HD5 - HJR 105 Joint Subcommittee to Study the Level of the Commonwealth's Assistance to Localities Necessary for Developing Adequate K-12 School Infrastructure - Interim Report


Executive Summary:
Adopted by the 2004 Session of the General Assembly, HJR 105 establishes a two-year, 16-member joint subcommittee to "study the level of the Commonwealth's assistance to localities that is necessary for developing adequate K-12 school infrastructure." The joint subcommittee is to examine, among other things, (i) the physical and technical infrastructure needs of K-12 schools throughout the Commonwealth; (ii) availability of local funding sources to meet those needs; (iii) public-private partnerships that may be available to meet a portion of those needs; (iv) the priority of each of those needs; (v) the level of commitment by the Commonwealth needed and appropriate to supplement local efforts in meeting those needs; (vi) the level of the Commonwealth's debt capacity available over the next 10 years to assist with capital projects for K-12 schools; (vii) the appropriate bond structure, including issuer, type of debt obligation, period of time over which the debt should be issued, and potential revenue sources for repayment; and (viii) the method for prioritizing and distributing the proceeds thereof.

Electing Delegate Beverly Sherwood and Senator Harry Blevins as chairman and vice chairman, respectively, the joint subcommittee met twice in 2004. Reviewed at these meetings were a 2002 survey of school construction needs in Virginia, the use of Virginia's Public Public-Private Education Facilities and Infrastructure Act (PPEA) in Stafford County, Ohio's school construction model, and Virginia's Literary Fund and current school construction methodologies. Anticipating its second year of work, the joint subcommittee made no recommendations for the 2005 Session, but will file an interim report with the Governor and the General Assembly.
*******************************************************************************************************************************
Interim Report - Executive Summary
2/1/05

Authority and Study Objectives

Adopted by the 2004 Session of the General Assembly, HJR 105 establishes a two-year, 16-member joint subcommittee to "study the level of the Commonwealth's assistance to localities that is necessary for developing adequate K-12 school infrastructure." The joint subcommittee is to examine, among other things, (i) the physical and technical infrastructure needs of K-12 schools throughout the Commonwealth; (ii) availability of local funding sources to meet those needs; (iii) public-private partnerships that may be available to meet a portion of those needs; (iv) the priority of each of those needs; (v) the level of commitment by the Commonwealth needed and appropriate to supplement local efforts in meeting those needs; (vi) the level of the Commonwealth's debt capacity available over the next 10 years to assist with capital projects for K-12 schools; (vii) the appropriate bond structure, including issuer, type of debt obligation, period of time over which the debt should be issued, and potential revenue sources for repayment; and (viii) the method for prioritizing and distributing the proceeds thereof.

Electing Delegate Beverly Sherwood and Senator Harry Blevins as chairman and vice chairman, respectively, the joint subcommittee met twice in 2004. Reviewed at these meetings were a 2002 survey of school construction needs in Virginia, the use of Virginia's Public-Private Education Facilities and Infrastructure Act (PPEA) in Stafford County, Ohio's school construction model, and Virginia's Literary Fund and current school construction methodologies. Anticipating its second year of work, the joint subcommittee made no recommendations for the 2005 Session, but files this interim report with the Governor and the General Assembly.

School Construction Challenges Nationwide

Overcrowding and Aging. America's 91,380 public schools will likely face a plethora of maintenance, expansion, and construction challenges in the coming years. Reports of overcrowding, school building health and safety issues, and aging or deteriorating school infrastructure have captured news headlines and prompted state law- and policymakers to grapple with difficult fiscal, educational, and long-range planning issues. Further compounding school construction concerns are smaller class-size initiatives, stressed state and local budgets, and the infrastructure requirements of ever-evolving educational technology. America's public schools are also aging, with a nationwide average age of 42 years. About one-fourth of all public schools were built before 1950, and about half built between 1950 and 1969.

Deterioration and Disrepair. In 1995, one-third of all public school buildings required "extensive repair or replacement of one or more buildings." In 2003, the American Society of Civil Engineers found that "75% of our nation's school buildings remain inadequate to meet the needs of school children." "Building disrepair" may encompass features such as roofing, walls, and foundations; plumbing, sewage, and water systems; and environmental concerns, such as ventilation, heating and cooling, and lighting. The demands of modernization—whether accommodating educational technology or enhancing school security in a post-Columbine era—also figure prominently in school construction equation.

Impact on Education. The U.S. Department of Education has indicated that poorly maintained or deteriorating schools affect not only health and safety, but student academic performance as well. Student discipline and teacher morale may also suffer in neglected facilities. Other environmental factors—such as indoor air quality, temperature, lighting, and acoustics—also affect student and teacher performance.

Funding Constraints and Spiraling Construction Costs. While improper, deferred, or neglected maintenance may account for deterioration or disrepair of some school buildings, lack of funding and escalating construction costs may have deterred some school divisions in their maintenance and construction efforts. However, despite fiscal concerns, public school construction expenditures increased 39 percent nationwide between 1990 and 1997—a rate that outpaced a 12 percent increase in student enrollment during that period. The cost of new construction and additions to existing school facilities—rather than building, land, and equipment acquisitions—represented the greatest increase.

Responsibility for School Construction. While state and federal moneys may support public education programs, responsibility for constructing and maintaining public school facilities has traditionally and primarily rested with localities. In 2003, a record $29.2 billion was spent on public school construction and renovation, representing a four percent increase in the $28.1 billion expended in 2002; expenditures may reach $30.7 billion in 2006. Localities alone must foot this school construction bill in some states. Typically relying on local bond issues and property tax revenues for school construction, local governments may face particular challenges in times of fiscal stress or voter reluctance to support tax increases or bond referenda for school construction. Disparate property tax values and varying local effort have resulted in significant differences in the quality of school facilities. These disparities have prompted litigation in several states in recent years.

School Construction in the Commonwealth

As title to school property in the Commonwealth rests with the relevant local school board, so does primary responsibility for capital outlay and improvements. To support school construction, localities may pursue financing independently—perhaps through general obligation debt sold in public or private markets— or obtain assistance through the Literary Fund, the Virginia Retirement System, or the Virginia Public School Authority. In 1996, unmet school construction needs in Virginia stood at $2.2 billion, reflecting a 147 percent increase in only three years.

Lottery Proceeds. The 2004-2006 budget appropriates $145 million and $147.9 million in lottery proceeds each year directly to school divisions; at least 50 percent of these moneys must be expended on nonrecurring costs. The 2000 Session of the General Assembly authorized local governing bodies to establish escrow accounts from lottery proceeds designated for nonrecurring costs as described in the budget—school construction, additions, infrastructure, site acquisition, renovations, technology, and other expenditures related to modernizing classroom equipment, and debt service payments on school projects completed during the past 10 years. Although similar in concept to the School Construction Grants escrow accounts, these accounts must be clearly separate.

Maintenance Supplement. The 2001-02 Appropriation Act allotted $9.5 million for a maintenance supplement, calculated to fund a state share of $15 per pupil in average daily membership, to be matched by the locality on the basis of the composite index of local ability-to-pay. While the 1998 Session adopted legislation citing the maintenance supplement program, the 2002, 2003, and 2004 Appropriation Act did not include this initiative.

School Construction and Educational Technology Grants. The Virginia Public School Construction Grants Program provides grants for school nonrecurring costs such as construction, additions, infrastructure, site acquisitions, renovations, technology, escrow payments, and school safety equipment. Grants may also be used for debt service payments for projects completed within the past 10 years. A similar initiative, the Virginia Public School Educational Technology Grants Program, provides grants for educational technology, including infrastructure, software, and hardware acquisitions and replacement, and innovative programs to advance the effectiveness of educational technology.

Legislative Scrutiny and Recent Developments. The challenges of public school construction needs have not eluded the General Assembly, as numerous legislative studies have tackled the complex issue in recent years. In 1994, an 11-member select committee of the House Committee on Appropriations, the Senate Committee on Finance, and the Commission on Equity in Public Education recommended, and the 1995 Session restored, the maintenance supplement and increased the total Virginia Public School Authority outstanding debt issuance cap. The Commission on Educational Infrastructure recommended, and the 1997 Session of the General Assembly passed, legislation authorizing local school boards to create nonstock, nonprofit educational technology corporations to facilitate the implementation of public-private partnerships to enhance access to and the quality of educational technology.

The 1998 Session of the General Assembly linked car tax relief and school construction funding within the 1998-2000 biennial budget, providing approximately $533 million for these initiatives "pursuant to such legislation as may be adopted by the 1998 or subsequent sessions of the General Assembly." A special session resulted in legislation providing for personal property tax relief as well as detailing the distribution of funds through the Virginia Public School Construction Grants Program. In 2002, the General Assembly enacted the Public-Private Education Facilities and Infrastructure Act, authorizing private entities to "acquire, design, construct, improve, renovate, expand, equip, maintain or operate qualifying projects" upon approval by a public entity, such as a local school division, "that has the power to take such actions with respect to such projects."

Issues for Further Study

HJR 105 provides specific directives to the committee; the identification of the physical and technical infrastructure needs of K-12 schools throughout the Commonwealth will figure prominently in the committee's work, as will consideration of funding sources. In addressing a variety of complex fiscal and policy concerns, the committee may also wish to consider (i) preservation or renovation of existing facilities as well as new construction; (ii) the impact of education reforms on school facility design; and (iii) such other issues as it deems appropriate.