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Expecting the state to withhold more than $7 million until next fiscal year, the Del Norte Unified School District will seek a loan to ensure its bills and staff are paid.

The Board of Trustees on Thursday authorized Assistant Superintendent of Business Jeff Napier to seek a tax and revenue anticipatory note, or TRAN, a short-term loan that ensures DNUSD has the cash flow it needs through the end of the 2020-21 fiscal year.

Shopping for a TRAN takes about three to four months, Napier said. The district will be able to seek up to $7.76 million — the maximum amount the state is expected to defer into the 2021-22 fiscal year, according to Napier.

“If you pass the resolution, it does not say we are getting a TRAN,” Napier told trustees. “It doesn’t do anything other than give the business office-management the authority to look for a TRAN and recommend a TRAN. If we do decide we’re going with a specific TRAN we’ll come before the board with a resolution and for a specific amount.”

In May, California Governor Gavin Newsom proposed cutting $13.5 billion from education for the 2020-21 fiscal year. Though the Legislature adopted a budget that didn’t include those cuts, it did contain the possibility of withholding $11 billion until the 2021-22 fiscal year if the federal government didn’t allocate additional COVID-19 relief dollars to California.

On Thursday, Napier said the federal government hadn’t granted any more relief money to California. As a result, those deferrals are expected to start in February, he said.

According to Napier, the state told DNUSD that the $7.76 million is counted as revenue on its 2020-21 budget, though it likely won’t receive those dollars until the next fiscal year.

“We won’t get all the cash until 2021-22,” Napier said, his colleagues at other districts are anticipating major cuts to education or further deferrals. “Then we would have an instance where we would have a deferral on top of a deferral. If we had $7 million deferred from this year into next year and then they deferred another $7 million from next year into the following year, we will have to have a TRAN for next year also to pay back this year’s TRAN because it’ll be a cash poor position.”

Napier said the district would seek a TRAN for the amount it needs to cover its cash flow.

Del Norte Unified will be able to participate in the California School Finance Authority Pooled TRAN, which is the largest pooled TRAN in the state. The State Treasurer sits on the three-member board, Napier said.

The pool streamlines and simplifies the TRAN process, Napier said. The CSFA has already issued a TRAN to a “very large Southern California school district." The interest rate was 0.18 percent, he said.

“This pool divides up like districts by demographics, by credit rating and then they sell a block TRANs that may include 40-50 like or very similar districts,” Napier said. “And then the cash is disbursed back to the districts.”

Trustee Charlaine Mazzei asked if the district could use voter-approved bond money to address its cash flow problem. She referred to a previous discussion regarding using that money for facility repairs.

“When we were talking about doing repairs and putting air conditioning units in the schools, we specifically were advised not to do those projects so we would have the Measure A money to deal with cash flow,” Mazzei said. "I understand that that’s not going to be enough, but I also have heard at the last meeting that’s not allowable to use that money for cash flow purposes. I would have liked to have that known at the time we made those decisions to not make those repairs.”

Napier said the county treasurer had told him general obligation bond money could be used to address cash flow issues. But, he said, legal counsel has advised against it.

The last time the state deferred education funding from one fiscal year to the next was during the Great Recession in 2008-09, Napier said.

Documents:

• California School Finance Authority (CSFA)-Pooled TRAN

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