Over the last few months the San Mateo Community College determined that they are now a basic aid district. That’s a nice reflection, for them, of how property values have increased over time in San Mateo County. However, it does create a bit of a cashflow timing problem for the County’s revenue limit districts, of which San Carlos is one.
What’s the difference between a basic aid district and a revenue limit district? Put simply, a basic aid district is funded solely by a share of the property taxes paid by property owners within its service area. A revenue limit district, on the other hand, gets a share of those property taxes, but also receives additional funding from Sacramento in order to get its funding up to a defined minimum level. Roughly speaking, basic aid districts are the well-off districts, while revenue limit districts are their relatively poorer cousins.
The changed status of the community college affects the County’s revenue limit districts because of a funding mechanism the State put in place a few years ago. In simple terms, Sacramento diverted some of the property taxes that would normally have gone to cities, and then restored them by diverting a comparable amount of money from the property taxes that previously were allocated to schools. To keep schools whole, Sacramento reimbursed them out of general state funds.
This sounds like a lot of work to accomplish exactly nothing. Cities and schools, at the end of the day, wind up with the same amount of money they had before all the diversions took place. However, in the eyes of the bond market, not all revenue streams are created equal. In particular, property tax revenues are considered more valuable (probably because they’re generally more stable than sales or income taxes). So by diverting some property taxes the State was able to issue more debt on better terms.
The kicker in all of this, for San Carlos, is that only property taxes destined for revenue limit districts can be used by the State to repay the cities. So when the community college became basic aid, the pool of funds available to repay the cities shrank. In fact, it disappeared; the State will have to come up with funds from another source to cover all the shortfall.
That means none of our local property taxes are currently flowing to the District. In the end, the State is obligated to cover the shortfall. But “in the end” means “much later in the school year” (or perhaps even after the end of the school year).
Until the replacement funds arrive from the State, the District has to borrow money to cover the timing shortfall. This is perfectly feasible, but it costs money to pay the interest, and the interest rate may end up being higher than what the District normally pays. There’s also a possibility that some small part of the shortfall may never end up being repaid by the State (staff is still researching this).
What this means, in dollars and cents, is that the District’s expenses are going to be someplace between $10,000 and $50,000 higher this year than was expected. In a normal year that would be annoying, but not serious. In the current fiscal climate, it’s serious, but not game-changing.
It sure would be nice if Sacramento could get their financial house in order, and stop mucking around with all this stuff, don’t you think?