On Campus, a Long Wait for State Checks
By Daniel C. Vock, Staff Writer
At Cuyamaca College, a community college with 9,000 students near San Diego, Anthony La Madrid is studying biology. He hasn’t yet settled on what he’d like to do when he graduates, but he’s interested in becoming a veterinarian, a nurse or a doctor.
Just getting this far hasn’t been easy for La Madrid. Twice as a child, he went into foster care. He dropped out of high school junior year. La Madrid came back the next year to get his diploma, and he finished just a few months after the rest of his class. He’s the third-oldest of six siblings but the first to go to college. He says he hopes he sets an example for his siblings, so they can achieve more than their parents did.
Lately, the biggest obstacle before La Madrid’s education has been the budget standoff in Sacramento. For 100 days this summer and fall, California operated without a budget. The political stalemate over how to close a massive deficit prevented the state from paying $8.3 billion in bills — a backlog that included La Madrid’s state financial aid check. The state’s community colleges estimate that 41,000 students, or 60 percent of Cal Grant recipients at community colleges, have been left hanging in the same situation this fall.
Without a Cal Grant, La Madrid has been stressing about money as much as his studies. He’s been borrowing groceries from his roommate and has contemplated taking a second job. He has several friends facing similar hardships. “We rely on the state for the grants,” La Madrid says. “I just cross my fingers and hope it comes soon. It’s pretty much my life.”
Now that California has a budget, La Madrid and his friends should be getting their Cal Grant checks soon. Still, the budget dysfunction took a toll, not only on college students like La Madrid but on the institutions they attend. Sacramento’s backlog of payments includes aid to community colleges, and many schools have been scrambling this fall just to make payroll. La Madrid’s school district had to borrow $5 million in September to pay employees — a loan with interest that the state won’t cover. That move came only after the Grossmont-Cuyamaca Community College District had already trimmed classes, shed part-time workers and left nearly 1 in 6 of its positions unfilled. Statewide, community colleges estimate that interest on similar loans will cost $5 million.
The delays were not the result of a policy choice to cut back on financial aid or to minimize the role of community colleges. Indeed, Governor Arnold Schwarzenegger, who attended Santa Monica City College in the 1960s, told a national group of community college administrators last year that the schools are “institutions of hope” and could lead the country out of the recession. But dysfunctional politics around California’s budget are making it difficult for the colleges to fulfill that promise.
WHO GETS PAID WHEN?
Because the three states examined in this series got behind in paying their bills for different reasons, the question of who gets paid when varies from state to state.
Normally, the state comptroller determines who gets paid when. But this spring, the General Assembly gave the governor’s office emergency powers to handle much of the state's growing backlog of past due payments. The comptroller still handles bills for the most immediate needs: debt service, employee payroll, general state aid for schools and Medicaid bills that must be paid promptly under the federal stimulus law. Governor Pat Quinn's office declined to offer further details of how it determines the order that checks are issued for everyone else.
Providers in dire need can apply to the comptroller for expedited status, meaning they get a jump in the line. If that fails, some turn to their representative or senator to apply some political pressure. But Carol Knowles, a spokeswoman for Comptroller Dan Hynes, says by the time lawmakers try to intervene, the comptroller’s office is usually well aware of the problem and taking steps to address it.
A budget stalemate in California this summer meant the state operated without a budget for the first three months of the 2011 fiscal year. During that time, the state continued to pay its employees (other than elected officials), debt service and most of its obligations to elementary and secondary schools. But the state could not issue checks for, among others, community colleges, child care centers, health clinics and landlords who lease space to the state. Controller’s John Chiang’s office had limited authority to issue checks; the determination of who could get paid and who could not was based largely on state laws and on court rulings.
Like California, New York operated without a budget well into the current fiscal year. Erik Kriss, a spokesman for New York’s budget division, says during the standoff the state slowed down its payments across-the-board. Even major payments to schools were put off for weeks because of the state’s cash shortage. “All kinds of vendors have been waiting longer periods of time than in the past to get paid,” he says. But, he adds, the budget office tried to spread the pain out to make things as easy as possible for the most people.
California’s most recent cash crunch is a bit different than the one it ran into last year. In the summer of 2009, California notoriously resorted to printing IOUs when the state treasury ran out of cash. The move was necessary so creditors protected by the state constitution — such as K-12 schools and bondholders — could be paid. It was only the second time since the Great Depression that California had taken such drastic actions. The state issued 450,000 IOUs worth $2.6 billion, and paid the debt back with interest.
This year, California’s problem wasn’t that it ran out of cash. It was that, without a budget in place, the state had no authority to cut checks to many vendors, such as equipment suppliers and landlords, who do business with the state. Other service providers that rely heavily on state funding, such as community colleges, day care providers and community health clinics, also had to get in line. By the time legislators struck a budget deal two weeks ago, the stack of unpaid bills reached $8.3 billion.
Although California now has a budget, its cash flow problems are far from over. The absence of a budget this summer and fall meant that the state treasurer was unable to take out a short-term loan, called a revenue anticipation note, that California uses almost every year to keep money in the bank during parts of the year when the state’s income slows. So while the budget stalemate is over, California still is running its bank account toward empty. The balance at the end of October is expected to dip to $3.5 billion — not even half of what the state would need to eliminate its backlog.
That means California will not pay $5.5 billion in bills while it waits for a new revenue anticipation note to come through. Some businesses and people, such as La Madrid, are slated to get paid soon. But others who weren’t originally affected by the budget impasse, such as the University of California System and K-12 schools, now will wait weeks or a month for their next payment.
Even then, the people, businesses and institutions that rely on California for funding will need to prepare for the possibility that checks will stop coming again. According to Controller John Chiang, if state revenues come in slower than expected this fall, California may once again have to resort to printing IOUs.
Illinois turns to borrowing
Disruptive as California’s delinquency has been to higher education, Illinois’ backlog of unpaid bills is creating worse problems. Illinois lawmakers this year passed an unbalanced budget that does not bring in enough revenue to cover expenditures. Cash flow is so crimped that as of the end of September, the state of Illinois owed its community colleges and universities close to $600 million. That’s more than one-third of the state’s entire budget for higher ed.
On the campus of the University of Illinois at Chicago, it’s easy to see the effects. The university’s flagship building, 28-story University Hall, is literally falling apart. The concrete skin of the building is flaking off, exposing the rusted steel of rebar beneath. Canopies surround the building to keep pieces of falling concrete from hitting students and staffers on their way in. University Hall is one of three buildings on campus surrounded by protective platforms.
UIC officials aren’t planning on fixing up the buildings anytime soon. Checks from Springfield trickle in as many as six months late — the pattern is too unreliable for doing long-term planning. So administrators are trying to keep cash on hand to simply make payroll and keep the university functioning. Other universities have struggled even to do that. This spring, Southern Illinois University, then owed $140 million by the state, started planning for the possibility of shutting down its four campuses in the middle of the school year. For public universities and community colleges in Illinois, the problem of late payments comes on top of state budget cuts, the loss of federal stimulus money, anger over rising tuition and, in some cases, ballooning student enrollment. The crisis is beginning to manifest itself in the classroom. Dick Simpson, chairman of the political science department at UIC, had to let go of his part-time faculty and cut half a dozen undergraduate classes. The remaining classes are filling up. A class Simpson teaches on Chicago's future normally has about 60 students. This semester, the classroom is at full capacity with 114 students.
“The cuts are no longer just buying fewer paper clips,” Simpson says. “Now it’s fewer staff, fewer instructors and bigger classes, not to mention a 9.5 percent tuition increase.”
The cash pressures became so intense this spring that lawmakers gave public universities the power to borrow money on their own, at the risk that schools could dig themselves into an even deeper fiscal hole. “These are extraordinary times,” says state Senator Bill Haine, one of the bill’s sponsors. “It was an extraordinary request and an extraordinary remedy.”
Under the law, signed in June, schools can borrow up to 75 percent of what the state owes them. They must pay back the loans within a year. And while it’s the state’s delinquency that would force the universities to borrow, Illinois won’t reimburse schools for the interest.
Initially, several of the universities were standoffish about the new borrowing power. They only came around to the idea when it became clear that lawmakers would not be able to find enough money to reduce the backlogs. “Nobody wanted to borrow,” says Northern Illinois University spokesman Brad Hoey. The law explicitly states that the borrowing is not state debt. “You’re putting your school up for collateral. That’s pretty much unprecedented — and terrible fiscal policy.”
None of the four-year schools covered by the new law has resorted to borrowing, but community colleges, which already had the authority, have. Illinois Eastern Community Colleges, a system with four campuses, borrowed $4.25 million to pay its health insurance premiums for last fiscal year.By the time it pays interest on the bonds, the cost will increase to $4.58 million. Chief Executive Officer Terry Bruce points out that his college system can only issue bonds once every three years. He doesn’t know how he’ll pay health care costs for this fiscal year or the next. State Representative Dan Brady, who represents an area that includes Illinois State University, says he would not be surprised if universities use their new borrowing powers soon. The state is so far behind on its bills that there may be no alternative, he says. “Vendors are only going to go so long before they stop providing food for the dorms and equipment for your staff.”