April 16, 2013; Los Angeles Times

It seems like déjà vu all over again. Almost exactly two years ago (April 21, 2011, to be exact), NPQ ran a story about how budget chicanery in Minnesota was challenging charter schools in the state. In that case, the state government was using deferred payments to make it look like there was a balanced budget. The government was holding off payments to districts and charter schools, which were then put into the records as a savings. The delay in payments made it very difficult for charter schools in particular, who are often on a very tight cash flow.

Now, in California, an eerily similar situation has emerged. Starting with its major financial crisis, which began in 2001, state legislators have been deferring money owed to public schools by months at a time in order to make it look like the books are balanced. There is widespread agreement that deferred payments are a bad idea, but this has been snowballing ever since. The original deferral involved holding off $1.1 billion in payments by a few weeks. From 2009 through 2011, that amount grew to more than $6 billion and extended over much of the school year.

For school districts, this can be very tough, but they have reserves and access to credit at relatively low cost. This is not true of charter schools, which are sponsored by school districts but are independent nonprofit organizations. Their borrowing would have to be at market rates. Charter schools also typically do not have large reserves.

Two years ago, the impact was only beginning to be felt in Minnesota, and charter schools were using a variety of reserves, budget cuts, loans, and other sources of outside funding to help bridge the gap of the deferred payments. In California, we find yet another case of the nonprofit sector coming to the rescue in the aftermath of a public sector disaster. LISC, a nonprofit based in New York but with chapters all around the country, stepped in last year to make low-cost loans available to high-performing schools. One school is reported as needing to borrow more than $500,000 to compensate for the deferred state funding, which amounts to 10% of the total annual budget. Even at LISC’s low interest rate, that has meant a debt service of $19,200.

The debate over the value of charter schools continues to rage around the country. But whether one is for these schools or against them, having to deal with these deferred payments imposed by state legislators trying to make themselves look good, and having to take money out of the classroom to pay for bridge loans, can only harm the education of our young people.—Rob Meiksins