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In California, Agreement to Ban Teacher Layoffs and Let Districts Seek Multimillion-Dollar Loans

California's superintendents put up a big stink last month when Gov. Gavin Newsom told school districts they might have to cut billions of dollars out of their budgets this fall—and then strongly urged them to open their schools back up as soon as July to help get the economy moving again.

That's impossible, they told the Democratic governor, in letters, during legislative testimonies, and again through the local press. In order to reopen schools shuttered by the COVID-19 pandemic, districts will need billions of dollars more than they received last school year, not less. Otherwise, they said, districts will have to wait until a vaccine is discovered.

Across the country, superintendents are taking a similar tack by threatening to keep schools physically closed if they're forced to swallow double-digit budget cuts.

On Monday, Newsom and the California legislature came to an agreement to allow districts to take out multimillion dollar loans in order to keep them afloat this fall. In addition, districts will get more than $5 billion from California's share of the federal CARES Act, which Newsom has encouraged districts to use for reopening costs this fall. The plan is expected to pass the legislature later this month. 

"I think the funding will substantially exist," Newsom said at a press conference. "We think a lot of that anxiety is mitigated."

California's plan is a gamble and unlikely to be replicated in other states since the state's school spending methods, political dynamics, and economic forces are so unusual. 

If Congress doesn't provide states with another pandemic relief package and if, as expected, the current recession lasts through 2021, California's budget cuts next year will be much, much more severe than the 10 percent Newsom threatened last month. 

California at the beginning of the last recession told districts to take out low-interest, government-backed loans, thinking that the housing crash was a blip and the economy would bounce back sooner than later. That didn't happen,and the districts that took out loans had to make some of the deepest cuts in the nation, ultimately laying off more than 30,000 educators.

"California in that moment was doing everything they could to mitigate a really horrible circumstance," said Jason Willis, a scholar with WestEd who has written a paper on options to mitigate inequitable budget cuts this fall. 

The state again is encouraging districts to dig into their savings to keep revenue flowing or take out Tax Revenue Anticipation Notes, better known as TRANs loans. These loans, while usually low-interest, are government-backed and can only be used during one fiscal year.

In other states, districts typically take out short-term loans from local banks, though those can sometimes come with a higher interest rate and are predicated on a variety of factors, including how politically and financially stable the state's legislature is and the district's fiscal health. 

The agreement reached this week would place a ban on California's districts laying off any of their classified employees, including teachers, custodians, bus drivers and cafeteria workers. That would leave tens of thousands of teacher aides working in financially struggling districts vulnerable to mass layoffs.

In most other states, legislatures are waiting to see whether or not Congress will provide another big coronavirus aid package before deciding what sort of budget cuts, if any, to send along to districts. That has left many districts in a precarious fiscal situation: They can lay off teachers now, or wait for a potential bailout, which likely won't come until a handful of weeks before school starts.

All that raises the prospect of late summer and fall budget cuts, which can academically wreak havoc on the start of the school year.

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