School facility needs and funding sources can be complicated
July 21, 2017
The following article was written by Rex Despain and Ken Reynolds with ACSA Partner4Purpose firm Isom Advisors, a Division of Urban Futures Inc., providing bond campaign strategy and financial planning to California schools.
The most common source of funding for school facility needs are local school bonds. However, to assist with the significant level of facility needs across the state and to make sure every school has a minimum level of funding for basic facility priorities, the State School Facility Program exists to provide funds based on various eligibility calculations.
With the passage of Proposition 51, the state will now be able to offer an additional $3 billion for new construction projects, $3 billion for modernization projects, $500 million for charter school facilities and $500 million for career technical education facilities. Although this is a significant amount of bond authorization, it is minor in comparison to the $28 billion in local bonds passed from 2014 to 2016 on the local school district ballots.
The ability of local school districts to qualify for state funding to augment their available local funds is an important component of the school facility funding process. In addition to providing additional funding, one of the important concepts is the fact that the funds from the state building program are “matching” funds that require local funds to be contributed to each project, except in specific situations in which the local community does not have adequate bonding authority.
This concept helps with the public campaigning process by letting the voters know they are not providing for 100 percent of the costs of the facility needs. In many cases, the state funding will average around 20 percent to 30 percent of the funding needed for the local facility program.
In addition to these bond funding sources, the other common source of funds for school facility projects is developer impact fees. There are two common levels of developer fees.
Level 1 fees are the most common and are applicable to both new residential construction and commercial/industrial construction occurring in the district. The fees are adjusted every two years by the State Allocation Board, and any increase is determined based on the inflation in school construction costs over the two-year period.
Level 2 fees are only applicable to new residential construction, and the amount is based on 50 percent of the facility needs to house the students generated by the residential construction. The revenues from developer fees were originally designed to fund up to 33 percent of the facility needs for new school projects with 33 percent from the state building program and another 33 percent from local bonds.
In reality, all three funding sources are needed to meet just a minimum level of facility needs in many districts. There are never enough funds for all the facility projects needed to keep up with the latest demands for the educational programs needed to provide a 21st century education, which is the goal in schools throughout the state.
To make up for the shortfall in facility funding, many districts have had to resort to using general fund contributions, LCAP funds for specific facility projects, and certificates of participation (COPs) to be paid over time with either developer fees or, ultimately, the general fund. Even with all these sources, districts are always on the lookout for other grants from state, federal and local agencies.
The facility needs are currently quite extensive in many districts. Although there is relatively little growth occurring within the state as a whole, there are areas that are experiencing growth and need new facilities. There are also times when one area of a district is growing, but it is not feasible to transport the students to school sites that have available space.
Another major factor in the need for new facilities is the significant number of older portables in our schools. Portables were a very common solution to housing student growth throughout the ’80s and ’90s. These portables are now 25 to 35 years old, and unfortunately, many of them are still being used. Many districts are building new schools and new buildings in order to replace the old portables. Many urban districts were able to use the state’s Overcrowding Relief Grant (ORG) program, which specifically targeted replacing portables with new permanent buildings on impacted sites.
Finally, there are many districts needing to replace their outdated permanent buildings. Many schools throughout the state are well over 50 years old and are either at the end of their useful life or may not meet the current design standards for today’s educational needs.
Besides the new construction projects just mentioned, every year the existing school buildings age. There is a continuing need to modernize and upgrade the existing school buildings to extend their useful life. The expense for facility modernization projects continues to escalate as construction costs increase and as building standards are changed.
Building codes are continuously updated, which impacts the costs to provide accessibility for disabled students and/or to install new equipment to meet the energy efficiency requirements for mechanical and electrical systems.
Restrooms are also a major expense when upgrading school facilities. Technology infrastructure has also been a challenge, especially in the older schools that are difficult to retrofit.
The need for facilities is even more challenging when considering the additional space needed to allow for community use of the schools and fields. Many times there are not any significant funds available from local community groups, and the state has not procured additional funds for joint-use projects since passage of the 2006 state bond.
More advocacy is needed to share the multitude of challenges currently faced by school facility departments throughout the state. The time will come when local school districts will reach their bonding capacity limits, as seen by the rate at which local bonds are being approved. When that time comes, a new plan for funding school facilities will be needed.
Until then, the best solution for meeting school facility needs will continue to be:
- Local general obligation bonds.
- State bond funding for those projects that qualify for matching funds.
- Use of developer fees, when available, to augment both new construction and modernization projects.
In our experience, the keys to a successful facility program include creating a facility master plan that is developed with community input. The final plan is then shared with the community, so they will understand the facility needs and priorities of the school district.
This plan then leads toward a successful bond campaign, which generates the local funds needed to provide a match for state funds to accomplish the projects in the master plan.
More information on Isom Advisors is available at www.isomadvisors.com.