Can a District Do an Inter-Fund Borrowing from Proposition 39 School Construct Bond (SCB) Funds for Non-SCB Purposes?

FAQ 38

Can a District Do an Inter-Fund Borrowing from

Proposition 39 School Construct Bond (SCB)

Funds for Non-SCB Purposes?

CABOC strongly recommends against such interfund borrowings.

Some districts have done this, but it has been ruled improper by the California Fiscal Crisis & Management Assistance Team (FCMAT)*.

“The Fiscal Crisis and Management Assistance Team’s (FCMAT’s) primary mission is to help California’s local K-14 educational agencies identify, prevent and resolve financial, operational, and data management challenges by providing management assistance and professional learning opportunities.

“FCMAT’s services help avert a fiscal crisis, promote sound financial practices, support chief business officials’ training and development, and help create efficient organizational operations.

“FCMAT’s data management services are used to help local educational agencies (LEAs) meet state reporting responsibilities, improve data quality, and inform instructional program decisions“•

In a Fiscal Alert*, FCMAT states:

“The use of bond proceeds outside of their intended capital may violate state law. School districts may issue general obligation bonds under Proposition 39, which requires that an issuer specify the purposes of general obligation bond proceeds and may not spend the proceeds “for any other purpose, including teacher and administrator salaries and other school operating expenses.” Districts issuing bonds under Proposition 46 must use the proceeds for “real property and improvements.” In both cases, using the funds as working capital, even temporarily, fails to fulfill these obligations. Education Code Section 15100 establishes permitted purposes for proceeds, including construction, repair, restoration, furniture, and equipment. Section 15146 prohibits proceeds for purposes other than those specified at the bond’s issuance. Therefore, interfund borrowing involving a transfer of general obligation bond proceeds to funds with expenditures outside of the designated capital project for which the bonds were issued may violate these sections of the Education Code.”

The FCMAT Fiscal Alert gives several additional reasons why such interfund borrowings should not be allowed. CABOC strongly concurs with FCMAT’s reasoning and conclusion and recommends that CBOCs oppose any attempt at their district to do such interfund borrowings. 

* See About FCMAT.

** FCMAT, “Interfund Borrowing,” https://www.fcmat.org/PublicationsReports/FCMAT_Fiscal_Alert-Interfund_Borrowing_Using_Bond_Procees-10-1-19.pdf