Establishes the special education short-term revolving loan fund and authorizes the state comptroller to provide special education short-term revolving loans

Section two amends state finance law by adding a new section 179-ff which authorizes the Comptroller to provide short term loans from the fund, pending tuition payments from the state.

Section three provides for the effective date, which is immediate.

Existing law

Current law provides funding to Special Act Schools through a complex methodology in which schools are getting reimbursed at rates set in previous years, for students previously served. These school districts currently rely heavily on short-term borrowing from banks in the form of Revenue Anticipation Notes (RANs), to keep their doors open. The State does not allow for reimbursement of interest fees that are paid to banks.

Justification

Created by special acts of the New York State Legislature, Special Act schools provide unique educational and therapeutic opportunities to students who have experienced failure in previous school settings. Special Act school districts are located on the grounds of residential childcare facilities licensed by the Department of Social Services. Although they primarily serve a residential population, Special Act schools also accept referrals of day students who are experiencing similar psychological, educational, or physical disabilities. Because of the shifting needs of the students served, students can remain at the schools for as little as one week to as long as a few years.

The Special Act schools annually provide rehabilitative and educational services to thousands of New York State's most challenging children - children who have been admitted into the juvenile justice system, foster care, and the mental healthcare system. For many of these children, these schools are their last hope. Special Act schools are held to the same federal and state standards that all public schools are held to, but without the same financial infrastructure afforded other public schools. These schools have no taxing authority and rely heavily on state aid in the form of tuition reimbursement.

Under current law, tuition rates are established each year by the Commissioner of Education, subject to the approval of the Division of Budget, with final rates adjusted to reflect the actual approved costs incurred by each provider. This reconciliation process allows the state to evaluate and recapture State and local payments that exceed actual costs. Given the complexity of the methodology as well as the shifting population of Special Act schools, this process of reconciliation can take years to sort out. Mount Pleasant Cottage School provides an example of the problem: they are required to comply with mandates issued by the State Education Department's Office of Vocational and Educational Services for Individuals with Disabilities (VESID), for example, by adding staff, yet have not received reimbursement for such from NYSED's Rate Setting Unit or Division of Budget to bill for the school years 2006-2007, 2007-2008, 2008-2009 and 2009-2010. They are currently billing at 2005-2006 levels, a rate that is woefully inadequate to pay for educational expenses related to mandated services for their students.

This situation has forced the schools to resort to short term borrowing from banks in the form of Revenue Anticipation Notes (RANs). State funding does not allow for reimbursement of the cost of borrowing, leaving these schools with the additional burden of expensive interest fees. The average interest rate for RANs has increased dramatically since the recent collapse of the financial markets. In fact many Special Act schools are finding in very difficult to find banks willing to provide these loans at all.

During the 2008-2009 school year Special Act schools borrowed over $27 million at a cost of $1.3 million in interest, in order to meet their obligations. If the rate setting methodology was a more timely and efficient process, these loans would be unnecessary, however legislation that would improve the methodology has been consistently met with vetoes. (see Veto 156 of 2007; Veto 279 of 2006; and Veto 220 of 2004)

This bill would allow New York State to provide loans to Special Act schools in anticipation of the school's revenue, which comes from the State, thereby saving the schools millions in interest payments at no cost to the State.

Legislative history

This is a new bill, however, similar legislation has been enacted in the past. Chapter 166 of the Laws of 1991 contained a provision which created the "Not-for-Profit Short-Term Revolving Loan Fund", which served a similar purpose - to provide loans to not-for-profits contracting with the State, in anticipation of revenue from the State.

Fiscal implications

There is no cost to the state, however this bill will save Special Act school districts at least $1.3 million per year.

Effective date

Immediately.