Publications
Fall 2001 Newsletter
LAO Urges Simple Solution: Fund Long-Term Facilities Appropriations
Voters have passed bond measures at both the state and local
levels identifying hundreds of millions of dollars for school
construction. However, these funds are not structured for creative
expenditures and do not include long-term capital maintenance
provisions. To combat this current funding mechanism, the state's
Legislative Analysts Office has developed a three-tiered plan
to offer all districts much needed flexibility and keep newly
constructed projects performing at a high level for years to come.
NSBN is pleased to excerpt the LAO's suggestions.
By: Elizabeth Hill
INTRODUCTION
Despite significant sums raised for school construction in recent
years, about one in three California students attends an overcrowded
school, or one in need of significant modernization. According
to the State Allocation Board, the cost to address these pressing
school facility needs is about $30 billion, with the state's share
of cost exceeding $17 billion. Because less than $2 billion of
state school construction bond funds remain uncommitted, the state
will need to raise more than $15 billion to pay its share of these
school facility costs.
Even after these school projects are constructed, however, demand
will not abate for state support for school facilities. As enrollments
grow and school facilities age, school districts will develop
further capital outlay needs. Given the magnitude of the cost
to house California school children--and the increasing debate
regarding the allocation of state resources to school districts--it
is timely for the Legislature to review California's state-local
partnership for financing school construction.
This report provides an overview of the state's current process
of supporting school capital outlay and identifies shortcomings.
To address these problems, we offer a conceptually different approach--a
new "blueprint"--for providing state school construction
support. We outline a model program, consistent with this blueprint,
which the Legislature could phase in as resources permit.
A NEW BLUEPRINT FOR FACILITY FINANCE
In order to begin to address the problems outlined above, we
recommend the Legislature develop a new blueprint for the state-district
school facilities partnership. In our view, this new blueprint
should include three conceptual changes. First, the Legislature
should create an ongoing revenue stream for school facility finance
to replace its existing system of bond financing. Second, the
Legislature should redirect the state's focus away from funding
specific lists of school projects. In its place, the Legislature
should establish a program oriented toward helping all districts
provide educational facilities for children. Last, the state should
clarify the state's and districts' roles and responsibilities
regarding school facilities.
Below, we discuss these conceptual changes. In the following
section, we outline a model program which would be consistent
with this approach, as well as a transition program to assist
districts with large backlogs of school improvement projects.
Establish an Ongoing Revenue Stream
A key step toward improving California's program of school facility
finance is for the Legislature to designate an ongoing revenue
stream for school capital outlay. Just as the state funds school
support budgets on an ongoing basis, the state should appropriate
a reliable amount of funding on an annual basis to pay a share
of school capital outlay programs. This action would greatly improve
district capacity to plan and implement local capital outlay programs
on a timely and cost-effective basis.
Focus on Children, Not Projects
The next step to improving school facility finance is for the
Legislature to change its focus from funding specific school projects
to funding the long-term cost of providing school facilities for
children. ...Virtually every year, districts construct new schools,
remodel facilities, acquire land, or develop architectural plans.
Just as districts incur costs and make decisions annually to give
children educational programs, districts incur costs and make
decisions annually to provide children educational facilities.
Instead of funding specific projects, our suggested financing
system would provide for an ongoing stream of revenues to provide
an adequate level of school facilities for students. The district
could use this annual revenue stream to build, remodel, lease,
or acquire land as the district determines appropriate.
How much money should the revenue stream provide? Clearly, every
district has unique needs. Some districts must acquire land in
expensive urban areas. Other districts must build schools for
relatively few students, or in areas with severe environmental
conditions. Calculating the actual school facility expense for
every school in California would be immensely complicated--and
resulting in many district claims that its construction costs
were higher than average.
In general, we would urge the Legislature to minimize the differentiation
among the revenue streams and provide one facility payment per
student. The grant would be calculated at an amount sufficient
to cover the cost of building and modernizing school facilities
over a 50-year period.
Clarify Roles and Responsibility
The third needed change to California's system of school facility
finance is to clarify roles and responsibilities. That is, which
level of government shall be responsible for ensuring that districts
have a sufficient number of schools and that facilities are modernized
as needed?
While the Legislature could divide this responsibility in different
ways, we see significant advantages to having school district
responsibility for capital outlay be similar to its responsibility
for program operations. Accordingly, our model assigns districts
the responsibility for developing and implementing school capital
outlay programs. The state's role, in turn, would be to support
district efforts by:
- Ensuring the availability of a predictable source of revenues.
- Supplementing low-wealth districts' revenue raising efforts.
- Establishing an accountability program to clarify the responsibility
of districts and provide for an ongoing dialogue between school
officials and local residents regarding school facilities.
APPLYING THE BLUEPRINT
The three concepts described in the blueprint above could be
implemented in many ways... Our model program includes three ongoing
components:
- A revenue stream to cover the annual expense of school capital
outlay programs. In this report we refer to this revenue stream
as the California Annual School Allotment (CASA). This program
would be a joint financial responsibility of districts and the
state.
- A state-funded program to augment the revenue raising ability
of low-wealth districts. We refer to this funding as the Ability-to-Pay
Adjustment.
- An accountability program to clarify state and local responsibilities
regarding educational facility planning and implementation.
Finally, our model program provides for a short-term transition
program to assist districts with significant immediate facility
needs. The goal of the transition program is to bring school districts
across the state to more comparable "starting points"
so that facility needs can be addressed by the annual funding
stream. ...
TAKING THE FIRST STEPS IN 2001
Proposals for major changes in state policy and finance inevitability
pose significant implementation challenges, particularly when
viewed against a backdrop of economic and expenditure uncertainty
such as exists today. The model program suggested in this report--or
any school capital outlay program structured along these lines--would
not be an exception.
Of all the challenges associated with providing an annual program
of school facilities support, the most difficult for the Legislature
would be the demand for state resources. Specifically, funding
the annual revenue stream would increase state costs significantly
because the state would be supporting school facility programs
on a "pay-as-you-go" basis at the same time it was making
debt payments on school bonds issued to finance programs in the
past. Thus, until the state retired its school bond debt, it would
be paying for two school construction programs at once.
The model program outlined in this report also contains provisions
which would increase the state's overall support for school capital
outlay. Specifically, the model program proposes that the state
(1) pay 50 percent of school facility capital outlay costs, rather
than the 40 percent it has paid in the past; (2) support a more
comprehensive school capital outlay program; and (3) provide additional
financial assistance to low-wealth districts. Some of these increased
costs would be offset by the state avoiding the need to make interest
payments on future bond measures. In addition, the state could
avoid payments it is currently making to school districts for
deferred maintenance. Still, the state's overall costs under a
program containing these provisions would be higher than the state's
costs under its existing school facilities program.
Despite the increased costs the state would face, we believe
that the significant advantages associated with transforming the
existing financing system into one that acknowledges long-term
capital outlay costs, focuses accountability, assists poorer communities,
and provides significant district flexibility merits going forward
with the program--even if the state cannot support full implementation
of the program immediately. We note that many other important
state policy changes have not been implemented at once, but phased
in as resources permitted: state assumption of county trial court
costs, reduction of the vehicle license fee, and expansion of
the Healthy Families Program.
Accordingly, we recommend the Legislature begin the process of
remodeling California school facilities finance by taking the
three steps described below.
- Enact Legislation to Create Programs. The first step would
be for the Legislature to hold hearings and enact the CASA,
Ability-to-Pay Adjustment, and accountability programs. These
actions would declare the Legislature's long-term intent regarding
financing K-12 school facilities. While this report suggests
some key parameters and policy choices for the new programs,
much additional work would be needed to "develop"
the detail. The Legislature also may wish to consider options
for reducing the CASA program costs. For example, it could set
the state's share of CASA costs at some percentage below 50
percent.
- Identify Transition Program Funding. The Legislature would
need to identify the future bond measures and/or cash reserves
to fund the transition program. Regardless of how the Legislature
chooses to fund the transition program, we recommend the monies
be allocated to districts with unmet facility needs exceeding
20 percent of their enrollment. Such an allocation would bring
school districts across the state to more comparable "starting
points" and facilitate the future success of the CASA program.
- Phase In CASA & Ability-to-Pay
Given the costs associated with the CASA and Ability-to-Pay Adjustment
programs, the Legislature most likely would need to phase in this
funding over a several-year period. To give the administration
direction in budget development, we recommend the Legislature
enact a timetable for this program implementation and specify
whether it wishes to use Proposition 98 or non-Proposition 98
funds for this purpose.
CONCLUSION
In recent years, the Legislature and Governor have devoted considerable
attention to improving K-12 education. For any education program
to realize its potential, however, students and teachers require
adequate facilities. The current state-district partnership does
not support the ongoing planning and development of needed school
facilities. As a result, about one out of three California students
attend overcrowded schools or schools needing modernization or
replacement.
Given the problems in California's approach to financing school
construction, we recommend the Legislature not respond to these
facility needs by continuing to do "more of the same."
Instead of placing more school bonds on the state ballot and allocating
funds on a project-specific basis, we recommend the Legislature
develop a new blue-print for assisting school facilities finance.
In our view, this new blueprint should offer all school districts
the practical capacity to build and modernize school facilities
on an ongoing basis and focus accountability on districts for
results.
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