Part of Kansas School Aid Delayed Again (KS)

March 30, 2011

Kansas delayed $92 million worth of aid payments due Tuesday to its public schools, forced by a temporary cash crunch for the third consecutive month to use a financial maneuver that’s been mentioned as a concern in recent reports by two major credit rating agencies.

Officials confirmed that the state had withheld half of the general state aid payments that were supposed to go to its 289 school districts on March 1. They don’t know when the second half of their payments will be made, though Deputy Education Commissioner Dale Dennis said it could be early next week.

Such delays in school payments have allowed the state to meet its payroll and pay other bills on time when funds are temporarily short. Kansas faces cash flow problems in the first months of the year because bills come due well before most people who owe individual income taxes make their payments, even as the s tate begins issuing refunds to other taxpayers.

Dennis said school districts have learned to adjust to short delays, and, "We don’t anticipate any major problems because of it."

Sherriene Jones-Sontag, spokeswoman for Gov. Sam Brownback, said state officials are watching school districts closely to make sure they don’t encounter problems. When the state delayed half of its scheduled aid payments in December 2009 for several weeks, it had to make special arrangements for six or seven districts so that they could continue to meet their payrolls.

In addition to allowing Kansas to pay its government workers on time, this month’s delay in school aid payments allowed the state to make bond payments as scheduled and reimburse health care providers without delay for services to the needy under the Medicaid program.

"We need to keep in mind some of those other obligations," Jones-Sontag said. "We have to make sure we have the money in the bank."

Still, some educators and legislators have been frustrated by the delays, suggesting they send school districts a message that the state can’t be relied upon to make its aid payments on time.

"It’s a practice that needs to come to an end at some point," said state House Minority Leader Paul Davis, a Lawrence Democrat.

Standard & Poor’s Ratings Services and Moody’s Investors Service have noted the delays, though both have continued to reaffirm the state’s high credit ratings.

Standard & Poor’s mentioned the state’s decision in January to postpone both part of its school aid payments and a contribution to its pen sion system in a Feb. 10 reporting on its rating for $36 million in bonds that will help finance an ongoing renovation of the Statehouse. Likewise, Moody’s mentioned it in an opinion Friday rating the same bonds.

Moody’s analyst Ted Hampton said the delays in scheduled payments underscore the strain Kansas faces. He said it’s not as bad as it is for some other states, but, "It’s still an indication that the state is under fiscal pressure."

Jones-Sontag said the rating agencies’ comments are a warning to the state that it needs to get its finances in order if it is to keep its high credit ratings.

The delay in aid payments to schools came a day after state officials learned that tax collections in February fell $11.5 million, or almost 5 percent short of expectations, complicating Kansas’ budget picture. The Department of Revenue reported that February tax collections were $224 million, compared with a forecast of $235.5 million for the month.

Brownback had hoped that legislators would pass a bill by the end of January to cut spending from the current budget, but legislators ended the first half of their annual session last week at an impasse over how to make those cuts. Their main disagreement is whether — while they’re trimming elsewhere — to add $26 million for schools’ special education programs, to prevent the future loss of federal funds.

Brownback wants to make some cuts in the current budget so that the state finishes the fiscal year on June 30 with about $35 million in reserves. Then, the savings and the reserves would roll over into the new fiscal year, to help close a projected $492 million budget gap between anticipated revenues and current spending commitments.

The projected shortfall is li kely to grow because of the shortfall in February tax collections. Legislative researchers are expected to have a new projection by early next week.