |
i |
i
In most cases, those who did not respond represented counties which j
116
reported that the need for temporary loans was rare or nonexistent.
Thirty-three of the forty-two respondents agreed that factors beyond
the control of school administrators play an important part in the
need for temporary loans. Twenty responses indicated that such
factors were a primary cause of temporary borrowing. In thirteen
I
cases, it was reported that circumstances beyond the control of !
i
school administrators, in combination with other factors, contributed j
to the need for temporary loans.
The factor most often mentioned was the inadequacy of the |
tax rate limitations. While it was expressed in various ways, there ■
was a strong belief among county superintendents that the tax rate |
i
limits made it difficult, and in some cases impossible, for districts
to maintain sufficient reserves to carry them through the dry period.
One county superintendent expressed it in the following
manner:
i
The need for districts to seek temporary loans is usually
due to circumstances beyond the control of school admin
istrators. In most cases, administrators are at the mercy
of the district tax rate and the revenue it will produce.
With increasing pressure from all sides to enrich the pro
gram, expand the facilities, e tc ., it is becoming more and ;
more difficult to spread the hinds thin enough to meet oper
ating costs, let alone being able to set anything aside to
build reserves. j
Inability to pass tax elections not only is a prime factor in
the difficulty districts experience in attempting to build reserves, but
j the resulting financial pressures have caused some districts to
| reduce the size of their reserves in order to meet other budgetary
requirements.
| School finance specialists and county auditors seemed to be
i
i
| in basic agreement with county superintendents relative to the impor
tance of tax rate limitations. Essentially, all groups reported that
there should be no statutory tax rate limitation. Rather, the elected |
i
i
I governing board should have the power to adopt a budget based upon
I the needs of the district, without reference to a mandatory limitation
I i
' |
imposed by statute. The suggestion was particularly strong that the
i
present system of increasing the tax rate through a large number of
; special purpose override taxes should be abandoned.
! While a majority of respondents favored the removal of
i
statutory tax rate limitations, and a number of them strongly held
this view, there was not complete agreement on this point. Some
county auditors indicated that some limitation on the maximum tax
, i
; rate should be maintained. j
i * J
Statutory tax rate limitations have been the subject of major j
j
controversy for a number of years, and solution of this problem was ;
1 clearly beyond the scope of this study. It is also quite clear, how-
| ever, that the ability of school districts to establish and maintain !
i !
j reserves at a level sufficient to eliminate the need for temporary ;
; u s I
! !
| borrowing is adversely affected by the inability of the governing
j
| board to control the amount which may be collected through the local
| tax levy. Some county auditors reported that the problem of budget-
i
I ing sufficient reserves for school districts is much smaller than for
i
i county government agencies and some special districts which rely
: almost completely upon local property taxes. These agencies, how- ;
j |
I ever, are not governed by statutory maximum tax rates and are able I
i i
I i
to set the tax rate at a level which will provide the necessary amounts;
j for reserve purposes. Thus, while most respondents believed that
local school districts should assume the major responsibility for j
i
■ providing sufficient funds to finance the interim period, they also i
recognized that this was not always possible without the capability of
: increasing the district tax rate.
i
Variation in the wealth of districts was often mentioned by
school finance specialists as a major determinant of the amount of
i
reserve necessary to avoid the need for temporary borrowing. This j
j I
| is because state aid is the major source of income during the early
i
' months of the fiscal year. Since wealthy districts receive only a
small portion of their total income from state aid, they receive a |
I I
i I
smaller percentage of their total income during the months of July to |
) i
j November than do less wealthy districts. Thus, other factors being j
j i
i equal, the size of the reserves necessary would tend to increase with ;
119
the wealth of the district. Theoretically, of course, the ability to
provide the additional reserves should also increase with the wealth
! of the district. Some school finance specialists pointed out, however,
j
| that from a practical standpoint this is not always the case. Any dis-
; i
: trict which is levying the statutory maximum tax rate plus applicable j
1 I
! special purpose overrides must receive approval of the voters in order
to levy an additional override amount. Thus, even though a small tax |
; effort might be required to increase reserves to an appropriate level, j
1 i
i i
| and even though the present tax rate is well below the tax rates of
\
j
most other districts, a wealthy district might not have the capability
of raising any additional money from local taxes.
Another factor which is directly related to the size of
I reserves necessary is the rate of growth which a district is experi-
i
encing. The state aid payments which a district receives during the
months of July to January are based upon the attendance reports
through April of the preceding fiscal year. The required expenditures
| however, are directly related to the enrollment of the current fiscal
I |'
year. A district which had experienced a 10 per cent growth in
: f
; enrollment would need to hire additional teachers and classified staff, i
; purchase additional supplies and equipment, and so on, to provide for j
i :
j the increased enrollment.
120
During the months of July to January, all districts receive
the same percentage of their state aid payments based on attendance
of the previous fiscal year, but they do not receive the same percent
age of the total state aid payment accruing during the current fiscal
year. Thus, other factors being equal, districts with a rapid rate of
growth need larger reserves than do districts which are growing
slowly. Since teachers* salaries represent a major share of the j
i
t
expenditures resulting from rapid growth, the effect of this factor is j
i
i
not fully experienced until the October and November payrolls are j
i
issued. i
i
Responses of the county superintendents and county auditors
indicated that the apportionment dates of local property taxes vary
from county to county. In some counties the first tax apportionment
is received by districts during the month of November, while in
others no funds are available from this source until the second or
third week of December. This is particularly significant in that some
districts do, and others do not, receive this apportionment prior to
the December 1 payroll. This is another factor which is beyond the
control of school administrators, yet in a large district it can make a
difference of several hundred thousand dollars in the size of the
reserves needed or the amount of temporary loans which must be ;
obtained.
! 121
In many cases, county superintendents who reported the need
| for temporary loans was due to circumstances beyond the control of
school administrators pointed out that the basic problem is the time
lag between the beginning of the fiscal year and the receipt of local
tax moneys. This factor, coupled with tax rate limitations^ led thirty-
i
j three county superintendents to conclude that under existing conditions!
!
j temporary borrowing is virtually unavoidable for a large number of
i
I California school districts. Variations among districts in their rates j
i
of growth, amounts of state aid received during the dry period, and
dates of local property tax apportionments were factors which, while
clearly beyond the control of school administrators, were considered
i
quite significant in relation to a district's need for temporary loans,
i Thirteen county superintendents reported the need for
temporary borrowing is, to varying degrees, the result of inadequate
planning on the part of school administrators. Comments of these
superintendents indicate the belief that, notwithstanding the problems s
i
j j
j involved, sufficient reserves can be maintained through proper |
planning. |
; They pointed out that often failure to maintain a sufficient !
i
| reserve is not the result of a district's inability to levy a sufficient |
i i
| tax rate. Rather, it is due to the desire of the administrator and
j I
j governing board to keep the tax rate as low as possible. Reserves j
122
are depleted because, through improper planning, the expenditures of
a district are permitted to go beyond its income. In such cases it was
thought that the district was at fault because there was not sufficient
effort to cut back or postpone programs until a substantial reserve
I had been established.
Several responses indicated that inadequate long-range plan- j
| ning was a key factor. Specific examples of this problem mentioned
j i
I by one county superintendent were as follows: !
i
1. Salary schedules are set up without enough thought
| given to what they will look like, three, five, or ten
years hence.
2. Poor administration. Often school board members |
are not made sufficiently aware of the financial prob- j
lems of the district until they are bankrupt. Boards
should at least have an opportunity to go to the voters
for a tax increase, or to hold the line, or even cut
back if there is no other solution.
Sixteen county superintendents stated that at least for some
districts temporary borrowing had become a planned policy. Such
districts believe that temporary loans are preferable to carrying
| large reserves in order to finance the interim period. The extent to
I
which county superintendents believed this was true varied from one
; i
or two districts in some counties to virtually all districts in others. j
Particularly in counties where temporary transfers from the county j
i I
! treasury are readily available, many districts apparently believe that I
i 1
j there is no particular disadvantage to using such transfers in lieu of j
123
large reserves.
| Several responses indicated that governing boards are
reluctant to maintain large reserves, partly due to pressure of
j employee groups for salary and wage increases. Representatives of
| employee and taxpayers groups seem inclined to be particularly
| critical of the amounts carried in reserve when they review school |
! !
| district budgets. Several reports indicated that when districts do
; build reserves to an appropriate level they are often forced to spend
i i
: i
I the money due to criticism and pressure from such groups.
i
A number of factors were mentioned, particularly by county j
i
; superintendents and specialists in school finance, which are related
I to variations in the expenditure patterns of school districts,
j The purchase of supplies and equipment is sometimes con-
i
centrated in the summer months rather than being spread through the
school year. The manner in which such purchases are scheduled, of
course, affects the amount of money which must be available for
I expenditure during the dry period. Some districts apparently proceed |
! |
: to order the necessary items but delay payment, sometimes for long
I |
! periods of time, until sufficient funds have been received. Several j
i participants in the study were sharply critical of this practice, statingj
1 i
| that this causes vendors to raise prices and creates an unfavorable
I impression of the district's financial management.
| 124
I
| Some districts tend to schedule most major maintenance
| work during the summer months, while others schedule the work con
tinuously throughout the fiscal year. Enlarged crews and large
amounts of outside contract maintenance work during the summer
months sometimes result in substantial expenditures during the early
t
| part of the fiscal year. For this and other reasons several school
| finance specialists recommended scheduling the maintenance work
| !
| throughout the year rather than concentrating it heavily in the sum- I
i mer months. !
i 1
Districts vary considerably in the size of their summer
school programs. Some districts operate no summer school program*
I
while others offer extensive programs at all levels. This was consid-
! ered a major factor, which for some districts represented a cons id-
i
: erable outlay during the dry period.
Responses of county superintendents to question 4a are sum- ;
marized in Table 3 which follows.
; i
I j
! Timing of Temporary Loans
While the months of July to November have traditionally been !
. i
| considered the dry period, some districts also experience the need
for temporary loans during the spring, prior to the second tax appor- !
i
I tionment. In order to determine the extent of this problem, county
125
TABLE 3
TYPICAL CAUSES OF NEED FOR TEMPORARY LOANS
AS REPORTED B Y COUNTY SUPERINTENDENTS
Factors Causing Need for Temporary Loan
County
Number
County
Class
Inadequate
Planning
Circumstances
beyond Control
of School
Administrators
A Planned
Policy
No
Comment
1 1 X
2 2 X
3 2 X
4 2 X X X
5 2 X
6 2 X X
7 2 X
8 2 X X X
9 3 X X X
10 3 X X
11 3 X
12 3 X
13 3 X X
14 3 X X
15 3 X X
16 4 X
1 7
4 X X
18 4 X X
19 4 X
20 4 X X
21 4 X
126 !
TABLE 3 --Continued
Factors Causing Need for Temporary Loan
County
Number
County
Class
Inadequate
Planning
Circumstances
beyond Control
of School
Administrators
A Planned
Policy
No
Comment
22 4 X
23 4 X
24 4 X
25 4 X
26 4 X
27 4 X
28 4 X
29 4 X
30 4 X
31 4 X
32 5 . x
33 5 X
34 5 X
35 5 X
36 5 X X
37 5 X
38 5 X
39 6 X
40 6 X
41 6 X
42 6 X
43 6 X X
44 6 X
127
TABLE 3—Continued
County
Number
Factors Causing Need for Temporary Loan
County
Class
Circumstances
Inadequate beyond Control
Planning of School
Administrators
A Planned
Policy
No
Comment
45 6 X X
46 6 X
47 6 X
48 6 X
49 6 X
50 6 X X X
51 6 X
52 6 X
53 6 X
54 7 X X
55 7 X
56 7 X
Total 13 33 16 14
superintendents were asked to respond to the following question:
4. b. In addition to the months of July through November,
are there other times during the fiscal year when
the need for temporary borrowing is likely to occur?
In response to this question, forty-one county superintendents
indicated that the need for temporary loans does not occur at any time
other than the months of July through November. Included in these
forty-one responses were the ten counties which reported that loans
128
I
| were not needed at any time during the year because the districts
i
! carried sizable reserves. Also included were five counties which
avoid temporary borrowing through pre-apportionments of local taxes.
i
i
i
Districts in nine counties experience a need for temporary
i
| loans prior to the second apportionment of local taxes. These loans
t
; generally occur during the months of March and April. Even so, this
! aspect of the problem may be more significant than it appears on the
j
surface. It is noted that six of the nine counties in which borrowing
| is necessary after January 1 are class 1, 2, or 3 counties. Among
class 2 counties, for example, four of the seven reported that dis
tricts need to borrow in the spring. The existence of this problem
will be investigated further in a subsequent phase of the study.
Suggested Practices in Interim Financing
All groups of respondents offered suggestions which they
thought would be helpful in dealing with the problems of interim
| financing. The letter to county superintendents contained the follow
ing question:
5. With reference to the problem of financing expenditures
during the early months of the fiscal year:
a. What changes in legal provisions or county
policies do you feel would be helpful in dealing
with this problem? The answer to this question
i need not be limited to temporary loans, but
might also include legal provisions relating to
129
!
! school district budgeting, distribution of
| state aid, local tax collection, etc.
j b. What recommendations would you care to
j offer concerning this general problem?
t
| Forty county superintendents responded to this question.
i
j The sixteen which offered no suggestions included most of the coun-
j
I ties which do not experience much need for temporary loans. In sub-
j
| sequent interviews, county auditors and specialists in school finance
| also responded to variations of the same question.
Several county superintendents expressed the hope that there
| would be no changes which would further complicate the financial
picture for school districts. One county superintendent expressed it
jas follows:
It seems that every time an effort is made to make more
I money available earlier, we run into many other problems
such as we currently experience with state apportionments
being on a current year basis. It is difficult at the present
time to make a realistic school budget because of the great
number of variables on the income side of the ledger. 1
would hate to see any more guesses placed on this category.
As indicated earlier, however, forty county superintendents
: did offer a wide range of suggested changes dealing with state aid
apportionments, local tax collection, tax rate limitations, budget
i
provisions, and so forth. These suggestions are summarized by
: category in the sections which follow. Also included are suggestions
i
i
ion the same topics by county auditors and specialists in school
i
finance.
130
i
, I
1 State basic and equalization
! aid apportionments
|
| Thirteen county superintendents suggested revisions in the
i
| apportionment schedule for basic and equalization aid, to make more
I
I
| money available to districts earlier in the fiscal year. While it was
recognized that the state has attempted to achieve this through the
i
I advance apportionment, it was suggested that increases in the amounts!
! I
j provided would be a major contribution. |
I i
There was considerable doubt, however, as to whether this
offered a practical solution. County auditors pointed out that the
state legislature was currently considering an accrual method of j
accounting which, if adopted, would reduce the amount of cash avail-*
i able at the state level. The accrual accounting system was subse-
i
! quently adopted, thereby making it more difficult for the state to in-
i
crease the amount of cash available to districts during the dry period.
Even though it may not be possible to revise the schedule of j
state aid apportionments under present conditions, it was believed !
that this would be possible under certain conditions. Suggestions aloiyj
this line centered around a complete overhaul of the tax structure j
!
which would result in a higher percentage of school support from the j
I state.
I 1
I !
I i
! There was evidence of considerable support for recent pro- !
posals in the state legislature which would provide major increases i
| 131
in the foundation programs of all school districts. Such increases
would be supported by an increased sales tax with a corresponding
decrease in local property taxes, which are believed to be currently
financing a disproportionate share of school costs. A side effect of
i this change would be the ability of the state to provide more money
1 »
; earlier, since the increased sales tax would be collected on a year- !
i
1
i
I round basis. Thus, without revising the apportionment schedule, an
i
I increase in the percentage of total support from state aid would, at j
| the same time, provide an increase in the total amount of money re
ceived during the early months of the fiscal year. j
Local tax collection and distribution
The largest number of respondents suggested changes in the
area of local tax collection and distribution. These suggestions can
be grouped into the following four categories.
1. Earlier assessment and collection of local taxes
I 2. Advance apportionment of local taxes |
3. Increase or removal of tax rate limitations I
i . i
4. Quarterly tax collections i
Several county superintendents were careful to point out that
i
| the idea of changing the dates of assessment or tax collection might
t j
| meet with considerable resistance due to problems such changes might;
cause for other agencies of government. However, this idea has been
advanced many times by school adm inistrators. The argument for
such a change was expressed as follows by one county superintendent.
Some of the present legal provisions might well be changed
I by the legislature which would ease the problem. For
[ decades, school adm inistrators have been critical of the
late date at which assessed values are made available for
| budget purposes. The current schedule does not make the
statewide utility roll available in final form until after
approval has been given the annual budget. The entire
calendar of assessm ent deadlines, tax dates, e tc ., should
' be moved back at least two months. This would certainly
contribute to a more efficient operation by all taxing agen
cies which are faced with this problem.
In 1966, Perko and Purdy recommended that the assessm ent
calendar be changed so that all taxable property is assessed as of the
first day of January with the local and state rolls to be completed and
delivered to the county auditor on the first day of June. It was further
I recommended that school districts adopt their final budgets on or
i
before June 30 (46:246).
The idea of extending this recommendation one step further,
and moving up the tax collection dates to September, was suggested
| by several county superintendents and was well received by county
auditors and specialists in school finance. Both of these groups con
sidered Perko and Purdy's recommendations a necessary prerequisite
to the earlier collection of local property taxes.
| Most of the county auditors interviewed suggested that
I
I
I earlier budget adoption and tax collection would be advantageous for
county government as well as for school districts. They also indi
cated, however, that such a change would be opposed by taxpayers
groups.
Some respondents stated that the prim ary disadvantage of
j
! this plan would be the necessity to adopt the final budget before the ;
! 1
! ending balance for the current fiscal year was known. Adopting an j
! official budget based on an estimated ending balance was a m atter of
j
| considerable concern to some county auditors, while others expressed
| the view that this was preferable to adopting a budget based upon an
estimate of the actual assessed valuation.
i
Eight county superintendents suggested advance apportion-
{ ments of local property taxes as a desirable solution to the problems
! of interim financing. This method is currently possible and is being
I
used in several counties under the provisions of sections 4701-4716
of the Revenue and Taxation Code. The procedures involved have been
described previously in the discussion of the Contra Costa plan. As
was mentioned, this plan is currently the subject of considerable j
j interest and study in a number of counties. •
: I
' The increase or removal of statutory tax rate limitations has i
i ;
! been discussed previously. Advocates of this change expressed the j
| I
| point of view that removal of the statutory maximum tax rate would j
i
j allow districts to levy the tax needed to raise the necessary hinds for ;
134 |
operation as well as for the maintenance of an adequate reserve. The|
i
over-all response to this suggestion was quite favorable.
A few county superintendents suggested the possibility of
quarterly tax collections. This idea met a very cold reception from
• i
l
i nearly all of the county auditors interviewed. Their prim ary objec-
I i
i tion was that this system would greatly increase the costs of collect- ;
! ;
! ing property taxes. Some auditors stated that the costs of collection
i
! would be doubled. Others said that the costs would be greatly in
creased, but somewhat less than double the present costs. Increased
i
use of data processing would apparently be helpful, but most auditors ;
i
j thought it would not significantly offset the increased costs of quarter
ly collections. One or two auditors disagreed somewhat on this
i point, suggesting that data processing would eventually make it feas-
|
' ible to collect taxes in four or more payments. i
Auditors also pointed out that quarterly collections would n o t'
solve the problem of financing the dry period unless the first collec- ;
| tion date were changed to September and the whole calendar of assess-j
i !
ment and budget adoption adjusted accordingly. One auditor reported
; that the state of Oregon has quarterly collections, with the first pay- j
i ment due on November 10. The other payments are due on February j
i |
j 10, May 10, and August 10. If California followed this schedule, the !
| :
| final tax payment would not be received until the succeeding fiscal
135
year. Such a schedule of collection dates would seem to create far
more problems than it would solve.
If the first collection date were September 10, other collec
tion dates could be December 10, March 10, and June 10. This
schedule would place all four collection dates within the same fiscal
t
year. Auditors believed, however, that if the first collection date
i
were September 10, the present system of two collection dates would |
I i
I »
I be sufficient and the problem of financing the dry period would be
i
essentially solved.
i i
i !
i }
I
School district budget practices
i Twelve county superintendents suggested that the problems
I of interim financing should be solved through improved budget prac-
I tices at the school district level. Typically, these responses held to
the point of view that school districts should plan and administer their
budgets in a manner which would enable them to maintain adequate
i
I reserves throughout the year. Considering the number of school dis- j
| tricts which need temporary loans, six county superintendents believe
; i
that legal provisions should require districts to carry a specified per-j
i I
i
centage of their budget in reserve.
| It is true that Education Code section 20601(b) does require j
that a general reserve be placed in the tentative budget. Even so,
many districts tend to keep the general reserve rather low and place
136
| a larger portion of reserve funds in the undistributed reserve.
| The solution suggested by six county superintendents would
| require that a specific percentage of the operating budget be placed in
| the general reserve, not only in the tentative budget but in the adopted
: t
| budget as well. This would apparently involve a mandatory provision |
| which would not depend upon the judgment of the local governing j
j
board. In recommending such a measure, county superintendents j
f
were aware of the financial pressures facing school districts, and in !
some cases they mentioned that removal of statutory tax limitations
would be a necessary step, prerequisite to a mandatory requirement j
relating to the maintenance of reserves. Another interesting idea is
I that this requirement would be helpful to school districts in that it
i would serve as a buffer against the demands of employee groups on
| such reserves.
County auditors tended to agree with the idea of a mandatory
i
provision requiring that a specific percentage of the budget be placed |
! I
; in the general reserve. They recognized, at the same time, that
!
there were many problems with this approach and that it would not be 1
i
possible unless the local district had the power to increase the tax j
| rate for this purpose. j
i
• I
The whole subject of budgeting appropriate reserves was a
major topic of discussion in interviews with specialists in school
137
finance. This group expressed considerable agreement that in actual
practice most districts tended to keep the amount of general reserve
quite low and budget most of the money available for reserve purposes
in the undistributed reserve. The reason for this practice is that
| money placed in the general reserve cannot be spent until the follow -
; ing fiscal year. In this way, the undistributed reserve serves a dual
j !
| purpose. In case of emergency, money in the undistributed reserve j
| I
; is available for expenditure during the current fiscal year and that
| i
I portion which is not used provides a beginning balance for the follow- |
i I
ing fiscal year. Most of the specialists interviewed seemed to agree ;
that this was a desirable, o r at least a necessary, practice under
l
current conditions.
i
A number of school finance specialists carried this idea one
i
step further and suggested that the general reserve should not be a
required part of the budget. With so many districts budgeting only
I
j
token amounts in the general reserve, it does not really serve the
| purpose for which it was intended. This is not to say that districts do
not need to make provisions for a reserve which will constitute a be-
| ginning balance for the next fiscal year. It was suggested, however,
; that this could be accomplished- -and in many districts is being
| accomplished--with a single reserve. Placing all reserve amounts in !
j I
j the undistributed reserve is a more flexible practice, since this
138
i
! reserve can be expended during the current fiscal year in case of
emergency.
It is apparently true that many school districts do carry a
substantial portion of their reserves within the body of the budget in
| the form of overestimated expenditures or underestimates of the in- j
j come to be received. While this is considered contrary to good budg- I
;
! et practice, there are several reasons why it seems to have become a
j common practice in some school districts. Business officials of
j :
i ;
these districts believe that it is desirable to overestimate the expendi-|
i
tures in each budget category in order to avoid the necessity for
; transfers from the undistributed reserve to the various budget cate-
I
!
: gories. These officials believe that continued requests for such
j -
i transfers tend to destroy the confidence of the school board.
I
i
A second and more common reason given for placing minimal
amounts in reserve categories was the persistent pressure from
■ I
employee and taxpayer organizations to reduce reserves. When re-
■ t
| serves are large, employees think the money should be spent for
salaries, and taxpayers think taxes should be reduced. Some school i
I
; I
j administrators have responded to this pressure by reducing reserves j
to a level which they consider dangerously low. Others have reduced !
| •
j the budgeted reserves but have compensated for this reduction by i
i :
! overestimating certain expenditure categories and underestimating
139
i income. In this manner, they have apparently reduced reserves to a
J rather low level but in fact have provided, within the body of the
| budget, a contingency reserve and an adequate beginning balance for
i
| the next fiscal year.
i i
While recognizing the problems and pressures which have |
led to this practice, most specialists in school finance agreed that it !
i
j was an undesirable practice and should be avoided. They held that j
I ;
j school business officials should estimate income and expenditures as !
; t
I !
j accurately as possible and not attempt to ’’hide money" by providing i
! |
reserves within the body of the budget. Their comments on this can
be summarized as follows:
1. Consistent overestimation of expenditures and under
estimation of income is much more likely to destroy the
confidence of the board than would requests for transfers
from the undistributed reserve. If the board knows that
the administration has made a conscientious effort to
i
estimate income and expenditures accurately, and if it
understands the difficulties in predicting these factors |
accurately, it can understand the necessity of transfers |
from the undistributed reserve.
| 2. The school business official is on much stronger ground
i
i
in defending the size of reserves if he has made every
! 140 I
i
i
effort to estimate income and expenditures accurately.
It is nearly impossible to defend the amounts budgeted
for reserve purposes when it can be shown that the
administration habitually hides money within the body of >
! the budget. One specialist who held a strong position on
|
j this point expressed it as follows:
i j
| It is much easier to debate the size of the j
i undistributed reserve than to debate the i
| size of each budget category. Do not be I
! liberal or conservative in income or expen-
| diture estim ates. It is much easier to get
people to face one issue rather than multi
ple issues. The size of the reserve can '
then be argued on its own m erits.
At this point it should be emphasized that it is often extrem e-
; ly difficult, even with the most conscientious effort, to predict
j accurately income and expenditures for the succeeding fiscal year.
The reasons for this will be discussed more fully in a subsequent
phase of the study. Suffice it to say that the reasons for erroneous
; I
estimates of income and expenditures are often beyond the control of j
| school business officials. Specialists who criticized the practice of j
i
; padding the budget were obviously not referring to this type of erro r, i
i j
Education Code section 20704 requires that the district tax
; !
; rate be determined by dividing the amount of taxes required by 90 per ,
j cent of the secured roll. This practice allows for a 10 per cent
i ;
I delinquency in tax collection. Tax collections in many districts are :
well in excess of 90 per cent, and for some districts this represents |
!
I
an important source of income. It was quickly apparent that there ;
i
are major differences in county policies and in budget practices at
the district level with regard to this source of income. Specifically,
these differences are in the estimation of income for budget purposes.
i
i
| The major practices can be described as follows:
| 1. The amount of secured tax income is estimated based on
I
90 per cent collection. Collections in excess of 90 per i
t
I cent, since they have not been budgeted, cannot be spent
during the fiscal year in which collected. They become
part of the beginning balance for the succeeding fiscal
year. This method has the disadvantage of tending to
conceal potential income from people who are not well
I
versed in school finance and familiar with school district
budgets. In some districts it represents a substantial
source of income which will actually be received but doesj
not show in the school district budget. Some respondentsj
j
suggested this approach as desirable, since it provides
i a source of income which cannot be spent and, therefore, j
is available as a beginning balance for the succeeding
| fiscal year. The counterargument was that the district
| needs this income for operating expenses during the
142
i
j
current fiscal year and it should therefore be shown on j
I
i
the district budget so it can be expended if necessary. j
There was considerable opinion that all sources of in
come should be shown on the district budget and not
hidden from the public view. j
I
2. A second method of dealing with potential tax collections :
i
in excess of 90 per cent was to budget the anticipated !
I
amount in budget category 43.9, miscellaneous income. |
This has the advantages of showing the income on the j
|
district budget form and making it available for expendi- j
ture during the current fiscal year. In some counties
this practice was not permitted. In these counties it was
held that this would violate the intent of Education Code
section 20704, which requires that the district tax rate
be set based on the assumption of 90 per cent collection.
3. A third method of handling tax collections in excess of
90 per cent for budgetary purposes was to budget the full j
amount of anticipated collections in budget category 41.1J
district taxes-secured roll. This was also considered a j
violation of Education Code section 20704 in some coun- j
ties. This section applies to the way the tax is actually |
levied and there is disagreement among counties as to
| whether or not districts are required to estimate their
| income based on 90 per cent collections for budgetary
i
| purposes.
j The above methods are important when one asks the question,
i
I "How much should a district budget in reserve?" One of the factors
| j
| to be considered in answering this question is whether the tax collec- j
I
| tions in excess of 90 per cent have been budgeted as income or left
j unbudgeted to become automatically a part of the beginning balance fori
| the succeeding fiscal year.
t
The present situation is confosing with so much variation in
practice among counties and from district to district. Most school
; finance specialists stated strongly that this source of income should
I not be permitted to remain hidden. They offered a variety of sugges-
tions, but the most common was the providing of a place on the official
budget form to budget anticipated tax collections in excess of 90 per
cent.
Some school business officials suggested that requiring dis- ;
1 I
tricts to estimate their income based on 90 per cent collection is a
{protection to the district in case of a sudden drop in the percentage of !
collection. Most of the specialists interviewed, however, believed
| that districts could estimate their percentage of collection accurately
i {
! enough that this requirement was not necessary. They pointed out that
144
the amount of income budgeted was based on estimates of assessed
| valuation and average daily attendance, and that there was no reason
to require a special kind of treatment for tax collections in excess of
j 90 per cent.
| j
Contingency Reserves j
' l
; i
I The undistributed reserve is the category in California school
i i
I district budgets which officially serves as a contingency reserve. !
|
During the course of the fiscal year, amounts may be transferred to j
: i
the various budget categories from the undistributed reserve and then ;
j
; expended. This provides for a margin of error in expenditure esti
mates and for emergencies which may arise.
i As was mentioned previously, some districts use the undis-
!
tributed reserve for a dual purpose--for contingencies and as a source
of the beginning balance for the succeeding fiscal year. It is also true,
that many districts provide for contingencies by overestimating j
I
;expenditures or underestimating income in various budget categories.
I
It is generally quite difficult for someone else to tell whether this has
ibeen done deliberately in order to pad the budget or is an honest error!
due to the tenuous nature of income and expenditure estimates which j
must be based on factors unknown at the time the budget is planned. j
!
I
j 145
! The problem of contingency reserves was discussed with the
i
I specialists in school finance in order to determine the types of
| emergency situations or errors in budget planning most likely to
I
i cause problems during the course of a fiscal year.
!
!
; Estimates of average daily attendance
; i
j A critical factor and potential source of financial problems
I I
! is the accuracy of a district's estimate of the average daily attendance)
\ >
| (A. D. A .) for the succeeding fiscal year. The amount of state support
I which will be received by a district is based directly on the A. D. A.
. i
for the current fiscal year. Basic aid districts (wealthy districts )
i
; receiving only the minimum amount of state aid) are exceptions to
this rule and receive $125 per pupil, based on the A. D. A. for the
i previous fiscal year. Thus, only the basic aid districts know the
amount of state support they will receive at the time the budget is
adopted. Districts receiving state equalization aid (amounts in excess
of basic aid) adopt budgets based on their estimates of A. D. A. for the
! succeeding fiscal year. Both types of districts, however, are likely
j to experience serious financial difficulties if there are substantial
erro rs in their A. D. A. estimates.
I In a basic aid district, because state aid payments are based j
i i
! on the previous year's A. D. A ., underestimation of the A. D. A. is !
I :
] i
i likely to cause serious problems. An ample reserve should be i
146
I
| available to cover a need for additional teachers which might result
j
j from unexpected growth. Overestimation of the A. D. A. is not quite
| as serious in a basic aid district. This is because the number of
| teachers originally hired is based upon a known amount of income
I
i from state aid. If the number of students is sm aller than anticipated, j
I class sizes will tend to be small, but the district will still have suffi- j
I
I cient funds to pay the number of teachers originally hired.
i
j In districts which rely heavily on state equalization aid,
i
overestimation of the A. D. A. is likely to cause the most serious j
problems. If the A.D.A. is overestimated, an excess number of !
teachers may be hired. Since the amount of state aid in these dis- i
j tricts is based on the A. D. A. for the current fiscal year, the antici-
j pated amount of state aid will not be received if the expected number
i
!
of students does not materialize. Thus, class size will be sm aller
than expected, and the A. D. A. might not produce sufficient state aid
to cover salary payments to the excess number of teachers,
j There appears to be considerable variation among districts j
in the degree of accuracy with which the A. D. A. can be predicted. |
j In a stable area of rather steady growth, estimation of the A. D. A. j
- I
often poses no serious problem. The problem is often quite crucial, I
i i
| however, in rapidly growing areas or in districts which are affected j
i i
i i
1 by seasonal migrations of farm workers.
147
Some districts in suburban areas have faced real problems
due to unexpected delays in the completion of housing tracts, for
example. This is the type of problem which can cause a district to
I
| overestimate the A. D. A. and hire an excess number of teachers,
i In one district, approximately five hundred students trans-
i
i ferred to private schools due to racial problems within the community,
i
| This occurred during the course of a fiscal year after the district had
hired teachers. The resulting loss of approximately $75,000 in state
| aid payments is an example of the type of event which can cause
extreme hardship in a district which fails to provide an adequate un
distributed reserve.
At the junior college level, a sudden change in the draft
t
! situation can result in overestimation of the A. D. A. and the hiring
I
I
of an excess number of teachers. This factor has caused problems
for a number of junior colleges during the past two or three years.
Specialists in school finance repeatedly emphasized the need
: for districts to use the best techniques available in estimating the
A. D. A. Projections of the enrollment based on past experience must
be supplemented with a knowledge of current conditions relating to the
| number of homes and apartments under construction, completion
t
I dates of housing tracts, and other data. School administrators should
i
I
| work closely with city and county officials to obtain information of
148
i
value in estimating the A. D. A.
|
i
Estimates of secured tax income
Another factor which sometimes causes financial problems is
i inaccuracy in estimating the amount of revenue which will be derived
t
! from secured property taxes. This is a major source of income for
i California school districts and estimates must be based on factors
I
I not known at the time the budget is adopted.
i Before the final budget is adopted, districts have generally
' received the local secured assessed valuation but are still using
estimates of the state board of equalization's assessments on utilities.
; The local secured valuation, however, is subject to appeal by the
taxpayer, and successful appeals involving large amounts can have a
I
; substantial effect on the income which will be received by the district.
A sudden decline in the percentage of tax collections some
times results in a significant reduction in revenue from secured
: taxes. The seriousness of this depends largely on the extent of the
i
1 decline and the practice followed by the district in relation to budget
ing anticipated tax collections in excess of 90 per cent.
i
Districts should work closely with other governmental agen-
' cies and be aware of anticipated property acquisitions by public
i
I
i bodies. In one of the large cities of the state, the school district
! suffered a severe financial setback when the state acquired approxi-
| mately twenty-one city blocks for freeway purposes and the property
i
| was removed from the tax rolls. A district's failure to anticipate
this type of property acquisition could be disastrous if a substantial
reserve were not available.
! i
j I
! Other types of contingencies j
| The specialists in school finance mentioned a number of ;
i i
j types of emergencies which sometimes occur and unexpectedly deplete!
i j
i a district's reserves during the course of a fiscal year. It was con- j
! sidered that detailed discussion of these points was not necessary; j
! I
however, they are listed below as representative of the types of con- i
i
I tingencies which might arise.
i
1. Failure to be aware of legal changes: Laws are some-
i
i times passed late in the legislative session and signed
by the governor in July, shortly before the final budget
adoption by school districts. Sometimes these laws
contain required programs which will be rather costly
to the district. If the district is not aware of the change,
i
the necessary funds may not be incorporated in the budget
i i
2. Fire: Some districts have found themselves in serious
difficulty as a result of being underinsured on buildings j
i
and equipment. Even if a district is properly insured for!
buildings and equipment, it must replace many of the 1
150
!
minor items (supplies) lost in a fire.
3. Lawsuits: When lawsuits are pending against the district
from a previous fiscal year, money should be budgeted
to cover payments which might be required in case the
suit is lost. I
4. Deficits in state apportionments.
5. Delays in apportioning local property taxes. j
i
6. Emergency equipment repairs: This was mentioned
i
several times, particularly in relation to major repairs |
i
on school buses and other expensive types of equipment, j
7. Clerical errors: Certain types of clerical errors can be
very costly. In one case, a district forgot to indicate on
the budget an override tax it wanted to levy. Conse
quently, the tax was not levied and the district had to
make up that amount from other operating funds. An-
i
other erro r of this type occurred when a misunderstand
ing resulted in a large number of teachers being improp
erly placed on the salary schedule. By the time this
erro r was discovered, the budget had been officially |
adopted and not enough money had been budgeted for j
t
teachers1 salaries.
Summary of the Chapter
| The practice of temporary borrowing in anticipation of tax
i
j revenues is widespread among California school districts. In approx
imately one-fourth of the counties of California, 50 per cent or more
i
| of the school districts consistently obtain such loans. In approxi-
mately one-half of the counties in California there is a recurring need
| for temporary loans among a substantial proportion (25 per cent or
| more) of the school districts. The need for temporary loans is expe-
i
! rienced by some school districts in forty-two of the fifty-six counties
which responded.
' While there is considerable diversity among counties in their
| methods of interim financing, a temporary transfer from the county
I treasury is the most widely used method. A majority of counties use
this type of temporary transfer to some extent. Other procedures in
clude registration of warrants, pre-apportionments of local taxes,
bank loans, sale of tax anticipation notes, and various types of re-
! serve funds or contra-accounts.
There are many factors which contribute to the need for
| temporary borrowing. A majority of county superintendents reported
| that many of these contributing factors are beyond the control of
school administrators. A few respondents, including some county
i
{superintendents, county auditors, and school finance specialists,
152 I
i I
expressed the point of view that temporary borrowing is generally the
result of inadequate planning on the part of school administrators or
is a planned policy, based on the belief that temporary borrowing is
preferable to maintaining large reserves.
i
1
Specific factors identified as influencing the need for tempor-
i 1
I ary borrowing included inadequate tax rate limitations, inability to
!
! pass tax elections, variation in wealth among districts, rate of
I I
; growth, variation among counties in apportionment dates of property ■
I ;
| taxes, variation in the expenditure patterns of districts, public and j
t !
employee pressure to reduce reserves, and inadequate financial
i
planning.
All groups of respondents offered suggestions for dealing
i with the problems of interim financing. The most common sugges -
tions included revision of the schedule of state aid apportionments,
higher percentage of school support from the state, advance appor
tionments of local taxes, quarterly tax collections, and earlier assess-^
i |
! ment and collection of local taxes. The largest number of respondent^
| j
suggested changes in the area of local tax collection and distribution.
i Some respondents suggested that, notwithstanding the difficulties in- |
volved, the problem could and should be solved through better plan
ning and improved budget practices at the school district level.
i :
Concerning the need for a contingency reserve within the
153
school district budget, a majority of the school finance specialists
indicated that A. D. A. estimates and the estimation of secured tax
income were the most common sources of e rro r in financial planning.
Because of the heavy reliance of California school districts upon these
sources of income, school finance specialists judged them to be of
critical importance, and errors in these budget estimates were con
sidered potential sources of major financial emergencies. Other
; types of possible contingencies included fire, lawsuits, failure to be
aware of legal changes, clerical erro rs, emergency equipment r e
pairs, delays in apportioning local taxes, and deficits in state appor
tionments.
The final question asked county superintendents read as
i follows:
6. Through more intensive study of selected school dis
tricts, we hope to gain additional information regard
ing specific aspects of this problem. For comparative
purposes we are interested in two types of districts:
a. Districts which are consistently able to avoid the
necessity for temporary loans.
b. Districts which consistently resort to temporary
borrowing as a means of obtaining funds in
anticipation of tax revenues.
Please list any districts in . . . County which you feel
would be of particular interest to us in connection
with this study.
I Many of the superintendents did not respond because the
answer had already been given in response to previous questions.
| A review of the responses that were received led to the conclusion
154
that it would not be possible to obtain an acceptable sample of dis
tricts based on responses to this question. They were, therefore,
disregarded and districts were subsequently selected for the next
phase of the study according to the criteria described in Chapter IV.
CHAPTER IV
ANALYSIS OF CASH FLOW IN SELECTED
CALIFORNIA UNIFIED SCHOOL
i
DISTRICTS |
Previous phases of this study have indicated considerable
differences among counties and among districts which have a bearing j
upon the cash balance requirements of school districts. The term
"cash balance requirement" as used in this study refers to the size
i
j
; of the beginning cash balance which would be required in order for a j
district to avoid the necessity for any type of temporary loan.
This is not meant to imply that temporary loans of all types
are undesirable, nor that they should necessarily be avoided in all
situations. Indeed, there is strong support for the idea that, under
current conditions, some forms of temporary borrowing are neces-
! sary and desirable. Because of the lack of coordination between the !
i I
flow of income and expenditures during a fiscal year, additional funds
! must be available for expenditure, either from the beginning balance |
i
or from some type of temporary loan. Such additional funds, whether j
i
available as a beginning balance or from temporary loans, are defined!
I
155 I
156
I
j
{ for purposes of this study as the cash balance requirement of a school
j
i district. Stated another way, the cash balance requirement as of a
i
| given date is the total receipts (exclusive of the beginning balance and
!
| temporary loans) minus the total outgo to date. The extent to which
i
I
i outgo exceeds receipts indicated the amount which must have been
' i
; i
i obtained from the beginning balance or from temporary loans.
! The question, "How much beginning balance do school dis-
t
i tricts need?" is one which, through the interview or questionnaire
| i
I techniques, can be answered only in general terms. Through such |
! i
techniques, it can be learned that cash balance requirements vary
i among districts, that there are many factors which determine the i
i !
, cash requirements^of a given district, and that there is considerable
i agreement as to specific factors which are the most important sources
j
of this variation. Further analysis was needed, however, to deter
mine the actual cash requirements of districts, particularly the com-
I
parative needs among districts.
It was decided that an analysis similar to that performed by
i
Triggs (47) in Ventura County would provide the type of specific infor-j
| mation which could not be obtained through other techniques. A dis- j
i
| trict's cash control ledger contains information as to the amount of |
j !
the beginning cash balance, dates of receipts and disbursements, and j
! a record of temporary loans received. An analysis of the cash flow
I 157
as indicated by these ledgers was used to provide the type of com
parative data desired.
Twenty-one districts were selected for this phase of the
!
| study. The selection of districts reflected a consideration of the
! following factors:
1. District organization: Because of the trend toward
unification in California, only unified districts were |
■ i
included in the sample.
I t
I 2. County: County superintendents and county auditors |
indicated wide variations among counties in the need
: for temporary borrowing and in the procedures relating
to such loans. Consideration of this factor resulted in
i
i
the selection of districts representing thirteen different
»
i
counties. The districts selected and the counties which
they represent are shown in Table 4.
3. Size: Districts were selected to represent a variety of
| sizes, ranging from a 1964-65 A. D. A. of 1,132 to
49,734. Six districts were between 1,000 and 4,000
A. D. A .; seven districts from 4,001 to 12,000 A. D. A .; j
and eight districts in excess of 12,000 A. D. A. The j
ranking of districts by A. D. A. is shown in Table 5. j
i 4. Wealth: Districts were selected to represent consider- ;
TABLE 4
1964-65 A. D. A. AND ASSESSED VALUATION PER A. D. A.
OF DISTRICTS SELECTED FOR ANALYSIS OF
CASH BALANCE REQUIREMENTS
School District by County 1964-65 A. D. A.
1964-65 Assessed Valuation
Per A.D.A.
Alameda County
1. Berkeley City Unified
Imperial County
2. Imperial Unified
Kern County
3. Tehachapi Unified
Los Angeles County
4. Burbank Unified
5. Duarte Unified
6. Inglewood Unified
7. Palos Verdes Peninsula Unified
Monterey County
8. Carmel Unified
Orange County
9. Orange Unified
10. Placentia Unified
Riverside County
11. Alvord Unified
17,350
1,394
1,513
16,114
4,807
14,023
12,214
3,342
20,286
6,397
7,543
10,979
9,937
10,512
15,063
5,811
12,992
10,200
19,346
6,763
10,176
4,511
8. Carmel Unified
Orange County
9. Orange Unified
10. Placentia Unified
Riverside County
11. Alvord Unified
12. Corona Unified
13. Moreno Valley Unified
14. Palm Springs Unified
Sacramento County
15. San Juan Unified
San Bernardino County
16. Bear Valley Unified
17. Morongo Unified
San Diego County
18. Vista City Unified
Santa Barbara County
19. Carpinteria Unified
Santa Clara County
20. Palo Alto City Unified
Ventura County
21. Simi Valley Unified
Mean
Median
3,342
20,286
6,397
7,543
9,722
4,414
5,111
49,734
1,132
3,477
6.943
1,872
15,931
12,603
10,282
6.943
19,346
6,763
10,176
4,511
7,972
5,126
29,474
5,801
16,782
11,326
5,829
16,174
13,361
4,546
11,080
10,200
cn
00
159
TABLE 5
RANKING OF DISTRICTS FROM SMALLEST
TO LARGEST ACCORDING TO
1964-65 A. D. A.
School District 1964-65 A.D.A.
1. Bear Valley Unified 1,132
2. Imperial Unified 1,394
3. Tehachapi Unified 1,513
4. Carpinteria Unified 1,872
5. Carmel Unified 3,342
6. Morongo Unified 3,477
7. Moreno Valley Unified 4,414
8. Duarte Unified 4,807
9. Palm Springs Unified 5,111
10. Placentia Unified 6,397
11. Vista City Unified 6,943
12. Alvord Unified 7,543
13. Corona Unified 9,722
14. Palos Verdes Peninsula Unified 12,214
15. Simi Valley Unified 12,603
16. Inglewood Unified 14,023
17. Palo Alto City Unified 15,931
18. Burbank Unified 16,114
19. Berkeley City Unified 17,350
20. Orange Unified 20,286
21. San Juan Unified 49,734
Mean 10,282
Median 6,943
160
j
; able variety in terms of their wealth per A. D. A .,
! ranging from a 1964-65 assessed valuation per A. D. A.
of $4, 511 to $29,474. The ranking of districts by
wealth is shown in Table 6.
I i
The districts were contacted and copies of their 1964-65 and j
I 1965-66 general hind cash control ledgers were obtained, in most ;
| cases from the office of the county superintendent of schools. |
! !
The cash control ledgers were examined for each of the two i
i
| fiscal years in order to determine the cumulative percentage of the
i
i
' total receipts which had been received as of the end of each month.
; i
The same type of analysis was accomplished with regard to the expen-
I ditures. The expenditure figures are expressed as the cumulative
i percentage of the total receipts which had been expended as of the end
i
of each month. The following clarifications and definitions are
important to a proper understanding of the tables contained in this
chapter. I
i i
t
1. Accounting procedures vary among counties, and infor- j
j
mation posted on cash control ledgers is not always
I |
! recorded in the same manner. Some ledgers contain
| complete information which makes possible a distinction !
i ;
| in the postings of receipts among such terms as
j |
! "income," "accounts receivable," "incoming tran sfers,"
161
TABLE 6
RANKING OF DISTRICTS FROM SMALLEST TO
LARGEST ACCORDING TO 1964-65 ASSESSED
VALUATION PER A. D. A.
School District Assessed Valuation Per A.D.A.
1. Alvord Unified 4,511
2. Simi Valley Unified 4,546
3. Moreno Valley Unified 5,126
4. San Juan Unified 5,801
5. Duarte Unified 5,811
6. Vista City Unified 5,829
7. Orange Unified 6,763
8. Corona Unified 7,972
9. Imperial Unified 9,937
10. Placentia Unified 10,176
11. Palos Verdes Peninsula Unified 10,200
12. Tehachapi Unified 10,512
13. Berkeley City Unified 10,979
14. Morongo Unified 11,326
15. Inglewood Unified 12,992
16. Palo Alto City Unified 13,361
17. Burbank Unified 15,063
18. Carpinteria Unified 16,174
19. Bear Valley Unified 16,782
20. Carmel Unified 19,346
21. Palm Springs Unified 29,474
Mean 11,080
Median 10,200
162
and "abatements to expenditures." In the posting of
outgo, a distinction is also possible among "expendi
tures, " "current liabilities," "outgoing transfers," and
"abatements to income." Other ledgers merely indicate
debits and credits as they are posted to a district's
account, without defining whether it is income, transfer,j
i
i
abatement, et cetera. For purposes of this chapter, it |
I
i
was therefore considered desirable to avoid the terms j
"income" and "expenditures" and refer instead to
"receipts" and "outgo." All amounts which had the
effect of increasing the cash balance when posted to the j
ledger were referred to as receipts. Conversely, all
amounts which had the effect of reducing the cash
balance were labeled outgo.
2. Advance apportionments of local property taxes granted ;
by different counties were of two basic types: j
a. During the latter part of November, prior to the
deadline for payment of the first tax installment,
i
some counties schedule a small apportionment |
j
(usually 5 per cent) to each district. Funds for suchj
j
apportionments are available due to early payments j
!
by some taxpayers. Even though called advance tax ;
163
apportionments, such apportionments were
scheduled in advance, with the same percentage
apportioned to each district, and in this study were
treated as regularly scheduled tax apportionments.
That is, for purposes of this study, they were con-
i
sidered receipts rather than temporary loans,
b. In a few counties, advance apportionments of local
taxes were made available to districts on an "as
needed" basis. During the course of a month, a
district’s account would be permitted to run in the j
red with expenditures being covered from comingled
funds in the county treasury. Then at the end of
the month, the district received an advance tax
apportionment in the amount of the deficit. When
the regularly scheduled tax apportionment was re- j
ceived, the amount of the advance apportionment
was repaid to the county treasury.
For purposes of this study, funds received from the above
i
type of advance apportionment were considered temporary loans j
rather than receipts. They were so classified because of the follow
ing characteristics which seemed to support their classification as !
temporary loans.
164 j
j !
1. The advance apportionments were not available to all j
i
districts on a percentage basis. Rather, advances were |
given only to districts with a negative cash balance at the
end of the month. The amount of the tax advance was !
I
I
j specifically tailored to cover the amount of the deficit.
2. When the regular tax apportionment was received, the j
! j
| ledgers indicated a repayment to the county in the j
I i
amount of the advance apportionment.
I |
I Cumulative Percentage of Total Receipts j
The cash control ledgers of twenty-one school districts were
: examined in order to determine the cumulative percentage of total
I receipts which had been received as of the end of each month during
the 1964-65 and 1965-66 fiscal years. The results of this analysis
are contained in tables 7 and 8. The amounts shown are exclusive of
receipts from temporary loans.
1 The variation in the flow of receipts among districts which
i j
had been mentioned by county superintendents and finance specialists
; was evident from the analysis of receipts. A comparison of the dis- ]
i
tricts as of October 31 indicated that in 1964-65 the cumulative
i i
amounts received ranged from 9. 52 to 23.87 per cent of the total
i
receipts. In 1965-66 the range as of October 31 was from 7.86 to
TABLE 7
CUMULATIVE PERCENTAGE OF TOTAL RE
District
July
August September October November
December
Alvord 3.14 10.28 14.40 19.73 27.03 43.17
Bear Valley 1.11 2.69 4.20 12.57 14.46 37.80
Berkeley 3.40 6.46 9.42 18.11 20.28 33.77
Burbank 8.58 12.08 13.62 23.22 25.32 43.40
Carmel 1.79 4.15 5.96 9.52 10.90 16.06
Carpinteria
2.22 4.90 6.47 11.19
14.12 55.95
Corona 2.22 7.34 10.31 15.02 25.09 42.02
Duarte 2.83 10.65 14.39 22.02 26.51 43.40
Imperial 5.25 9.68 16.02 20.86 23.71 49.90
Inglewood 2.77 6.53 8.25 14.32 16.31 36.24
Moreno Valley 2.56 7.34 10.33 14.65 29.62 40.51
Morongo 1.46 3.94 5.64 13.59 15.86 35.55
Orange 3.20 9.00 12.08 18.06 26.18 47.74
Palm Springs 1.34 5.91 7.18 17.95 26.40 50.92
Palo Alto 6.67 10.12 11.97 23.87 25.42 56.06
Palos Verdes Peninsula 2.70 6.94 8.89 11.98 16.20 35.44
Placentia 2.30 6.24 8.00 15.95 23.93 49.71
San Juan 6.60 12.18 15.70 22.14 25.65 40.08
Simi Valley 2.51 7.20 9.99 19.23 26.17 44.10
Tehachapi 3.81 6.52 8.43 14.88 16.73 35.77
Vista 3.96 9.56 13.38 17.10 23.55 42.55
Mean
Range
3.35
7.47
7.61
9.49
10.22
11.82
16.95
14.35
21.88
18.72
41.91
40.00
TABLE 7
NTAGE OF TOTAL RECEIPTS, 1964-65
165
fovember
December January February March April May June
27.03 43.17 47.91 53.68 68.62 79.09 93.82 100.00
14.46 37.80 57.87 64.97 69.42 78.59 87.41 100.00
20.28 33.77 55.68 59.00 68.58 74.83 97.74 100.00
25.32 43.40 52.41 73.03 77.29 79.69 98.24 100.00
10.90 16.06 18.55 62.52 66.53 77.09 96.97 100.00
14.12 55.95 57.72 57.84 64.06 95.49 97.74 100.00
25.09 42.02 45.00 52.65 68.38 78.19 99.18 100.00
26.51 43.40 47.76 65.01 73.77 77.08 94.38 100.00
23.71 49.90 53.63 60.98 67.59 70.98 91.33 100.00
16.31 36.24 38.50 63.17 69.10 70.88 98.25 100.00
29.62 40.51 49.40 53.58 76.73 82.40 94.58 100.00
15.86 35.55 48.20 55.20 72.44 80.57 88.41 100.00
26.18 47.74 52.14 55.91 66.56 79.75 95.02 100.00
26.40 50.92 52.51 66.99 72.48 76.99 98.45 100.00
25.42 56.06 61.15 61.75 65.84 67.74 98.10 100.00
16.20 35.44 38.05 57.68 65.15 69.50 94.87 100.00
23.93 49.71 52.01 57.96 64.99 79.69 94.53 100.00
25.65 40.08 53.50 54.38 69.27 81.13 91.67 100.00
26.17 44.10 47.98 49.62 65.41 74.00 92.21
100.00
16.73 35.77 38.61 57.06 64.02 68.52 97.35 100.00
23.55 42.55 54.72 55.69 75.99 86.63 94.26 100.00
21.88 41.91 48.73 58.98 69.15 77.56 94.98 100.00
18.72 40.00 42.60 23.41 13.27 27.75 11.77 100.00
TABLE 8
CUMULATIVE PERCENTAGE OF TOTA1
District
July
August September October November Deceml
Alvord 0.52 10.59 15.37 20.60 28.18 44.3]
Bear Valley 0.85 3.19 4.22 12.95 14.54 41.3*
Berkeley 1.51 5.30 8.72 16.67 24.23 40.12
Burbank 9.52 12.89 14.32 23.93 25.57 45.9(
Carmel 1.37 4.64 6.25 7.86 12.69 51.8(
Carpinteria 1.70 5.40 7.28 13.43 20.58 55.2 <
Corona 0.46 7.58 10.31 15.37 25.51 44.1!
Duarte 2.47 8.88 12.46 19.74 25.94 41.42
Imperial 2.12 6.03 9.03 17.11 20.77 49.32
Inglewood 1.47 5.30 7.30 13.21 15.87 34.4(
Moreno Valley 0.26 8.22 12.25 18.45 29.59 40.3:
Morongo 1.27 4.43 6.18 11.17 13.23 34.2'
Orange 4.21 9.65 12.68 18.08 26.29 48.5 <
Palm Springs 0.15 5.57 8.00 15.37 23.84 47.2'
Palo Alto 1.01 3.79 6.64 17.10 19.07 52.1(
Palos Verde Peninsula 1.88 5.69 7.54 10.11 13.06 31.8'
Placentia 4.47 8.17 10.23 16.68 25.05 48.8'
San Juan 2.65 8.78 12.32 18.88 23.05 29. o:
Simi Valley 2.54 7.75 14.56 20.97 30.77 53.5]
Tehachapi 2.14 5.73 8.63 12.38 14.84 32.8!
Vista 3.43 9.65 13.69 17.61 21.29 40.9!
Mean
Range
2.19
9.37
7.01
9.70
9.90
11.15
16.08
16.07
21.62
18.08
43.2!
26.22
TABLE 8 166
DENTAGE OF TOTAL RECEIPTS, 1965-66
November December January February March April May June
28.18 44.31 48.87 54.40 67.99 78.24 83.09 100.00
14.54 41.39 58.19 67.13 69.69 86.00 88.01 100.00
24.23 40.12 49.92 57.66 64.70 81.63 85.56 100.00
25.57 45.96 47.54 72.03 73.45 74.79 94.41 100.00
12.69 51.80 55.21 65.30 68.64 76.67 97.16 100.00
20.58 55.29 57.20 60.57 61.98 95.61 98.00 100.00
25.51 44.15 47.43 54.30 67.04 75.53 79.13 100.00
25.94 41.42 45.56 65.84 69.56 73.28 92.32 100.00
20.77 49.32 52.28 58.71 65.17 67.84 94.90 100.00
15.87 34.40 36.79 61.95 63.91 65.68 93.03 100.00
29.59 40.37 44.35 48.03 77.31 84.12 89.05 100.00
13.23 34.24 50.97 60.95 74.99 87.97 91.73 100.00
26.29 48.59 53.85 63.67 67.99 80.82 95.54 100.00
23.84 47.27 48.88 61.64 65.37 75.58 79.66 100.00
19.07 52.10 57.45 57.87 62.63 66.18 97.66 100.00
13.06 31.84 36.26 57.74 59.54 68.13 91.64 100.00
25.05 48.84 51.41 60.92 64.66 78.45 93.41 100.00
23.05 29.07 52.31 60.04 64.67 80.99 93.02 100.00
30.77 53.51 58.11 65.00 68.42 79.79 94.87 100.00
14.84 32.83 54.56 55.73 62.74 69.13 95.28 100.00
21.29 40.98 52.59 69.84 73.29 81.54 92.11 100.00
21.62 43.23 50.46 60.92 67.32 77.52 91.41 100.00
18.08 26.22 21.93 24.00 17.77 29.93 18.87 0.00
167
23.93 per cent. Since districts have not received secured property
I
I tax apportionments as of October 31, it seems likely that this differ
ence is closely related to the amount of state aid received during the
months of July to October. Some districts had transfers to the
| general fund from a special reserve fund.
1 i
l
Other common sources of income during this period were
unsecured property taxes and prior year taxes. No extensive analysis
I
j of the sources of income is necessary, however, in order to conclude
j from these findings that there are substantial differences in the
1
income patterns of districts and that the combined differences are an
■ important consideration with regard to the need for temporary
borrowing.
j The range increased somewhat during November--the month
in which some districts began receiving apportionments of secured
; property taxes. While the mean 1964-65 percentage as of November
30 was 21.88, the range was from 10.90 to 29.62 per cent. In
: i
j 1965-66 the mean was 21.62, with a range from 12.69 to 30.77 per j
! j
cent.
Due prim arily to the apportionment of secured property tax j
| revenues, the mean percentage of receipts jumped from 21. 88 on j
I November 30 to 41.91 on December 31 during 1964-65. In 1965-66 I
I !
I the mean percentage increased from 21.62 to 43.23 during the month i
168
of December. As of December 31 of both years there were rather
large variations among districts in the cumulative percentages re
ceived. In most cases this was not particularly significant, however,
from the standpoint of its effect upon the need for temporary borrow -
! ing. Following the December apportionment of secured property
i
| taxes, a district would typically have an ample cash balance, thus
the differences among districts were likely to represent a variation
; in the amount of excess cash available as a result of the December
I
| tax apportionment.
March and April were months during which some districts
I experienced a need for temporary loans. Tables 7 and 8 indicate that
j
| the range in cumulative percentage of receipts was particularly great
as of April 30. Some districts had not yet received their second
i
|
secured tax apportionment on that date. This varied by counties and
appeared to be a major factor in the need for borrowing in the spring.
i
The variation among districts in the cumulative percentage
| of receipts during the interim period has been shown in tables 7 and
' 8. In order to grasp the importance of these figures, one needs only
I to use an example and convert the percentages to dollar amounts.
| For example, the range of cumulative receipts as of November 30,
1 1964, was from 10.90 to 29.62 per cent. For two districts with
j
j$5,000,000 budgets, this range of 18.72 per cent would represent a
I 169
i
dollar value of $936,000. In this theoretical example then, two dis
tricts could have identical budgets of $5,000,000 but, due to a com
bination of factors, one could receive $936,000 more than the other
during the period from July 1 to November 30.
Total Outgo as a Cumulative Percentage of
Total Receipts
The cumulative percentage of expenditures, transfers, and
j other outgo shown in tables 9 and 10 refers to the amount of outgo
i
t
! expressed as a percentage of the total receipts for the fiscal year.
Tables 7 and 8 show that receipts, by definition, totaled 100
; per cent on June 30. Thus, the cumulative percentage of total re-
j ceipts necessarily totaled 100 per cent on June 30 when the total re-
i
I
I ceipts had been credited to a district's ledger.
The cumulative percentage of total outgo, however, being
expressed as a percentage of total receipts, would not total 100 per
cent unless the total outgo was exactly equal to the total receipts. A
cumulative percentage of 99 per cent as of June 30 would indicate that
the total outgo for the fiscal year was 1 per cent less than the total
receipts. A cumulative percentage of 102 per cent would indicate that
outgo exceeded receipts for the fiscal year by 2 per cent.
| In analyzing the expenditure patterns of the districts it was
i
i
apparent that part of the difference resulted from accounting
TABLE 9
CUMULATIVE OUTGO EXPRESSED AS A
TOTAL RECEIPTS FOR THE FISCAL
District July
August September October November Decembe
Alvord 1.57 6.16 8.44 17.53 26.06 35.70
Bear Valley 4.13 8.62 13.33 24.80 29.83 40.49
Berkeley 2.86 6.87 14.08 22.84 31.00 39.18
Burbank 10.44 14.14 16.21 23.12 39.20 39.20
Carmel 8.20 15.03 23.02 32.34 41.48 48.08
Carpinteria 7.60 9.40 19.01 27.24 37.83 46.45
Corona 0.87 3.79 5.30 16.15 23.17 31.02
Duarte 9.24 12.36 15.05 23.10 32.75 42.44
Imperial 5.21 6.00 14.15 22.96 30.29 37.58
Inglewood 4.96 9.41 13.13 21.02 30.09 39.70
Moreno Valley 1.26 7.08 16.58 28.72 38.53 48.33
Morongo 3.67 6.64 14.20 22.78 31.02 39.46
Orange 2.00 8.09 18.69 27.98 35.96 43.86
Palm Springs 2.15 4.78 7.12 16.49 25.10 34.48
Palo Alto 3.45 6.43 15.39 25.12 34.18 43.06
Palos Verde Peninsula 8.22 12.53 15.62 25.03 33.67 42.51
Placentia 1.83 4.09 6.96 16.33 26.30 36.68
San Juan 6.43 14.21 21.95 29.81 37.37 45.25
Simi Valley 6.30 11.46 18.34 25.82 34.01 42.09
Tehachapi 2.50 7.32 15.08 21.85 30.35 37.75
Vista 7.23 13.86 21.80 30.19 38.38 46.51
Mean
Range
4.77
9.57
8.97
11.24
14.93
17.72
23.87
16.19
32.69
18.31
40.94
17.31
TABLE 9
170
’ GO EXPRESSED AS A PERCENTAGE OF
TS FOR THE FISCAL YEAR 1964-65
November December January February March April May June
26.06 35.70 46.47 55.02 65.01 74.26 83.05 99.70
29.83 40.49 54.62 63.67 73.14 79.59 88.60 99.05
31.00 39.18 47.10 55.41 63.35 72.18 80.22 98.50
39.20 39.20 53.53 61.49 73.47 82.54 90.68 99.37
41.48 48.08 56.31 65.40 73.94 81.73 89.72 98.23
37.83 46.45 55.12 62.88 70.91 79.17 87.30 94.70
23.17 31.02 39.84 48.09 58.05 66.60 76.62 98.38
32.75 42.44 51.63 61.06 70.32 80.41 89.22 99.46
30.29 37. 58 45.61 53.32 62.88 71.07 79.58 97.72
30.09 39.70 49.23 57.42 70.11 79.95 88.29 97.25
38.53 48.33 59.39 67.16 76.15 84.48 94.33 110.26
31.02 39.46 49.11 58.42 68.25 77.02 85.89 97.04
35.96 43.86 52.51 61.56 70.29 78.82 86.79 100.81
25.10 34.48 44.54 53.62 62.61 71.81 81.00 98.34
34.18 43.06 52.16 61.37 71.02 80.51 89.58 98.93
33.67 42.51 51.72 60.09 69.44 78.51 86.79 94.96
26.30 36.68 45.61 53.88 62.60 71.91 79.91 94.71
37.37 45.25 53.57 61.70 71.70 80.81 89.65 99.12
34.01 42.09 49.87 57.81 67.04 76.14 84.42 94.25
30.35 37.75 45.58 52.99 60.46 68.01 75.53 95.88
38.38 46.51 54.98 63.66 72.66 81.15 89.80 100.11
32.69 40.94 50.40 58.86 68.26 76.98 85.57 98.42
18.31 17.31 19.55 19.07 18.10 17.88 18.80 16.01
TABLE 10
CUMULATIVE OUTGO EXPRESSED A S A P E
TOTAL RECEIPTS FOR THE FISCAL YI
District
July
August September October November December
Alvord 1.82 5.90 9.03 18.30 26.87 36.49
Bear Valley 8.32 13.47 22.24 31.87 45.64 57.28
Berkeley 2.69 6.66 13.50 20.53 28.88 36.26
Burbank 9.45 14.95 17.24 23.59 31.09 38.55
Carmel 9.00 16.26 24.27 32.15 41.39 49.27
Carpinteria 9.14 11.73 13.68 21.54 30.96 40.21
Corona 1.45 5.32 8.44 17.62 25.18 33.30
Duarte 8.46 12.36 14.60 23.29 32.06 40.94
Imperial 3.71 6.12 13.23 20.02 28.64 37.09
Inglewood 4.45 8.47 11.35 19.15 28.55 37.41
Moreno Valley 1.96 9.99 14.75 22.55 31.99 41.59
Morongo 4.33 7.08 14.53 22.90 31.59 42.89
Orange 2.25 7.93 15.08 23.08 30.57 38.54
Palm Springs 1.45 4.35 6.50 16.27 25.28 35.18
Palo Alto 3.28 7.14 15.56 24.62 33.94 43.60
Palos Verde Peninsula 7.75 11.85 14.90 21.35 29.04 37.63
Placentia 2.60 6.76 10.36 18.66 26.36 34.83
San Juan 6.21 13.39 20.85 28.15 35.71 44.05
Simi Valley 6.49 14.42 21.96 30.32 39.02
47.60
Tehachapi 2.59 6.92 14.32 26.70 36.24 45.49
Vista 6.28 13.19 20.31 28.30 36.19 44.18
Mean
Range
4.94
8.00
9.73
11.91
15.08
17.77
23.38
15.88
32.15
20.46
41.07
23.98
TABLE 10
171
30 EXPRESSED A S A PERCENTAGE OF
P S FOR THE FISCAL YEAR 1965-66
November December January February March April May June
26.87 36.49 45.31 53.82 63.51 72.48 81.82 98.96
45.64 57.28 66.40 76.16 83.76 93.74 102.50 109.45
28.88 36.26 43.64 51.38 59.93 69.23 77.10 95.33
31.09 38.55 51.42 59.93 70.67 79.49 85.84 95.70
41.39 49.27 57.28 64.11 73.10 82.55 90.24 99.00
30.96 40.21 53.91 61.50 69.99 78.29 86.92 95.62
25.18 33.30 42.37 50.74 59.85 68.28 80.24 100.80
32.06 40.94 49.68 58.10 66.65 75.12 83.49 92.48
28.64 37.09 44.89 52.41 62.85 71.39 80.09 98.04
28.55 37.41 46.59
55.22 64.11 73.08 91.21 101.03
31.99 41.59 49.99 60.00 70.58 79.84 89.17 104.89
31.59 42.89 53.08 62.36 71.39 81.41 90.10 98.91
30.57 38.54 48.83 56.32 64.58 72.88 80.87 94.97
25.28 35.18 45.37 55.66 67.14 77.05 87.09 105.62
33.94 43.60 52.96 62.73 71.94 81.21 90.59 100.38
29.04 37.63 46.44 54.13 67.81 75.91 89.50 97.70
26.36 34.83 44.00 51.42 60.68 69.36 78.20 92.93
35.71 44.05 52.14 60.82 69.67 78.60 87.40 96.67
39.02 47.60 57.78 66.78 74.63 83.47 92.12 99.96
36.24 45.49 57.31 . 64.41 72.69 80.44 87.77 106.76
36.19 44.18 52.47 60.10 68.26 85.60 95.33 105.60
32.15 41.07 50.56 58.96 68.28 77.59 87.03 99.56
20.46 23.98 24.03 25.42 23.91 25.46 25.40 16.97
! 172
i
i
procedures in posting certificated payrolls. In approximately one-
third of the districts, certificated payrolls had been posted during the
!
month of July. Ledgers of most of the remaining districts showed two
' certificated payrolls during June of the preceding fiscal year. When
| the percentages for each month (not cumulative) are observed, this
| difference can be seen, as shown in the following examples:
! D istrict A District B
July 1.45 9.14
August 2.90 2.59
September 2.15 1.95
October 9.77 7.86
November 9.01 9.42
December 9.90 9.25
January 10.19 13.70
February 10.29 7.59
March 11.48 8.49
April 9.91 8.30
May 10.04 8.63
June 18.53 8.70
This example clearly shows the difference in the patterns of
i
districts when, in one case, the final certificated payroll is posted in
! June and, in the other case, the final certificated payroll is posted in
| July of the succeeding fiscal year. The differences in the June and
i
| July postings of district A and district B illustrate this point.
It should be pointed out, however, that this is really not a
! 173
difference which affects the amount of cash available to a district for
expenditures during the interim period. The amount of the last salary
payment is the same whether it is deducted in June, reducing the
amount of the beginning cash balance, or shown as part of the begin-
' ning cash balance and deducted in July. j
! i
I
It seemed unnecessary to comment in detail upon the month
| :
| by month expenditure figures shown in Table 9 and Table 10. These j
I I
; |
tables do show that for a combination of reasons there are substantial !
I I
{differences in the patterns of expenditures among districts. From j
; j
September through June of both years, the range during any given j
j
month is never less than 13 per cent and more often runs in excess of
18 per cent.
! It was believed that the reasons for these differences were
i
primarily those identified by county superintendents and school finance
specialists in previous phases of the study.
i
It was somewhat surprising to note the range of differences >
|as of June 30, the end of the fiscal year. In 1964-65 this range was j
!
from 94.25 to 110.26 per cent, or a range of 16.01 per cent. The
,1965-66 range was from 92.48 to 109.45, a difference of 16.97 per j
cent. These differences in the June 30 percentages show rather
clearly that some districts were building their reserves, while others j
i
I
were spending more than their receipts, thus decreasing their
! 174
i
j
i reserves. This is a factor which was mentioned only in passing in
| previous phases of the study but apparently had a rather substantial
i
| effect throughout the year, with regard to the need for temporary
j loans.
i
j
| Total Receipts (Exclusive of Beginning Cash
Balance) Minus Total Outgo at Low
j Point of Each Month |
The receipts and outgo, as shown in the previous tables |
| indicated the patterns of when money was received and expended. |
, Both receipts and outgo must be considered together, however^ in j
i
order to determine the size of the cash balance needed by a particular
district in order to avoid the need for temporary borrowing.
Tables 11 and 12 indicate the cash balance requirements of
each district during each month of the 1964-65 and 1965-66 fiscal !
years. As income is received and as funds are expended, the dates
i
and amounts of these transactions are posted to a cash control ledger, j
i i
j The cash control ledger for a fiscal year is set up to show the begin- !
! !
1 ning cash balance as of July 1 and to reflect the current cash balance |
| as receipts and outgo are posted throughout the year. |
The postings of receipts and outgo were examined in order ;
| to identify the date and amount of the lowest cash balance during each
i i
i month of the fiscal year. When the low point had been identified, the !
TABLE 11
TOTAL RECEIPTS (EXCLUSIVE OF BEGINNING CA,
TOTAL OUTGO AT LOW POINT OF EACH M C
District July August September October November December
Alvord -0.38 - 1.86 + 2.06 - 2.72 - 6.07 - 6.23
Bear Valley -3.36 - 5.94 - 9.13 -12.22 -15.37 -15.47
Berkeley -1.19 - 0.99 - 5.24 - 6.73 -10.72 - 5.40
Burbank -3.78 - 3.48 - 3.38 - 8.58 - 6.63 - 6.48
Carmel -6.43 -11.74 -18.00 -26.18 -30.59 -36.93
Carpinteria -7.35 - 6.67 -12.55 -20.47 -24.74 -31.37
Corona -0.29 - 0.87 + 2.09 - 5.75 - 4.75 - 4.36
Duarte -7.75 - 7.11 - 3.75 - 7.75 - 9.99 -12.39
Imperial -1.30 - 0.30 + 1.86 - 2.10 - 6.58 - 6.79
Inglewood -2.90 - 4.59 - 6.22 -11.42 -14.72 -15.43
Moreno Valley -0.29 - 4.20 - 6.25 -17.04 -21.58 -16.37
Morongo -2.77 - 4.59 - 8.56 - 9.59 -15.76 -11.41
Orange -1.50 - 3.62 - 6.61 -11.28 -16.68 -15.89
Palm Springs -0.81 - 2.28 - 0.43 - 8.87 -11.82 -10.81
Palo Alto +3.22 + 2.56 - 3.42 - 4.60 - 8.76 - 9.61
Palos Verdes Peninsula -6.89 - 7.85 - 8.52 -14.96 -20.46 -22.66
Placentia -1.40 - 0.35 - 0.66 - 4.53 - 8.97 - 9.60
San Juan +0.16 - 2.03 - 6.25 - 7.67 -13.97 -14.73
Simi Valley -3.79 - 7.32 - 8.35 -15.32 - 7.84 - 8.12
Tehachapi -2.50 - 3.52 - 6.65 -11.13 -14.60 -20.97
Vista -3.27 - 4.29 - 8.42 -13.10 -14.83 -15.35
Mean -2.60 - 3.86 - 5.54 -10.57 -13.59 -14.11
Median -2.50 - 3.62 - 6.25 - 9.59 -13.97 -12.39
Range 10.97 14.30 20.09 24.08 25.84 32.57
All figures expressed as a percentage of total receipts for fiscal year.
TABLE 11
JSIVE OF BEGINNING CASH BALANCE) MINUS
L O W POINT OF EACH MONTH,a 1964-65
175
November December January February March April May June
- 6.07 - 6.23 - 2.21 - 6.39 - 9.55 - 4.94 - 3.46 + 0.30
-15.37 -15.47 - 3.15 + 0.76 - 4.57 - 4.52 - 2.06 - 2.61
-10.72 - 5.40 + 8.58 + 3.49 + 4.61 + 2.51 +10.81 + 1.50
- 6.63 - 6.48 - 2.64 - 7.63 + 3.82 - 4.66 - 5.96 + 0.63
-30.59 -36.93 -40.06 -43.47 - 7.41 -11.98 -10.86 + 0.62
-24.74 -31.37 + 1.13 - 5.15 -11.32 -14.90 + 8.94 + 3.38
- 4.75 - 4.36 + 2.30 - 1.03 - 1.92 + 3.51 + 4.56 + 1.62
- 9.99 -12.39 - 7.44 -12.41 - 3.40 - 5.60 -10.90 - 3.40
- 6.58 - 6.79 + 8.02 + 6.87 + 4.71 - 0.09 - 0.78 - 2.34
-14.72 -15.43 -11.61 -17.12 - 2.53 -10.26 -12.17 + 2.04
-21.58 -16.37 -12.88 -16.07 -20.19 - 6.41 - 8.06 -10.26
-15.76 -11.41 - 4.47 - 3.53 - 3.85 + 2.79 + 0.67 - 0.72
-16.68 -15.89 - 3.76 - 8.90 - 7.22 -10.10 - 6.55 - 0.81
-11.82 -10.81 + 1.91 - 4.30 + 1.73 - 3.79 - 2.75 + 1.66
- 8.76 - 9.61 + 8.99 + 0.37 - 5.18 -12.77 -13.56 + 1.07
-20.46 -22.66 -15.52 -20.16 - 9.30 -12.22 -15.57 + 1.71
- 8.97 - 9.60 + 4.35 - 0.87 + 0.79 - 5.90 - 0.02 + 5.29
-13.97 -14.73 - 6.00 - 7.32 - 7.80 -10.03 - 0.59 - 0.85
- 7.84 - 8.12 - 1.88 - 8.19 - 8.92 - 4.97 - 5.47 + 5.75
-14.60 -20.97 - 9.11 -13.02 - 3.40 - 3.08 - 6.96 + 4,04
-14.83 -15.35 - 4.31 - 7.97 - 8.16 + 2.63 + 4.45 - 0.11
-13.59
-14.11 - 4.27 - 8.19 - 4.72 - 5.45 - 3.63 + 0.41
-13.97 -12.39 - 3.15 - 7.32 - 4.57 - 4.97 - 3.46 + 0.62
25.84 32.57 49.05 50.34 24.90 18.41 26.38 16.01
iscal year.
TABLE 12
TOTAL RECEIPTS (EXCLUSIVE OF BEGINNING C
TOTAL OUTGO AT LOW POINT OF EACH M <
District July August September October November December
Alvord -1.48 - 1.28 + 2.31 - 2.08 - 5.99 - 6.69
Bear Valley -7.48 -11.61 -18.03 -22.96 -31.11 -41.12
Berkeley -1.89 - 1.36 - 4.79 - 5.77 - 4.97 - 1.55
Burbank -2.62 - 4.04 - 3.75 - 3.61 - 5.89 - 8.20
Carmel -8.21 -14.20 -18.05 -25.65 -31.15 -35.15
Carpinteria -8.95 - 7.97 - 7.81 -13.56 -17.33 -17.91
Corona -1.00 - 2.10 - 0.02 - 5.95 - 9.06 - 4.33
Duarte -7.21 - 8.73 - 5.18 - 7.26 -11.21 -11.75
Imperial -1.40 - 2.03 - 4.19 - 3.96 - 5.46 - 8.80
Inglewood -3.36 - 5.73 - 5.25 - 9.16 -13.78 -17.65
Moreno Valley -1.76 - 5.51 - 4.16 - 8.76 -11.84 -10. 72
Morongo -3.61 - 4.33 - 8.35 -11.88 -18.36 -22.15
Orange -2.03 - 3.47 - 4.14 - 4.94 -12.24 -11.45
Palm Springs -1.31 - 2.55 - 0.34 - 7.76 - 9.46 - 9.75
Palo Alto -2.27 - 3.35 - 8.93 - 9.51 -14.87 -16.50
Palos Verdes Peninsula -6.20 - 9.15 - 8.60 -12.68 -18.34 -20.71
Placentia -2.19 - 1.66 - 0.58 - 3.66 - 8.98 - 8.67
San Juan -6.01 - 4.70 - 8.50 - 9.27 -12.66 -14.97
Simi Valley -4.16 - 6.65 - 7.40 - 9.35 -10.81 + 5.92
Tehachapi -2.30 - 4.53 - 8.07 -15.73 -23.78 -30.57
Vista -2.85 - 3.85 - 6.62 -10.69 -14.90 -15.39
Mean -3.73 - 5.18 - 6.21 - 9.72 -13.91 -14.67
Median -2.62 - 4.33 - 5.25 - 9.16 -12.24 -11.75
Range 7.95 12.92 20.36 23.57 26.18 47.04
aAll figures expressed as a percentage of total receipts for the fiscal year.
TABLE 12
XUSIVE OF BEGINNING CASH BALANCE) M IN US 176
r LOW POINT OF EACH MONTH,a 1965-66
r November December January February March April May June
I - 5.99 - 6.69 - 0.56 - 3.97 + 0.84 - 3.13 - 2.82 + 1.04
> -31.11 -41.12 - 8.21 -13.51 -14.80 -18.57 -14.48 -15.89
r
- 4.97 - 1.55 + 6.28 + 5.91 + 4.61 + 4.09 + 6.72 + 4.67
- 5.89 - 8.20 - 1.61 - 7.00 + 2.78 - 5.08 - 6.05 + 4.30
► -31.15 -35.15 - 3.72 - 8.70 - 5.51 -12.41 -12.53 - 0.39
> -17.33 -17.91 + 3.11 - 3.53 - 9.33 -14.96 + 9.48 + 2.88
> - 9.06 - 4.33 + 2.51 - 2.06 + 4.98 + 0.27 - 3.82 - 0.80
> -11.21 -11.75 - 7.02 -10.32 + 0.11 - 4.42 - 8.74 + 2.22
) - 5.46 - 8.80 + 7.39 + 6.30 + 2.31 - 3.55 - 4.40 - 1.36
> -13.78 -17.65 -10.75 -15.91 - 1.44 - 8.36 -13.97 - 6.22
j -11.84 -10.72 - 8.49 -14.98 -12.04 - 0.63 - 3.63 - 4.89
i
1 -18.36 -22.15 - 4.99 - 5.64 - 6.38 + 0.75 + 1.63 - 0.16
t -12.24 -11.45 + 2.37 - 0.35 - 0.34 - 2.39 + 1.85 + 5.03
j - 9.46 - 9.75 + 2.30 - 5.04 - 2.05 - 9.98 -11.24 - 5.62
-14.87 -16.50 + 4.50 - 4.86 - 9.32 -15.04 -16.35 - 0.38
( -18.34 -20.71 -13.41 -16.30 - 9.31 -14.48 -14.64 - 5.03
j - 8.98 - 8.67 + 6.53 + 1.54 + 2.38 - 2.30 + 1.34 + 6.55
J
-12.66 -14.97 -14.97 - 0.78 - 7.17 - 5.37 + 2.10 + 3.33
t
> -10.81 + 5.92 + 0.33 - 1.78 - 6.20 - 8.16 - 4.85 + 0.05
\ -23.78 -30.57 -20.80 - 9.64 -12.04 -15.55 -18.60 - 6.76
)
-14.90 -15.39 - 3.93 - 0.59 + 5.03 - 5.13 - 6.37 - 5.60
I -13.91 -14.67 - 3.01 - 5.30 - 3.47 - 6.88 - 5.68 - 1.10
t
) -12.24 -11.75 - 1.61 - 4.86 - 2.05 - 5.13 - 4.85 - 0.38
1
26.18 47.04 28.19 22.60 19.83 22.66 28.08 22.44
the fiscal year.
| 177
i
I amount of the July 1 beginning cash balance was subtracted in order
to determine the actual cash balance which would have been required
i on that date to avoid the need for a temporary loan.
; Table 11 and 12 are thus not concerned with whether or not
i a district actually obtained a temporary loan. Rather, they indicate
the amount which would have been necessary each month, assuming
! a July 1 cash balance of zero. Subsequent tables will indicate the
: extent to which the beginning cash balance was sufficient to meet the
| needs of each district.
Each figure shown in tables 11 and 12 is expressed as a
percentage of the total receipts for the fiscal year. In Table 11, for
example, the figure shown for Alvord during the month of July is
! -0.38. This indicates that the beginning cash balance necessary to
{
! avoid borrowing during the month of July, 1964, was an amount equal
to 0.38 per cent of the total receipts for the 1964-65 fiscal year.
During September of the same year the figure shown for Alvord is
S +2.06. This indicates that total receipts at that point in time had
exceeded total outgo by an amount equal to 2.06 per cent of the total
receipts for the fiscal year.
Examination of tables 11 and 12 indicates that the lowest
| cash balance for the fiscal year usually occurred during the months
j
| of November or December. Typically, the lowest point occurred
178
i
; i
j immediately prior to the first apportionment of secured property
i
I
| taxes. Generally, another low point occurred sometime in the spring
prior to the secured tax apportionment. In a few districts this low
| point was the lowest of the fiscal year. I
i
i (
I j
Cash Balance Requirements of Twenty-One i
School Districts
I Tables 13 and 14 indicate for each district the date of the
; I
' I
lowest cash balance during each fiscal year, the amount of the !
i j
: beginning cash balance which would have been required in order to
i
!
avoid borrowing, and the cash balance requirement of each district ;
expressed as a percentage of the total receipts for the fiscal year.
These tables also show each district's actual beginning cash balance
| as compared to the cash balance which would have been required to
i
avoid any need for temporary borrowing.
During 1964-65 the cash balances required to avoid any form I
1 i
of temporary borrowing ranged from 5.75 to 43.47 per cent, a range j
1 of 37.72 per cent of a district's total receipts for the fiscal year. Thd
mean was 16.16 per cent.
I
The mean during 1965-66 was an almost identical 16.22 per
i cent. The low was 5.77 and the high 41.12 per cent, for a total range
1 !
i of 35.35 per cent. Interestingly enough, the low and high percent-
i :
| ages, while very similar to those for 1964-65^ did not represent the i
TABLE 13
COMPARISON OF ACTUAL BEGINNING CASH BALANCE WITH BEGINNING CASH
BALANCE REQUIRED TO AVOID TEMPORARY BORROWING, 1964-65
School
District
Date of
Lowest Cash
Balance Dur
ing Fiscal
Year
Actual
Beginning
Cash
Balance
Cash
Balance
Required to
Avoid
Temporary
Borrowing
. Excess or
Deficit in
Actual
Beginning
Cash
Balance
Percentage of Total Receipts
1964-65
Actual
Cash
Balance
Required
Cash
Balance
Excess
or
Deficit
Alvord March 11 93,458 327,878 - 234,420 2.72 9.55 - 6.83
Bear Valley December 2 268,445 150,523 + 117,922 27.59 15.47 +12.12
Berkeley November 30 46,138 1,270,757 -1,224,619 0.39 10.72 -10.33
Burbank October 23 329,181 936,876 - 607,695 3.01 8.58 - 5.57
Carmel February 1 503,215 984,831 - 481,616 22.21 43.47 -21.26
Carpinteria December 16 290,975 363,011 - 72,036 25.14 31.37 - 6.23
Corona October 22 431,759 264,794 + 166,965 9.37 5.75 + 3.62
Duarte February 10 316,719 303,600 + 13,119 12.95 12.41 + 0.54
Imperial December 8 19,698 46,738 - 27,040 2.86 6.79 - 3.93
Inglewood February 10 807,439. 1,549,534 - 742,095 8.92 17.12 - 8.20
Moreno Valley November 12 443,016 539,164 - 96,148 17.73 21.58 - 3.85
Morongo November 20 189,758 379,306 - 189,548 7.88 15.76 - 7.88
Orange November 24 1,691,414 1,610,687 + 80,727 17.51 16.68 + 0.83
leu Ly, w o
Inglewood February 10 807,439,
Moreno Valley November 12 443,016
Morongo November 20 189,758
Orange November 24 1,691,414
Palm Springs November 19 417,790
Palo Alto May 12 50,189
Palos Verdes
Peninsula December 3 1,007,665
Placentia December 21 639,430
San Juan December 22 1,941,626
Simi Valley October 22 532,022
Tehachapi December 22 171,320
Vista December 7 402,274
Mean
Median
Range
*o, /oo ^ /,u *u oo o. /y - o.yo
1,549,534
-
742,095 8 .9 2 17.12 - 8 .2 0
539,164
-
96,148 17.73 21.58 - 3 .8 5
379,306
-
189,548 7.88 15.76 - 7.88
1 ,6 1 0 ,6 8 7 + 80,727 17.51 16.68 + 0 .8 3
437,935
-
20,145 11.28 11.82 - 0 .5 4
1 ,7 9 6 ,5 1 0
-1,
746,321 0 .3 8 13.56 -1 3 .1 8
1,717,926 - 710,261 13.29 22.66 - 9.37
318,726 + 320,704 19.27 9.60 + 9.67
3,771,139 -1,829,513 7.58 14.73 - 7.15
912,796 - 380,774 8.93 15.32 - 6.39
205,146 - 33,826 17.51 20.97 - 3.46
503,311 - 101,037 12.27 15.35 - 3.08
11.85 16.16 - 4.31
11.28 15.32 - 5.57
27.21 37.72 33.38
• v j
vO
TABLE 14
COMPARISON OF ACTUAL BEGINNING CASH BALANCE WITH BEGINNING CASH
BALANCE REQUIRED TO AVOID TEMPORARY BORROWING, 1965-66
School
District
Date of
Lowest Cash
Balance Dur
ing Fiscal
Year
Actual
Beginning
Cash
Balance
Cash
Balance
Required to
Avoid
Temporary
Borrowing
Excess or
Deficit in
Actual
Beginning
Cash
Balance
Percentage of Total Receipts
1965-66
Actual
Cash
Balance
Required
Cash
Balance
Excess
or
Deficit
Alvord December 7 103,768 274,868 - 171,100 2.53 6.69 - 4.16
Bear Valley December 20 277,695 461,371 - 183,676 24.75 41.12 -16.37
Berkeley October 22 224,061 768,646 - 544,585 1.68 5.77 - 4.09
Burbank December 3 398,088 1,002,231 - 604,143 3.17 8.20 - 5.03
Carmel December 10 543,290 821,264 - 277,974 23.25 35.15 -11.90
Carpinteria December 7 352,359 235,888 + 116,471 26.75 17.91 + 8.84
Corona November 15 506,553 517,072 - 10,519 8.88 9.06 - 0.18
Duarte December 3 . 329,944 327,875 + 2,069 11.82 11.75 + 0.07
Imperial December 7 35,397 67,159 - 31,762 4.64 8.80 - 4.16
Inglewood December 3 1,056,470 1,796,083 - 739,613 10.38 17.65 - 7.27
Moreno Valley February 2
186,802 430,433 - 243,631 6.50 14.98 - 8.48
Morongo December 15 261,074 568,955 - 307,881 10.16 22.15 -11.99
Orancre November 19 1,613,482 1,454,334 + 159,148 13.58 12.24 + 1.34
Imperial December 7 35,397
Inglewood December 3 1,056,470
Moreno Valley February 2 186,802
Morongo December 15 261,074
Orange November 1 9 1,613,482
Palm Springs May 19 479,271
Palo Alto December 29 192,483
Palos Verdes
Peninsula December 3 1,389,880
Placentia November 1 9 815,024
San Juan January 3 2,167,604
Simi Valley November 15 873,428
Tehachapi December 1 4 211,614
Vista December 3 398,544
Mean
Median
Range
67,159 - 31,762 4.64 8.80 - 4.16
1,796,083 - 739,613 10.38 17.65 - 7.27
430,433 - 243,631 6.50 14.98 - 8.48
568,955 - 307,881 10.16 22.15 -11.99
1,454,334 + 159,148 13.58 12.24 + 1.34
468,492 + 10,779 11.50 11.24 + 0.26
2,496,439 -2,303,956 1.27 16.50 -15.23
1,996,771 - 606,891 14.42 20.71 - 6.29
388,184 + 426,840 18.86 8.98 + 9.88
4,210,366 -2,042,762 7.71 14.97 - 7.26
905,455 - 32,027 10.43 10.81 - 0.38
330,858 - 119,244 19.55 30.57 -11.02
593,614 - 195,070 10.33 15.39 - 5.06
11.53 16.22 - 4.69
10.38 14.97 - 5.03
25.48 35.35 26.25
i —
8
same districts as in the previous year.
Listed in rank order, the cash balance requirements for the
twenty-one districts during the 1964-65 and 1965-66 fiscal years were
as follows:
District 1964-65 1965-66
1 5.75 5.77
2 6.79 6.69
3 8. 58 8.20
4 9.55 8.80
5 9.60 8.98
6 10.72 9.06
7 11.82 10.81
8 12.41 11.24
9 13.56 11.75
10 14.73 12.24
11 15. 32 14.97
12 15.35 14.98
13 15.47 15.39
14 15.76 16.50
15 16.68 17.65
16 17.12
17.91
17 20.97 20.71
18 21.58 22.15
19 22.66 30.57
20 31.37 35.15
21 43.47 41.12
| 182
I
! These percentages, when listed in rank order, indicate that
i
! most of these districts needed a beginning cash balance of between
| 6 and 22 per cent in order to avoid temporary borrowing. There are
I
| districts, however, which would require a cash balance of between
I
I 30 and 45 per cent. Even though these percentages seem rather
; atypical, they cannot be discounted as unimportant. The fact is that
: certain districts, due to a combination of factors, are required
i
: either to accumulate tremendous reserves or to obtain very large
| temporary loans in order to finance the interim period.
It is important to remember that these figures are for the
beginning cash balance and not the net beginning balance. Prior year
liabilities and accounts receivable are important factors in the size
i of the cash balance required. These are transactions which are
pending as of the end of the previous fiscal year and, even though
the funds are actually received or expended after July 1, are con-
i
sidered income and expenditures of the preceding fiscal year.
The problem of interim financing has often been discussed,
and comparisons among districts have been stated in terms of the
| net beginning balance necessary to provide the funds needed for this
; purpose. For purposes of this study it was decided that comparisons
I
| should be stated in terms of the beginning cash balance rather than
i
j the net beginning balance. There are several pitfalls inherent in
183
attempting to compare the net beginning balances of school districts.
These difficulties can be illustrated by a hypothetical example of two
districts, each with a net beginning balance of $400,000. The com-
i
ponents of these net beginning balances are as follows:
District A
Cash in county treasury $420,000
i Accounts receivable 10,000
Current liabilities 30,000
! Net beginning balance 400,000
I
The amount of cash which would be available to each of the
; above districts for expenditure during the interim period depends
i
; upon several factors. If the $200,000 accounts receivable of district
1 B were largely from previous year PL 874, it is quite possible that
i
this money would not be received until December or later, subsequent
to the first apportionment of secured taxes. Thus, during the interim
! period, district B would have $300,000 in cash available for expendi-
j
| ture, including $100,000 which must be expended for prior year
liabilities. Stated another way, district B has $200,000 in cash avail-
! able for new expenditures during the current fiscal year.
If district A received the $10,000 accounts receivable during
i
| July or August, it would have $430,000 cash available for expenditure
i
I during the interim period, including $30,000 which would be expended
District B
$300,000
200,000
100,000
400,000
i 184 |
!
for prior year liabilities. Thus, district A would have $400,000 in
cash available for new expenditures during the current fiscal year.
If the operating expenses of the new fiscal year are consid
ered, the cash available to district B is $200,000 as compared to
I $400,000 for district A, despite the fact that both districts show an
I i
identical net beginning balance of $400,000.
This example illustrates the possible fallacy of using the
i
| net beginning balance as the basis for comparison among districts !
t
I
! with respect to their potential ability to finance the interim period
! i
without borrowing. The problem of interim financing is essentially a j
matter of the amount of cash available in the treasury at a given time.
I
By starting with the beginning cash balance and analyzing the flow of
t
i
i income and expenditures as they were posted to the cash control
! ledgers, it was possible to determine the cash available as of a given
date in the twenty-one school districts.
The amounts of each d istric ts actual cash balances are
: i
| shown in tables 13 and 14. These amounts are also expressed as a j
! I
percentage of the total receipts for the fiscal year. '
!
; I
During 1964-65 the actual cash balances ranged from 0.38 |
to 27. 59 per cent of the total receipts. The mean percentage for the j
j twenty-one districts was 11.85 per cent. The 1965-66 figures average
i i
11. 53 per cent, ranging from 1.27 to 26.75 per cent. The actual cashj
i I
balances, expressed as percentages of total receipts are shown below
; in rank order.
! District 1964-65 1965-66
1 0. 38 1.27
2 0. 39 1.68
3 2.72 2. 53
4 2. 86 3.17
5 3.01 4.64
6 7. 58 6.50
7 7.88 7.71
8 8. 92 8. 88
9 8.93 10.16
10 9. 37 10. 33
11 11.28 10. 38
12 12.27 10.43
13 12.95 11.50
14 13. 29 11.82
15 17.51 13. 58
16 17. 51 14.42
17 17.73 18.86
18 19.27 19. 55
19 22. 21 23.25
20 25.14 24.75
21 27.59 26.75
; f
\
Tables 13 and 14 also show a comparison between the actual |
I j
| cash balance and the cash balance which would have been necessary |
I :
i ;
i in order to avoid any form of temporary borrowing. In both 1964-65 ;
i I
l
| 186
| and 1965-66, five districts had sufficient cash to maintain positive
balances at the low point of the fiscal year.
The fact that sixteen districts show negative balances at the
low point does not mean that all of these districts went through a
I formalized procedure for obtaining temporary loans. Some districts
: received advance tax apportionments which temporarily covered
i i
I |
1 negative balances and were later repaid. As was discussed previous-j
! i
i ly, this type of tax advance was defined as a temporary loan for
i i
i j
j purposes of this study. i
: I
Some districts which show a negative balance in these tables ;
were permitted to run in the red for short periods of time pending
i t
receipt of tax revenues or state aid apportionments. Expenditures
; during this time were covered from comingled funds in the county
i
treasury, but the districts were not required to request temporary
loans since the county auditor knew that it was only a m atter of days
until the district would receive an apportionment. In some cases the \
: !
I money had actually been received by the county but had not yet been j
! i
! |
apportioned to the district. Thus, what appeared to be a negative 1
:
'balance on a district's ledger card was often nothing more than a
m atter of accounting procedure. !
j i
This area appeared to be another important source of varia- j
i ;
Ition among counties, with regard to a district's need for temporary
j 187
loans. In some counties districts need not request such loans if it is
known that apportionments are pending in the immediate future.
Rather, their accounts are merely permitted to show a negative
balance until such time as the funds are apportioned. In other coun-
i
ties, very strict control is maintained, and a district must either j
I |
obtain a loan or its warrants will not be paid until sufficient funds
i j
! have actually been apportioned to the district's credit. j
i i
Summary of the Chapter I
i
i i
| I
The cash flow of twenty-one California unified school dis- j
tricts was studied through an examination of their cash control
!
; ledgers for the 1964-65 and 1965-66 fiscal years. A wide variation
| among districts in the flow of receipts and expenditures was evident
during both fiscal years. This confirmed the statements of county !
superintendents, county auditors, and school finance specialists,
regarding the diversity in the flow of income and in the expenditure j
j
patterns of school districts. j
i |
: i
The lowest cash balance of the fiscal year usually occurred !
| during November or December, just prior to the first apportionment '
of secured property taxes. Another low point often occurred in the
j spring, just prior to the second secured tax apportionment. In a few j
| districts the lowest point of the fiscal year occurred in the spring.
The average size of the cash balance which would have been
required by the twenty-one districts in order to avoid temporary
borrowing was an amount equal to approximately 16 per cent of the
total receipts for the fiscal year. Considering the diversity among
i
districts, however, it would be misleading to generalize from this
j average. The range of beginning cash balance requirements was
i i
! :
i from approximately 6 to 42 per cent of the total receipts for the fiscal j
! year. It was evident that due to a combination of factors, some dis-
i
I !
| tricts would be able to avoid borrowing despite rather small reserves,j
while others would find it necessary to borrow, even with a very sub
stantial beginning cash balance.
CHAPTER V
SUMMARY, MAJOR FINDINGS, CONCLUSIONS,
AND RECOMMENDATIONS
Summary
The problem
The purpose of this study was to identify and analyze prob
lems of California school districts in providing reserves for contin
gencies and in financing expenditures during the interim from the
beginning of the fiscal year until local tax revenues become available.
Specifically, the study sought to answer the following questions:
1. To what extent do California school districts rely on
some form of temporary borrowing to finance expendi
tures during the early months of the fiscal year?
2. What policies and procedures are followed by the fifty-
eight counties of California relative to provisions for
short-term indebtedness?
3. In unified school districts, what factors are of impor
tance in determining the size of the beginning balance
189
190
needed and whether or not temporary borrowing will j
i
be necessary?
4. What practices are followed in planning the budgets of
unified school districts with regard to providing appro- j
| priate reserves, both for contingencies and for the
j succeeding fiscal year? ■
| 5. What desirable practices and procedures can be sug- I
j i
gested in relation to the problems of providing funds for :
contingencies and for interim financing? !
: j
The procedure
; A review of the literature provided an overview of the general
i problems of interim financing in school districts and other agencies of
i
j local government. It also provided an historical perspective and a
discussion of current problems on a national scale as well as material
related to the specific problems of California school districts.
The purposes of the study and the procedures to be followed I
! I
j !
! were reviewed by representatives of the California Association of
County Superintendents of Schools and the California Association of
f
Public School Business Officials. This resulted in offers of support
j i
and assistance from both of these organizations. The research pro-
| i
iposal was presented to the executive board of the California Associa- '
don of County Superintendents of Schools by Dr. Leonard Grindstaff,
191
Riverside County Superintendent of Schools. The executive board
encouraged the gathering of necessary information, and with its
| support a narrative letter was sent to each of the fifty-eight county
i
| superintendents of schools. The letter consisted of a brief descrip-
i
i
j tion of the problem and posed a number of questions relating to the
| problems of interim financing. Fifty-six of the fifty-eight county
!
i superintendents replied, representing a response of 96.6 per cent.
A letter was sent to Mr. Roscoe Hollinger, president of the
| California Association of County Auditors, requesting his recommen
dation of county auditors to be interviewed in connection with the
study. He recommended the five county auditors who were currently
serving on the education committee of the county auditors association,
i Three other auditors were subsequently added to the list in order to
i
I
insure that all of the major types of interim financing were repre
sented. The complete list of county auditors to be interviewed was
then approved by the doctoral committee. These were listed in
j Chapter 1 1 1 .
An interview guide was developed and a trial interview was
i
conducted with Mr. W. Allen Ladd, auditor-controller of Riverside
County, who assisted in refining the interview guide to increase the
{effectiveness of its use with county auditors.
j
It seemed that considerable assistance could be gained with
192 |
regard to the more technical aspects of the study, through interviews j
| with a carefully selected group of specialists in school finance and
| business management. The following list of positions was identified
from which ten specialists were selected to be interviewed.
i
1. Professor of school finance i
2. President of the California Association of Public School
\ j
I Business Officials j
3. Past president of the California Association of Public
!
I
School Business Officials |
i
i I
4. District superintendent of schools >
5. Two assistant superintendents-business services
j
6. Three specialists in school finance from offices of
! county superintendents of schools
j
7. Specialist in school finance representing an organization
outside of education
An interview guide was developed, revised through trial
|interviews with school business officials, and approved by the doctoralj
I I
i
committee.
! Cash control ledgers of twenty-one California unified school
districts were examined in order to determine their actual beginning
cash balance requirements for the 1964-65 and 1965-66 fiscal years.
The beginning cash balance requirement was defined as the size of the
i 193
! i
1 ;
beginning cash balance as of July 1 which would have been necessary
I in order to avoid the need for temporary borrowing. The amount of
beginning cash balance needed was determined by subtracting the total
outgo from total receipts (exclusive of actual beginning cash balance
| and temporary loans). At the low point of the fiscal year, this differ-
; ence represented the amount of the July 1 cash balance which would
have been necessary in order to avoid the need for a temporary loan.
|
Further comparisons were also made of the cumulative
i
j percentages of total receipts which each district had received at the
end of each month. The expenditures were analyzed in a similar
manner in order to gain a comparison of the expenditure patterns of
twenty-one unified districts.
Major Findings
Findings from the literature
1. Some writers expressed the opinion that the ideal
| solution to the problems of interim financing is to j
i I
i j
synchronize the tax year and the fiscal year. Many
practical difficulties stand in the way of accomplishing ;
this. Changing the fiscal year is considered particular- I
| ;
j ly difficult, and attempts to make this change have j
i i
i
i resulted in major problems.
194 |
2. Historically, delinquent taxes have been a source of
major financial problems for school districts and other
governmental agencies. While continuing attention must
be given to methods of assuring a high percentage of
collection, delinquent taxes are not considered a source
of major problems for most California school districts !
at the present time. Except in cases where there is a
sudden unexpected drop in the percentage of collection, !
i
districts are able to plan for delinquent taxes. At any j
j
rate this is not a typical cause of the need for temporary |
i
borrowing.
3. Coordination of the dates of state aid payments with local
tax collection dates and local expenditure requirements
is advocated by some w riters. Other writers consider
this plan desirable but impractical because of the time
involved in computing state aid and the multiplicity of i
factors which affect local expenditure requirements.
4. Short-term borrowing by school districts is permitted in
forty-one states. In all but two states the amount is j
restricted to anticipated revenue. j
5. A substantial number of writers accept temporary borrow
ing as a necessary practice but believe that it should be 1
195
|
on a limited and carefully controlled basis.
6. The most common objection to temporary borrowing
centered around the interest payments which are require:
on some types of loans.
7. There is considerable disagreement among writers with
regard to interfund transfers. Some hold that there are j
many dangers in permitting such transfers, while others
contend that they provide a degree of flexibility and i
should be permitted under carefully controlled condi
tions.
. _ !
8. Registered warrants have been widely used in the past
by school districts, cities, and other units of local
government. This practice has declined in recent years
and was severely criticized by several writers.
9. Scrip is a form of short-term borrowing which was
widely used in the past but has had an unsatisfactory
i
history and has been largely abandoned. |
10. Legal requirements and local practices relating to budget:
planning and administration have an important bearing
I
upon the need for temporary borrowing. |
11. In 1966, Perko and Purdy recommended changes in the
i
I
assessment calendar which, if adopted, could lead to the j
196
possibility of earlier collection of secured property
taxes.
Findings from letters to county super
intendents and interviews with county
auditors and school finance specialists
Extent of temporary borrowing. - -The following findings re
sulted from responses regarding the extent to which temporary
borrowing is practiced by California school districts.
1. School districts in ten California counties consistently
maintain reserves which are sufficient to avoid the need
for temporary borrowing of any type.
2. In four counties, school districts experience only an
occasional need for temporary loans. In these counties
the need for temporary loans occurs so seldom that the
problem is considered practically nonexistent.
3. Four counties provide advance apportionments of local
property taxes to all school districts, in accordance
with sections 4701-4716 of the Revenue and Taxation
Code. This eliminates the need for formal requests for
temporary loans. The advance apportionments are
themselves, however, considered a type of temporary
loan.
4. In eleven counties, there are certain districts which
experience a recurring need for temporary borrowing.
In these counties, only a few districts request tempor
ary loans, but these few districts need to borrow prac-
i
tically every year. j
j
5. In twenty-seven counties there is a recurring need for
temporary borrowing among a substantial proportion
I
(25 per cent or more) or the districts. Fourteen of
i
these twenty-seven counties reported that 50 per cent
or more of the districts consistently obtain temporary !
j
loans.
Types of temporary loans. - -The following findings resulted
from responses regarding the types of temporary loans used by
California school districts. i
1. A temporary transfer of funds from the county treasury
is the most common type of temporary loan used by
California school districts. Of the forty-six counties in {
which temporary borrowing occurred, twenty-nine used i
I
temporary transfers as the prim ary type of loan avail- |
|
able to school districts. |
i
2. Districts in nine counties must obtain temporary bank j
loans or sell tax anticipation notes when temporary
198
borrowing is necessary.
3. Four counties use the alternate plan for the distribution
of tax revenues as provided in sections 4701-4716 of the
California Revenue and Taxation Code. Under this plan, j
the district receives an advance apportionment of 100
per cent of the total property tax revenues which will j
accrue to the district during the fiscal year. This
procedure, known as the Teeter plan or Contra Costa j
i
plan, is the subject of considerable interest and study in
other counties.
i
4. Three counties use a type of contra-account which is,
in effect, an automatic temporary transfer. Rather
than requiring a formal request for a specific amount
to be transferred, overdrafts are permitted in the funds
of participating agencies to the limits established by the
county auditor. Claims are paid from comingled funds i
i
in the county treasury, until the district has received j
i
sufficient tax revenues to reim burse the county treasury.!
This method has also created considerable interest
!
among county superintendents and county auditors.
5. Only one county used registered warrants as the major I
type of temporary loan. Several counties used
199
registered warrants occasionally or in combination with
other methods. The reaction of nearly all respondents
was negative toward this type of interim financing.
General factors influencing the need for temporary loans. --
The following findings resulted from responses regarding the factors
which cause California school districts to need temporary loans.
1. There was general agreement among all groups of
respondents that many of the factors which cause a need
for temporary loans are beyond the control of school
administrators. Thirty-three county superintendents
reported that such factors played a major part in the
need for temporary borrowing.
2. Notwithstanding the problems involved, a number of
respondents believed that for some districts the primary
cause of short-term borrowing is inadequate planning by
school administrators.
3. Several respondents indicated that for some districts
temporary borrowing is a planned policy which is
followed as a matter of choice in preference to main
taining large reserves. Some respondents stated this
was particularly true in counties where temporary
transfers from the county treasury are readily available
| 200
!
I
| at no interest charge to the district.
| Factors tending to increase the amount of cash required
during the interim period. - -The amount of cash required in order to
finance the interim period varies from district to district depending
i
i upon a large number of factors. The following section is concerned
; with the actual cash requirements regardless of whether a temporary
i loan must be obtained, and the factors identified as tending to in-
i crease the amount of cash required to finance the interim period are
| summarized.
District factors. - -District circumstances which were found
to influence the amount of cash needed for the interim period were
wealth, eligibility for state aid, rate of growth, status of building
i
i program, and types of expenditures made by the district.
i
1. Wealth: Districts of high wealth rely heavily upon
property taxes and receive a very small percentage of
their income from state aid. Under the present appor
tionment schedule, state aid payments are the major
source of income during the months of July to November.
Thus, wealthy districts receive a smaller percentage
of their total income during these months than do low
j wealth districts. Other things being equal, the amount
j of cash required in district reserves or temporary
loans increases with the wealth of the district.
PL 874 funds: Districts which receive a high percentage
of their total income from PL 874 hinds receive less
state equalization aid than other districts of equivalent
wealth. Due to this reduction in state aid, and because
PL 874 funds are generally not received during the
interim period, districts of this type tend to receive
small amounts of income during the early months of the j
fiscal year.
i
Rapid growth: Expenditures in rapidly growing districts
often increase dramatically from one school year to the
next, due to the opening of new schools, increased num
bers of teachers, additional equipment and supplies,
et cetera. However, the amount of state aid received
during the interim is based on attendance of the previous
fiscal year. Prior to the first tax apportionment,
i
rapidly growing districts therefore receive a smaller
i
amount of income, in relation to their expenditures,
than districts which are growing more slowly. j
Building program: Some districts on the state school j
i
building program find it necessary to pay certain costs S
i
I
in connection with the building program from the general j
202 1
i
i
fund. Later, the general fund is reimbursed from the
state school building fund. The necessity for this type
of expenditure early in the fiscal year would increase
the amount of cash required during the interim period, j
5. Other expenditures: Districts vary considerably in their
|
expenditures during the dry period. The importance of ;
i
this variability in expenditures was perhaps the most |
i
widely recognized factor influencing the size of reserves i
i
needed to avoid borrowing. The types of expenditures j
!
most often identified as requiring a large beginning '
balance were as follows:
a. Extensive summer school programs;
| b. Large amounts of maintenance work scheduled
i
during the summer rather than being spread
throughout the year;
c. Purchase of most supplies and equipment during the ,
i summer rather than throughout the year. I
i j
i i
County factors. - -Certain county procedures affect the amount
of cash needed by school districts to cover the interim period. j
1. Date of first property tax apportionment: Responses j
| indicated that the date of the first apportionment of j
I ;
I secured taxes varied among counties, falling somewhere <
203
between November 25 and December 20. It appeared
that whether or not a secured tax apportionment was
received prior to the December 1 payroll was a major
determinant of the amount of reserve necessary or the
size of temporary loan needed.
*
I
2. Restricted balances: Amounts collected from special !
purpose overrides must be expended for the purpose for
which collected. In most counties, however, cash on j
i
hand at the beginning of a fiscal year in the form of
restricted balances is deposited to the general fond and j
is available for expenditure in the same manner as other
general fond moneys. Control is maintained over
budgeted expenditures and the amounts of special purpose
taxes are eventually expended for the proper purpose.
Cash on hand in the form of restricted balances, how
ever, may be used temporarily for other purposes. j
In a few counties, restricted balances are controlled as
!
if they were separate funds. Strict control is exercised
over each restricted balance, and cash on hand is not |
considered part of the cash balance available for other j
general fond expenditures. This type of control has the i
effect of creating many separate funds and increases the I
204
total amount of cash required for interim financing.
Other factors influencing district practices relating to
temporary loans. - - Whether a school district provides funds for
interim financing totally from its own reserves, or whether a tempor-
!
i
ary loan is obtained, depends upon a multiplicity of factors, some of I
which have been indicated in the preceding findings. Additional
i
factors which have a bearing upon this decision are as follows: I
1. Ability to pass tax elections: Districts vary in the
support they receive from voters in override tax elec
tions. In many cases, tax rates are not sufficient to
provide an adequate educational program, not to men
tion a reserve for the following year.
2. Pressure to reduce reserves: Many taxpayer and
employee groups believe that school districts should
carry only minimal reserves. If a district has a large ,
reserve, taxpayers think that the tax rate should be
!
reduced and employees think that salaries should be |
I
increased.
[
(
3. Availability of temporary transfers from the county ,
treasury: Temporary transfers from the county
treasury are not available to school districts in all
counties. Districts needing temporary loans in these
205
counties often borrow from the bank and pay interest on
the loan. In counties where temporary transfers are
available, there are major differences in the amounts
which may be transferred, purposes for which the funds
may be used, procedures in obtaining transfers, and
virtually all aspects of the conditions relating to tempor
ary transfers. There are numerous reasons for these
differences including all of the following:
a. Variation in financial ability of counties to provide
temporary transfers.
b. Degree of cooperation between school districts and
agencies of county government: Many county audi
tors and other county government officials place a
high value upon cooperation with schools and con
sider it their responsibility to assist schools by
providing temporary transfers during the interim
period. Officials of other counties consider school
districts as separate governmental entities and that
county government has no particular obligation or
responsibility to provide financial support in the
form of temporary transfers.
c. Differing interpretations of legal provisions among
counties.
I
j
Interpretation of legal provisions: Variation among
counties in the interpretation of legal provisions relating
to temporary transfers is a major factor influencing the
practices followed by school districts in interim financ- j
ing. The language of Article IV, section 31, of the
I
California Constitution and Education Code section 21051 j
is the source of varying interpretation, particularly with
i
regard to the following questions: I
a. Is it mandatory that temporary transfers from the
county treasury be granted when requested by school
districts?
b. What is the maximum amount of the transfers which
may be granted?
c. To what extent may such transfers be granted prior
to the time when the final tax rate is set by the
board of supervisors?
d. What is the status of districts which receive
temporary transfers with regard to subsequent
capital outlay expenditures? (This is a major item
of consideration since in some counties districts |
which receive temporary transfers are prohibited
207
from making subsequent capital outlay expenditures
until such time as the temporary loan has been re
paid. This tends to preclude the widespread use of
temporary transfers since school districts can
i
I function for only a limited time without capital out-
i
lay expenditures.)
i
i
j Suggestions for improvement in California practices relating
I
| to interim financing. - - All groups of respondents offered suggestions
i
I for dealing with the problems of interim financing. The changes most
i
i frequently suggested by county superintendents, county auditors, and j
school finance specialists are summarized below.
! 1. Increased state aid apportionments during the early
i
! months of the fiscal year: This change was considered
i
desirable by the majority of respondents in each group,
but many expressed doubt as to whether sufficient cash
was available at the state level to permit such a change.
| This was especially true due to the adoption of an
accrual method of accounting by the state. Thus, most
i
recommendations of increased state funds during the
interim period were based upon the prerequisite of an
| increased sales tax and an overhaul of the tax structure
| to provide considerable school support from this source.
208 |
2. Earlier assessment and earlier collection of local j
taxes: This was the suggestion advanced most frequent- j
ly and which seemed to be viewed most favorably by a
majority of respondents.
3. Advance apportionments of local property taxes under
the provisions of sections 4701-4716 of the Revenue and !
Taxation Code: This method had the enthusiastic support
of those currently using the plan, as well as some other I
i
officials who were familiar with it. A relatively small j
percentage of the respondents were familiar with these j
provisions. Thus, most were not in a position to either
advocate or discourage a more widespread use of this
type of interim financing.
4. Increase or removal of tax rate limitations: This was
advocated by many respondents but most thought that
such a change would not help materially unless it were
accompanied by a mandatory provision relating to the
amount of Rinds budgeted for reserve purposes.
i
5. Quarterly tax collections: The quarterly collection of
property taxes was suggested by only a few respondents. >
A majority of county auditors were opposed to this plan. !
School district budget practices. - -The respondents reported ;
f 209
the following practices with regard to planning and administration of
the school district budget.
1. There is a tendency among school districts to budget
only small amounts in the general reserve and to budget
most of the money available for reserve purposes in the
undistributed reserve.
2. Some representatives of each group of respondents
favored a mandatory provision requiring that a specific
percentage of the budget be placed in the general
reserve. A prerequisite to this requirement would be
removal of the statutory maximum tax rate or a per
missive override to raise the required amount.
3. There was considerable sentiment among school finance
specialists that the general reserve was not serving the
purpose for which it was intended. They suggested that
a single reserve should be used instead of the present
system of two reserves for two different purposes.
4. School finance specialists were quite critical of the
practice of overestimating expenditures and/or under
estimating income in order to provide reserves in
excess of the amounts budgeted for reserve purposes.
It was reported that this practice was rather widespread
210
among school districts, with pressures from employees
and taxpayer groups being the reason most often cited
for this practice.
5. There are considerable differences, both among coun
ties and individual school districts, with regard to
j
methods of handling tax collections in excess of 90 per
I
cent. j
i
6. School finance specialists were critical of the present
i
situation which permits tax collections in excess of 90 j
t
per cent to remain unbudgeted and provide a hidden
source of income for school districts. Most of the
!
specialists stated that such collections could be esti
mated, based upon past experience, with at least as
much accuracy as other income estimates. They sug- !
gested a place should be provided on the official budget
form for budgeting anticipated tax collections in excess
of 90 per cent. j
Contingency reserves. - -The following findings were obtained!
i
I
in response to questions regarding contingency reserves. j
!
1. Regardless of the type of interim financing available, j
school districts must have reserve funds available for j
j
contingencies which may arise during the course of the i
fiscal year.
According to school finance specialists the most
frequent cause of financial problems during the course
of a fiscal year is the inability to estimate income
I
accurately. j
Many factors affecting the amount of income which will ;
be received are not known at the time the budget is j
i
adopted. The most likely sources of problems are the
following: |
i
i
a. Estimates of A. D. A.
b. Estimates of assessed valuation 1
c. Estimates of percentage of tax collection
d. Deficits in state apportionments
Other types of contingencies mentioned by school finance;
specialists were the following:
a. Inadequate fire insurance
!
b. Lawsuits j
c. Failure to be aware of legal changes at the time of
i
budget adoption j
d. Emergency equipment repairs
e. Delays in apportioning local property taxes
f. Clerical errors in budget preparation .
212
Findings from analysis of cash flow
in selected California Unified
school districts
An analysis of the cash control ledgers of twenty-one unified
school districts for the 1964-65 and 1965-66 fiscal years confirmed
the statements of county superintendents, county auditors, and school
I
finance specialists that there are major variations among districts in |
their flow of income and expenditures. j
1. In 1964-65 the cumulative amounts received as of J
November 30 ranged from 10.90 to 29.62 per cent of
j
the total receipts for the fiscal year. The average for !
the twenty-one districts was 21.88 per cent.
2. In 1965-66 the cumulative amounts received as of
November 30 ranged from 12.69 to 30.77 per cent of
the total receipts for the fiscal year. The average was j
21.62 per cent.
3. The single factor which was most apparent from an
i
examination of the cash control ledgers, with regard to
variations among districts in their cash receipts during
the interim period, was the date of the first apportion
ment of secured property taxes. Whether or not securedj
property taxes were apportioned prior to the December lj
payroll had a dramatic effect upon the need for temporary
loans.
Some districts experience a need for temporary loans
during March and April. Some of the variation in this
regard occurred because in some counties the second
apportionment of secured taxes was not received prior
to April 30. In some counties, temporary loans obtained
in the fall were not repaid to the county until after the
second apportionment of secured property taxes had
been received. This tended to eliminate the need for
another temporary loan in the spring.
In 1964-65 the cumulative outgo as of November 30
ranged from amounts equalling 23.17 to 41.48 per cent
of the total receipts for the fiscal year. The average
was 32.31 per cent.
In 1965-66 the cumulative outgo as of November 30
ranged from amounts equalling 25.18 to 45.64 per cent
of the total receipts for the fiscal year. The average
was 32.15 per cent.
In 1964-65 the cumulative outgo as of June 30 ranged
from amounts equalling 94.25 to 110.26 per cent of the
total receipts for the fiscal year. In 1965-66 these p er
centages ranged from 92.48 to 109.45 per cent. These
214 i
!
i
figures indicate differences among districts building
their reserves (those spending less than 100 per cent of j
total receipts) and those decreasing their reserves
(those spending more than 100 per cent of total receipts).
|
8. The size of the cash balances which would have been re - j
quired in order to avoid any form of temporary borrow- j
i
ing ranged from 5.75 to 43.47 per cent of the total I
i
!
receipts for the 1964-65 fiscal year. The average for j
i
twenty-one districts was 16.16 per cent of total receipts.!
!
9. In 1965-66 the cash balances required in order to avoid !
temporary borrowing ranged from 5.77 to 41.12 per
cent of the total receipts for the fiscal year. The aver
age for twenty-one districts was 16.22 per cent of total
receipts.
10. In 1964-65 the amounts of the actual beginning cash
balances of twenty-one districts ranged from 0.38 to i
27. 59 per cent of the total receipts for the fiscal year.
The average was 11.85 per cent. !
11. In 1965-66 the amounts of the actual beginning cash i
balances of twenty-one districts ranged from 1.27 to !
26.75 per cent of the total receipts for the fiscal year.
The average was 11. 53 per cent. ;
215 j
Conclusions
The findings of this study produced the following conclusions:
1. Temporary borrowing, in the form of temporary trans -
i
fers from the county treasury and loans of various other j
types, is a widespread practice among California school |
i
I
districts during the early months of the fiscal year. :
2. A temporary transfer from the county treasury is the |
i
most widely used and most generally accepted type of j
temporary loan used by California school districts. |
3. There is an extraordinary amount of variation among
counties in the types of temporary borrowing permitted,
in the availability of temporary transfers from the
county treasury, in the administration of temporary
transfers, and in the apportionment dates of secured
i
taxes and other revenues. Procedures for obtaining
temporary transfers, amounts which may be transferred,’
purposes for which such funds may be used, and dates
when such transfers must be repaid to the county treasury
i
also vary considerably among counties.
i
4. The severity of the problems which school districts
j
encounter in attempting to finance the interim period is
to a high degree dependent upon the practices of county J
216 |
i
i
auditors and county treasurers. The cooperation of I
these individuals and county boards of supervisors can j
be a major item in determining whether or not interim
financing is a serious problem area for school districts.
5. The combination of a large number of factors affects the j
|
amount of beginning cash balance necessary in order to |
i
finance the interim period without borrowing.
6. There is no average figure which should be quoted as a
guideline with regard to the percentage of the total
■
budget which a district should place in reserve in order |
to finance the interim period. The amount necessary is
situational and should be evaluated by each district in
the light of previous experience and all of the factors
indicated in previous phases of this study.
7. In many cases it is not possible for an individual dis
trict to finance an adequate educational program, stay
I
i
within the statutory or voted maximum tax rate, and j
provide a sufficient reserve to finance the interim
j
period without borrowing. j
i
8. A majority of counties are able to provide temporary
transfers from the county treasury, thus making efficient
use of available cash and providing effective assistance |
217 |
i
to districts during the early months of the fiscal year.
A number of counties, however, face financial pressures
which make it difficult to provide such transfers.
9. Regardless of the availability of temporary transfers,
each school district budget should be planned to provide
an appropriate contingency reserve. An '’appropriate" ;
amount must be determined through careful planning and
consideration of possible contingencies by the admin
istration of each district. Many so-called emergencies
can be eliminated through careful advance planning. j
!
10. The scheduled collection and apportionment of revenues
should be geared to the expenditure needs of school
districts rather than vice versa. It is neither practical
nor educationally sound for a school district to delay '
needed expenditures for five to six months until taxes
have been collected.
Recommendations !
i I
|
The findings and resulting conclusions of this study support j
the following recommendations: j
i
| 1. It is recommended that Education Code section 21051 be j
| reworded to clarify the questions which have arisen and ;
218
reduce the divergent practices among counties as a
result of differing legal interpretations of this section. ;
2. It is recommended that the legal provisions permitting
registration of warrants by school districts be repealed.
3. It is recommended that the first installment of secured
property taxes be due on September 1 and that school
i
districts receive their first apportionment on or before |
i
September 30. (A necessary prerequisite to this change |
is the adoption of Perko and Purdy's recommendations j
relating to changes in the assessment calendar.)
4. It is recommended that counties give further study to the I
Teeter plan practiced in Contra Costa and other counties,
5. It is recommended that counties give further study to the
possibility of establishing a contra-account sim ilar to
the plan developed in Sacramento County.
6. It is recommended that a place be provided on the
i
official school district budget form for budgeting antici- !
pated tax collections in excess of 90 per cent. It is be- !
lieved that this source of income can be estimated with !
I
as much accuracy as other income estimates and should j
not be permitted to remain a hidden source of revenue j
i
i
for school districts.
BIBLIOGRAPHY
BIBLIOGRAPHY
Books
1. Alexander, Carter, and Burke, Arvid J. How to Locate Educa
tional Information and Data. New York: Teachers College,
Columbia University, 1958.
2. Benson, Charles S. The Economics of Public Education. Boston:
Houghton-Mifflin Company, 1961.
i
3. Borg, Walter R. Educational Research: An Introduction. New
York: David McKay Company, Inc., 1963.
I
I
4. Buck, A. E. Municipal Finance. New York: The MacMillan i
Company, 1937.
1
5. Burke, Arvid J. Financing Public Schools in the United States.
New York: Harper ana Brothers, 1951.
6. Burke, Arvid J ., and Mort, Paul R. Defensible Spending for
Public Schools. New York: Columbia University Press,
M -------------------
7. Burkhead, Jesse. Public School Finance. Syracuse, New York:
Syracuse University P ress, 1964. 1
t
8. Castetter, William B. Public School Debt Administration.
Philadelphia: University of Pennsylvania Press, 1958.
9. Chatters, Carl H ., and Hillhouse, Albert M. Local Government
Debt Administration. New York: Prentice-Hall, Inc., 1939. j
10. Corbally, John E ., Jr. School Finance. Boston: Allyn and !
Bacon, Inc., 1962. j
220
221
11. DeYoung, Chris A. Budgeting in Public Schools. Garden City,
New York: Doubleday, Doran and Company, Inc., 1936.
12. Engelhardt, N. L ., and Engelhardt, Fred. Public School
Business Administration. New York: Teachers College,
Columbia University, 1927.
13. Good, C arter V. Introduction to Educational Research. New
York: Appleton-Century-Crofts, Inc., 1954.
14. Good, C arter V ., and Scates, Douglas E. Methods of Researc
New York: Appleton-Century-Crofts, Inc., 1954.
15. Grace, A. G ., and Moe, G. A. State Aid and School Costs.
New York: McGraw-Hill Book Company, Inc., 1938.
16. Knezevich, Stephen J ., and Fowlkes, John Guy. Business
17. Linn, Henry H. Practical School Economies. New York:
Teachers College, Columbia University, 1934.
18. Moehlman, Arthur B . Public School Finance. New York: Rand
McNally and Company.
19. Morrison, Henry C. The Management of School Money.
Chicago: The University of Chicago Press, 1932.
20. Ovsiew, Leon, and Castetter, William B. Budgeting for Better
Schools. Englewood Cliffs, New Jersey: Prentice-Hall,
Inc., 1960.
21. Rosenstengel, William Everett, and Eastmond, Jefferson N.
School Finance. New York: The Ronald Press Company,
22. California Taxpayers* Association. Departmental County
Budgets - - California Counties. Association Report No. 3.
Management of Local School Systems. New York: Harper Management of Local school ays
and Brothers, Publishers, i960.
Publications of the Government, Learned
Societies, and Other Organizations
222 |
I
Los Angeles: California Taxpayers' Association,
March, 1966. j
i
23. California Teachers Association, Committee on Financing
Public Education. The School Finance C risis. Burlingame:
California Teachers Association, 1962.
24. California Teachers Association, Southern Section. Financing j
California Public Schools. Los Angeles: California Teachers
Association, Southern Section, 1964. !
i
i
i
25. Claremont Social Research Center. California Local Finance. !
Stanford, California: Stanford University Press, 1960. |
26. Committee of the National Conference of Professors of Educa- :
tional Administration. Problems and Issues in Public School j
Finance. New York: National Conference of Professors of |
Educational Administration, 1952. j
27. International City Managers' Association, The. Municipal
Finance Administration. Chicago: The International City
Managers* Association, 1955.
28. Munse, Albert, and McLoone, Eugene. Public School Finance
Programs of the United States, 1957-581 U. S. Department
of Health, Education, and Welfare. OBice of Education,
Washington, D. C .: U. S. Government Printing Office, 1960.
29. Office of Riverside County Superintendent of Schools. Budget j
Handbook. Riverside, California: Office of Riverside County;
Superintendent of Schools, 1964.
i
i
30. Senate Fact Finding Committee on Revenue and Taxation. j
Property Taxes and Other Local Revenue Sources. |
Sacramento: Senate of the State of California, 1965. |
i
31. . Intergovernmental Fiscal Relations in California.
Sacramento: Senate of the State of California, 1965.
I
32. State and Local Fiscal Relationships in Public
Education in California. Sacramento: Senate of the State
of California, 1965.
223
Legal Publications
33. State of California. Constitution. Sacramento: California
State Printing Office.
34. _______ . Education Code. Sacramento: California State
Printing Office, 1965.
35. . Revenue and Taxation Code. Sacramento: Califor-
nia State Printing Office.
Periodicals
36. Alford, A. L. "School Finance As A Part of Public Finance,"
School Life, XUII (April, 1961), 12-14.
37. Bird, F. L. "Who Pays the Piper? State-Local Fiscal Relations i
Must Be Altered to Achieve Efficiency, " National Municipal
Review, XLVII (January, 1958), 6-10.
38. California Taxpayers' Association. "New State Budget Faces
Legislators, " Cal-Tax News, VII, No. 2 (February, 1966),
1-2.
39. . "Tax Relief and School Finance," Cal-Tax News,
Vlirfro. 3 (March, 1966), 2-3.
40. Glaeser, Edward N. "County Financial Organizations,"
Municipal Finance, XXXVII, No. 2 (November, 1964), 89-95.
41. Kirk, R. "Should School Finance Be Centralized?" National
Review, X (May 6, 1961), 283.
42. Shellhammer, Tom. "California's Public School Enrollment
Continues to Grow, " California Education, III, No. 2
(October, 1965), 7-9.
224
Unpublished Materials
43. Ernst and Ernst, Griffenhagen-Kroeger, Inc., Wilber H.
Stevens and Company. "Feasibility Report on Proposed
Change in Accounting Procedures for Accrual of Revenues."
January 16, 1966.
44. Ferris, Robert E. "Statutory Controls Governing School Dis
trict Taxation." Unpublished Doctoral dissertation, Univer
sity of Southern California, 1965.
I
45. Lovik, Hugh Douglas. "Budget Procedures in California Unified
School D istricts." Unpublished Doctoral dissertation, Uni- |
versity of Southern California, 1961. i
i
46. Perko, John E ., and Purdy, William M. "The Interrelationship I
of Assessment Calendar, School Budget Calendar, and Fiscal j
Y ear." Unpublished Doctoral dissertation, University of |
Southern California, 1966.
i
47. Triggs, Dean E. "The Determination of the General Reserve
Required in the School District Budgets of Ventura County."
Unpublished Ma ers thesis, University of Southern Cali
fornia, 1948.
48. Woodfin, Charles Albert. "Accounting Procedures for Califor
nia Unified School D istricts." Unpublished Doctoral disser
tation, University of Southern California, 1963.
49. Wright, Frank Moore. "Selected Policies and Procedures in the
Administration of California School District Budgets." Un
published Doctoral dissertation, University of Southern I
California, 1950. !
APPENDICES
APPENDIX A
LETTER TO FIFTY-EIGHT COUNTY SUPERINTENDENTS
OF SCHOOLS IN THE STATE OF CALIFORNIA
AND FOLLOW-UP LETTERS
COPY
OFFICE OF RIVERSIDE COUNTY SUPERINTENDENT
OF SCHOOLS
October 13, 1965
j Mr. Martin A. Cabalzar
| Superintendent of Schools
: Yolo County
j 702 Main Street
| Woodland, California 95695 i
i I
| j
| Dear Mr. Cabalzar: !
i i
We are presently involved in a study of the financial problems which j
school districts face as a result of the time lag between the beginning j
! of the fiscal year and the receipt of local tax revenues. With the \
heavy reliance on property taxes, which do not become available until
late November or early December, expenditures are often far in
excess of income during the early months of each fiscal year.
Through the County Superintendents, we hope to gain a better under-
| standing as to the nature and extent of this problem in California. We
i feel that your opinions are of the utmost importance to the study and
| shall greatly appreciate your comments regarding this problem as it
I affects districts in Yolo County.
: A recent presentation of the research proposal by Dr. Leonard Grind-
' staff was received favorably by the Executive Board of the California
Association of County Superintendents of Schools. Members of the
Board encouraged the gathering of necessary information from County j
|Superintendents, and voted unanimously to lend their support to the j
1 study. I
! i
I Typically, districts attempt to provide adequate reserves, and use j
their beginning balance to supplement their income in meeting expen- I
ditures until local tax moneys become available. There are, however,!
I several alternatives available to districts which are temporarily short j
!of funds needed to meet current obligations. Money may be borrowed
227
i 228
i
I
! Mr. Martin A. Cabalzar 2 October 13, 1965
j on notes, tax anticipation warrants, or other evidence of indebted
ness. A temporary transfer of funds from the County Treasury may
i be obtained, with the approval of the Board of Supervisors; or from
| the county school service fund with the approval of the County Super-
I intendent and County Board of Education.
i
j
! The long interval of time between the beginning of the fiscal year and
j the date when local taxes become available apparently poses no s e ri
ous problem for some districts, while others consistently resort to
some form of temporary loan in order to meet expenses during the
early months of the fiscal year.
i
i We would like to pose some questions concerning certain aspects of
! the problem described above. We realize that certain questions may
; not be equally appropriate for all counties. Therefore, you should
i feel free to answer the questions in any manner which is most mean
ingful. All information will be treated confidentially, and the source
of replies to the questions will not be identified in the study.
1. To what extent have districts in Yolo County used some form of
temporary borrowing during the past three years, in order to
I obtain funds for current operating expenses? In answering this
i question, there is no need to list specific districts and amounts
borrowed. A few statements will be sufficient, indicating the
approximate number of districts involved and whether the need
to obtain temporary loans is generally:
a. A recurring problem involving a substantial proportion of
j the districts in the county.
i
b. A recurring problem with certain districts, but seldom
involving more than a few of the districts in the county.
c. An occasional problem, never involving more than a few
districts in any given year.
2. What procedure is followed (tax anticipation warrants, transfer
I of funds from the county treasury, e tc .) by those districts which
j need temporary loans in anticipation of local revenues? We will
229
Mr. Martin A. Cabalzar 3 October 13y 1965
appreciate receiving any samples of forms o r policy statements
which have been developed by your office relating to this proce
dure (Education Code Sections 21051-21053, 21201-21255;
Government Code Sections 53820-53858; California Constitution
Article IV, Section 31).
3. Please comment on the practices of the Board of Supervisors
relative to requests of districts for temporary transfers of funds
from the county treasury.
a. Are sufficient funds readily available for such purposes?
b. Has the Board of Supervisors established any conditions or
requirements relative to the purposes for which districts
may spend money obtained from such transfers?
c. Are districts charged interest on funds transferred from the
county treasury?
4. What are the factors which usually cause districts to seek some
form of temporary loan?
a. In your opinion, is the action generally the result of (1)
inadequate planning on the part of school adm inistrators;
(2) circumstances beyond the control of school adm inistra
tors; or (3) a planned policy, based on the belief that
temporary borrowing is preferable to maintaining large
reserves?
b. In addition to the months of July through November, are
there other times during the fiscal year when the need for
temporary borrowing is likely to occur?
5. With reference to the problem of financing expenditures during
the early months of the fiscal year:
a. What changes in legal provisions or county policies do you
feel would be helpfUl in dealing with this problem? The
answer to this question need not be limited to temporary
230
Mr. Martin A. Cabalzar 4 October 13, 1965
| loans, but might also include legal provisions relating to
school district budgeting, distribution of state aid, local tax
collection, etc.
b. What recommendations would you care to offer concerning
| this general problem?
i 6. Through more intensive study of selected school districts, we
hope to gain additional information regarding specific aspects of
this problem. For comparative purposes we are interested in
! two types of districts:
a. Districts which are consistently able to avoid the necessity
| for temporary loans.
i
b. Districts which consistently resort to temporary borrowing
as a means of obtaining funds in anticipation of tax revenues.
!
Please list any districts in Yolo County which you feel would be of
: particular interest to us in connection with this study.
j
i We realize the demands upon your time. However, this problem is of
! great concern to us and your reply or your referral to an appropriate
staff member will be sincerely appreciated.
| Thank you very much for your cooperation in this endeavor.
Sincerely,
! /s/V erne L. Smutz
Verne L. Smutz, Consultant
I Division of Business Services
i
VLS:ssm
COPY
C O P Y -
OFFICE OF RIVERSIDE COUNTY SUPERINTENDENT
OF SCHOOLS
November 5, 1965
Mr. Blaine Wishart
Superintendent of Schools
El Dorado County
P. O. Box 710
Diamond Springs, California 95619
Dear Mr. Wishart:
On October 11, 1965, a letter was sent to you, requesting
your comments with regard to certain financial problems
as they affect districts in El Dorado County. In the event
that the original letter has been misplaced, we are enclos -
ing a copy to assist you in responding to our questions.
We recognize the heavy demands upon your time, and your
participation in the study will be greatly appreciated.
Sincerely,
/s/V em e L. Smutz
Verne L. Smutz, Consultant
Division of Business Services
VLS:ssm
Enclosure
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OFFICE OF RIVERSIDE COUNTY SUPERINTENDENT
OF SCHOOLS
December 8, 1965
Dr. Gaylord A. Nelson
Superintendent of Schools
San Joaquin County
Courthouse, Room 406
222 East Weber Avenue
Stockton, California 95202
Dear Dr. Nelson:
We have not yet received a reply to our letters of October
14 and November 9, 1965, regarding financing of the "dry
period" during the early part of the fiscal year. We are
enclosing a copy of the original letter to assist you in
responding to our questions.
We realize that you are extremely busy, but because of
the importance of the participation of your county in the
study, perhaps you could refer the matter to an appropriate
staff member.
Thank you for your consideration.
Sincerely,
/s/V erne L. Smutz
Verne L. Smutz, Consultant
Division of Business Services
VLSissm
Enclosure
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232
APPENDIX B
LETTER TO PRESIDENT OF CALIFORNIA ASSOCIATION OF
COUNTY AUDITORS REQUESTING RECOMMENDATION
OF COUNTY AUDITORS TO BE INTERVIEWED
COPY
OFFICE OF RIVERSIDE COUNTY SUPERINTENDENT
OF SCHOOLS
April 7, 1966
j Mr. Roscoe Hollinger, President j
; California Association of County Auditors j
500 West Temple, Room 505 !
; Los Angeles, California 90012 |
!
] Dear Mr. Hollinger:
I
! i
| We are presently involved in a study of the financial problems which
! school districts face as a result of the time lag between the beginning
I of the fiscal year and the receipt of local tax revenues. With the
| heavy reliance on property taxes, which do not become available until
late November or early December, various methods of financing are
used in order to provide funds during the early months of each fiscal !
year. !
One aspect of the study involves interviewing various County and State
officials in positions related to the financing of education. The county
; auditors are in a key position, and we feel that the information which
j they can provide will be of the utmost value to our study. We wish to
request your recommendation of four county auditors whom you con
sider outstanding members of the Association.
We have previously contacted the county superintendents of schools,
and are aware that counties in California are meeting this problem in |
a variety of ways. Typically, districts attempt to provide adequate
| reserves, and use their beginning balance to supplement their income
| in meeting expenditures until local tax moneys become available. In
addition, counties perm it districts to obtain funds through temporary
| transfers from the county treasury, advance apportionments of local j
I taxes, sale of tax anticipation notes, various types of contra-accounts,
etc. Through our interviews with county auditors, we hope to obtain
additional information regarding the various methods of interim !
j financing, as well as an understanding of the problems involved from j
| the standpoint of county government. !
I i
; !
234 I
235
I Mr. Roscoe Hollinger 2 April 7, 1966
It is desirable, of course, to achieve a balance among the auditors
interviewed with regard to the types of interim financing used in
their respective counties. In making your selections, however, we
do not feel that you need to be particularly concerned about the type
of interim financing used in the counties represented. If you will
select four auditors whom you consider outstanding, we will supple
ment the list with a few selections of our own, in order to achieve the
| desired balance in the methods used.
It will be very much appreciated if you will contact the county auditors
| selected, indicating that we will be writing to them for an interview in
| the near future. Enclosed are four copies of this letter which you may
wish to forward for their information.
As indicated above, the thinking of the county auditors is a vital
factor in this particular study and we shall certainly appreciate your !
assistance.
; Thank you.
Sincerely,
/s/V erne L. Smutz
Verne L. Smutz, Consultant
Division of Business Services j
VLSissm !
I
; i
; Enclosures
i
i
COPY
APPENDIX C
LETTER TO COUNTY AUDITORS AS A FOLLOW-UP
TO TELEPHONE APPOINTMENTS
COPY
OFFICE OF RIVERSIDE COUNTY SUPERINTENDENT
OF SCHOOLS
May 3, 1966
Mr. H. Donald Funk
Auditor - Controller
i County of Contra Costa !
j Courthouse, Room 103 i
| Martinez, California 94553 j
i Dear Mr. Funk: !
I - !
I 1
i As discussed in our recent telephone conversation, we are engaged in j
| a study of the reserves needed by unified school districts in Califor- |
i nia. I am sending this letter in order to provide additional informa- j
tion regarding the purpose of our interview at 3:30 p. m. on May 19.
One phase of the study deals with the financial problems which school
i districts face as a result of the time lag between the beginning of the
fiscal year and the receipt of property tax revenues. With the heavy
i reliance upon property taxes, which do not become available until late
' November or early December, funds must be provided from various
| other sources during the early months of each fiscal year. A second
aspect of the study involves a consideration of the need for contingency
reserves.
The study is being conducted with the assistance of the California
Association of County Superintendents of Schools and the California
i Association of Public School Business Officials. We have previously
| contacted county superintendents in order to determine the methods
| of interim financing currently being used in the fifty-eight counties of
California.
i »
I
; Specific problem areas which 1 wish to discuss with you are as followsJ
j 1 . Procedures currently being used by Contra Costa County in j
| relation to the problems of interim financing. |
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238
Mr. H. Donald Funk 2 May 3, 1966
2. Problems involved in the use of current methods and other
possible solutions to the problem (tax anticipation notes,
advance apportionments, registered warrants, etc.).
3. Proper division of responsibility between the State, County, and
local school district with respect to providing the additional
hands necessary for interim financing.
4. Characteristics of a tax collection program, which will best
meet the needs of county government and school districts
(when should property taxes be collected, how many payments,
e tc .).
We feel that the county auditors are in a position to make a major
contribution to our study and we appreciate your willingness to
participate.
Sincerely,
/s/V erne L. Smutz
Verne L. Smutz, Consultant
Division of Business Services
VLS:ssm
COPY
APPENDIX D
LETTER SENT TO SPECIALISTS IN SCHOOL FINANCE AND
BUSINESS MANAGEMENT AS A FOLLOW-UP
TO TELEPHONE APPOINTMENTS
COPY
OFFICE OF RIVERSIDE COUNTY SUPERINTENDENT
OF SCHOOLS
May 2, 1966
Dr. H. D. Lovik, Superintendent
Visalia City Elementary and
Visalia Union High
200 South Dollner Street
Visalia, California 93277
Dear Dr. Lovik:
As discussed in our recent telephone conversation, we are engaged
in a study of the reserves needed by unified school districts in
California. One phase of the study deals with the financial problems
which school districts face as a result of the time lag between the
beginning of the fiscal year and the receipt of local tax revenues.
With the heavy reliance upon property taxes, which do not become
available until late November or early December, funds must be
provided from various other sources during the early months of each
fiscal year. A second aspect of the study involves a consideration of
the need for contingency reserves.
The study is being conducted with the assistance of the California
Association of County Superintendents of Schools and the California
Association of Public School Business Officials. We have previously
contacted county superintendents and county auditors in order to
determine the methods of interim financing currently being used in
the fifty-eight counties of California. In the next phase of the study,
we wish to focus upon the variables among counties and among uni
fied school districts which have a bearing upon the size of reserves
carried by school districts.
Special problem areas which we wish to discuss with you are as
follows:
1. Variations among districts in timing of expenditures and/or
receipt of revenues which affect the size of the beginning
240
241
Dr. H. D. Lovik 2 May 2, 1966
balance needed to finance the early months of the fiscal year.
2. Variations among counties in the types of temporary loans
available to school districts.
3. Types of emergency situations or errors in budget planning
which might cause a district's reserves to be depleted during
the course of a fiscal year.
4. Typical sources of the funds contained in the beginning balances
of school district budgets; e. g ., which budget categories are
most likely to contain excess funds as a result of overestimated
expenditures or underestimated income?
We appreciate your willingness to cooperate in this study and are
looking forward to our interview on May 16 at 9:00 a. m.
Sincerely,
/s/V erne L. Smutz
Verne L. Smutz, Consultant
Division of Business Services
VLS:ssm
COPY
APPENDIX E
LETTER SENT TO DISTRICT SUPERINTENDENTS OF
SCHOOLS REQUESTING PARTICIPATION
IN THE STUDY
COPY
OFFICE OF RIVERSIDE COUNTY SUPERINTENDENT
OF SCHOOLS
September 2, 1966
Dr. Harold T. Santee, Superintendent
Palo Alto City Unified School D istrict
25 Churchill Avenue
Palo Alto, California 94306
Dear Dr. Santee:
We are currently engaged in a study of the reserves needed by uni
fied school districts in California. One phase of the study deals with
the financial problems which school districts face as a result of the
time lag between the beginning of the fiscal year and the receipt of
local tax revenues. With the heavy reliance upon property taxes,
which do not become available until late November or early Decem
ber, funds must be provided from various other sources during the
early months of each fiscal year. A second aspect of the study in
volves a consideration of the need for contingency reserves.
The study is being conducted with the assistance of the California
Association of County Superintendents of Schools and the California
Association of Public School Business Officials. We have previously
contacted county superintendents and county auditors in order to
determine the methods of interim financing currently being used in
the fifty-eight counties of California. In the next phase of the study,
we wish to focus upon the variables among counties and among uni
fied school districts which have a bearing upon the size of reserves
carried, and the cash balance requirements of unified school dis
tricts.
We wish to request the cooperation of the Palo Alto City Unified
School District, which is one of twenty-one unified school districts
selected for the final phase of the study. In selecting the twenty-one
districts, we felt that it was important to include districts of varying
size, wealth, and rates of growth. There also seem to be consider
able differences among counties, in practices relating to methods of
243
244
Dr. Harold T. Santee 2 September 2, 1966
interim financing, time schedules for apportionment of local tax
revenues, etc. Accordingly, our sample was selected to represent
thirteen different counties. We have arranged to conduct the
remainder of the study in a manner which will involve very little
time on the part of school district or county office personnel.
Preliminary data on a few school districts indicate that there are
major differences in the flow of income among school districts,
which have a decided effect on their cash balance requirements.
Likewise, variation in the pattern of expenditures among different
types of districts is an important element in this regard. It is felt
that an analysis of the flow of income and expenditures, as shown on
the General Fund cash control ledgers, will provide information of
the utmost value to our study.
1 hope that you will agree to participate in this study. If so, we will
need to obtain copies of your 1964-65 and 1965-66 General Fund cash
control ledgers, which will be used for an analysis of your cash
needs as compared to twenty other districts throughout the state.
We do not need the ledgers showing the income and expenditures for
each account classification, rather, we are interested in the over-all
cash flow shown by the postings of total income, total expenditures,
and cash balances, as posted throughout the year. If you prefer, 1
will contact Mr. Charles Timpany and obtain the information from
the County Superintendent's Office.
The only additional information needed is a record of any temporary
loans which you have received during the past two years, from the
county treasury or from the sale of tax anticipation notes.
Your cooperation in this study will be greatly appreciated. Please
contact us if you desire further information concerning the study, or
if you have any questions regarding this letter.
Sincerely,
/s/V erne L. Smutz
Verne L. Smutz, Consultant
Division of Business Services
COPY
APPENDIX F
INTERVIEW GUIDE USED IN INTERVIEWS
WITH COUNTY AUDITORS
COPY
INTERVIEW GUIDE
County Auditors
County__________________________________Date
Name Position
Method of Interim Financing
1. Temporary Transfer 5. Contra-account
2. Tax Anticipation Notes 6. Temporary Loan from
3. Registered W arrants CSSF
4. Advance Apportionment 7. D istrict reserves and ad
4701-4716 R. & T. Code vance apportionment of
state aid
8. Other
1. Please give a brief description of the method(s) of interim
financing currently being used in this county.
2. What problems are involved in the use of the present method(s)
of interim financing?
3. What would be the effect of a more widespread use of this
method by school districts? Would it be financially possible for
all school districts to participate?
246
What suggestions would you offer with regard to improvements
in the current system and/or what other methods of interim
financing would you recommend?
The following methods are currently used to some extent in
California. Please comment on each. In your opinion what are
the advantages and disadvantages compared to the method
currently being used in this county? (Interviewer will briefly
describe each.)
a. Temporary Transfer--
b. 4701-4716 R. & T. Code--
c. Tax Anticipation Notes--
d. Contra - account - -
e. Registered Warrants - -
What is your reaction to the following suggestions of County
Superintendents and the literature?
a. Legislation requiring school districts to maintain adequate
reserves--
b. Increase or remove tax rate lim its--
248
c. Earlier date of assessment and tax collections--
d. Advance apportionment of school property taxes--
e. Increase advance apportionment of state aid- -
f. Use combined reserves of all special districts--
g. Complete overhaul of tax structure to obtain more money
from State revenues rather than property tax- -
h. Change the fiscal year or the tax year so that they
coincide--
i. Quarterly tax collections--
7. What effect does temporary borrowing have on the interest
received by school districts?
8. What is the effect of restricted balances on the amount of money
available for expenditure during the interim period?
249
9. To what extent should each of the following assume the
responsibility for interim financing?
a. Local district--
b. County- -
c. State--
10. What are the characteristics of a tax collection program which
would best meet the needs of county government and school
districts? (When should property taxes be collected? How
many payments?)
COPY
APPENDIX G
INTERVIEW GUIDE USED IN INTERVIEWS WITH
SPECIALISTS IN SCHOOL FINANCE
AND BUSINESS MANAGEMENT
COPY
INTERVIEW GUIDE
Specialists in School Finance and Business Management
Name Date
Position District
1. What factors are of importance in determining the size of the
beginning balance needed by unified school districts and whether
or not temporary borrowing will be needed?
2. a. What practices are followed in planning the budgets of
unified school districts, with regard to the beginning balance
for the next succeeding fiscal year?
b. What are typical sources of the funds contained in the
Beginning Balance?
3. What types of emergency situations or erro rs in budget planning
might cause a district's reserves to be depleted during the
course of a fiscal year?
251
252
4. What desirable practices and procedures can you suggest in
relation to the problems of interim financing?
253
INTERVIEW GUIDE--NOTES
1. What factors are of importance in determining the size of the
beginning balance needed by unified school districts and whether
or not borrowing will be needed?
Wealth of D istrict ____ Rate of growth
Tuition transfers_________ ____ Federal funds
Restricted balances ____Summer school program
No. of salary payments New Special Ed. Programs
County policies on loans (When are funds available)
Practice in handling tax collections in excess of 90%
Capital outlay expenditures during summer
Supply purchasing--timing of expenditures
Summer maintenance work
B uilding Program--need to supplement with money from the
general fund
Growth in transportation system
COMMENTS:
254
2. a. What practices are followed in planning the budgets of
unified school districts, with regard to the beginning balance
for the next succeeding fiscal year?
b. What are the typical sources of funds contained in the
Beginning Balance?
Keep General Reserve low
Use General Reserve to balance budget
Underestimate income
Overestimate expenditures
Failure to account for the collections in excess of 90%
Budget large General Reserve
Plan to obtain temporary loan
COMMENTS:
255
3. What types of emergency situations or errors in budget planning
might cause a district's reserves to be depleted during the
course of a fiscal year?
Overestimation of A. D. A. (Equalization districts)
Underestimation of A. D. A. (Basic aid districts)
Overestimation of assessed valuation
Legal judgment against district
Failure to be aware of legal changes
Spending of balances by component districts prior to
effective date of unification
COMMENTS:
256
4. What desirable practices and procedures can you suggest in
relation to the problems of interim financing?
How early in the year should funds be available
Responsibility of State, County, and local district
Type -- Temporary transfer, tax anticipation notes,
pre-apportionment, registered warrants, contra-account
Requirement that districts maintain adequate reserves
Increase or remove tax rate limits
Earlier date of assessment and tax collections
Increase advance apportionment of state aid
Use combined reserves of all special districts
Change fiscal year or tax year so that they coincide
Planned purchasing so money will be available when bills
come due
What principles are considered essential to a successful
tax collection program? (More than one payment; collected
early in the year, etc.)
COMMENTS:

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Asset Metadata

Creator Smutz, Verne Lamont (author)

Core Title Beginning Cash Balances, Temporary Borrowing, And Contingency Reserves Ofcalifornia School Districts

Contributor Digitized by ProQuest (provenance)

Degree Doctor of Philosophy

Degree Program Education

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag education, administration,OAI-PMH Harvest

Language English

Advisor Stoops, Emery (committee chair), Carpenter, Charles C. (committee member), Nelson, D. Lloyd (committee member), Perry, Raymond C. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c18-580862

Unique identifier UC11360160

Identifier 6717704.pdf (filename),usctheses-c18-580862 (legacy record id)

Legacy Identifier 6717704.pdf

Dmrecord 580862

Document Type Dissertation

Rights Smutz, Verne Lamont

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Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA