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Financing Educational Facilities

School Finance: A Policy Perspective, 4e

Chapter 5

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Financing Facilities

• Fundamental difference is long term perspective (in what is generally a short term leadership environment)

• To this point our focus has been on current expenditures (operational budget)

• For facilities there is good reason to finance them over a longer period of time (capital expenditures or asset protection)

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The Link with Adequacy

• Recent school finance adequacy court rulings have included facilities as part of an adequate educational program – Comprehensive Approach: Facilities are part

of providing adequate educational programs and must be updated

– Focused Approach: Focus on facilities as way to generate court ruling on adequacy of funding system

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The Condition of School Facilities

• Lack of good data (RI regs now require asset protection assessment and plan)

• Few clear standards on “adequate” school facilities

• Accounting for deferred maintenance is not well defined (RI Bldg Regs require % of budget devoted to “maintenance”)

• Limited understanding of the costs to upgrade or replace facilities

Savage Inequalities (Kozol 1992)

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The Condition of School Facilities

• NCES (Lewis et al., 2000)– One-quarter of campuses had at least one inadequate

building in 1999• GAO (2000)

– Increases in facility spending in the 1990s• NEA (2000)

– Estimated modernization costs $321.9 billion• $268.2 billion for school infrastructure • $ 53.7 for technology (not computers- but rather the

infrastructure to support wide range of telecommunications and technology)

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The Condition of School FacilitiesNCES

• Did not find substantial differences in conditions of school buildings related to characteristics such as instructional level, enrollment, or location in city suburb or rural

• Did find that schools with more than 70% FRL more likely to have buildings in less than adequate condition

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Court Rulings

• Arizona – Roosevelt Elem Sch v. Bishop

• Ohio - DeRolph v. State

• Wyoming – Campbell County Sch Dist v. State

• Arkansas – Lakeview v. Huckabee

• California – Williams v. California

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Court Rulings

• Arizona – Ct. required state to implement program to assist districts to finance facilities

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Court Rulings

• California – plaintiffs alleged deteriorating and unsanitary facilities were proof that funding was inadequate

• State counter-suit alleged plenty of $$ but mismanagement at local level

• Consent Agreement state provided $ 1 B for infrastructure improvements

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Court Rulings

• Ohio - DeRolph v. State• Wyoming – Campbell County Sch Dist v.

State (rated condition of every school in state index 1-100 $990 M)

• Arkansas – Lakeview v. Huckabee

• Courts ruled facilities are essential component of adequacy test

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Six Components of School Infrastructure Needs (NEA)

• New construction (replacement and enrollment growth)

• Deferred maintenance (pay now for what wasn’t done before)

• Renovation (modernizing dated facilities)• Retrofitting (using for different purposes)• Additions • Major improvements to grounds

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Approaches to Financing Facilities

• General Obligation Bonds – “Borrow” funds from investors and repay over

a longer term – generally 20 years • Interest is tax free to investors reducing the cost to

borrower districts

• Equity issue due to variation in property wealth of school districts

– Most states require voter approval

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State Assistance for School Facilities

• Flat Grants • Equalization aid

– Long term impact and commitment creates funding difficulties • Basic support • Full state support • Other options

– Lease purchase agreements – Leases – Rental of school space – Local option sales taxes – Developer fees – Sinking funds

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Other Issues that Impact Facility Financing

• Voter Approval– Bonds typically require voter approval

• Debt Limits

• Other jurisdictions that actually issue the bonds and/or pay for facilities

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Impact of Facilities on Student Performance

• Early research seemed to find a relationship – The research was generally poorly done

• Recent findings from Wyoming suggest little or no relationship between facility quality and student performance

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Summary

• Facility funding is an important, but different component of school finance due to the long term nature of the funding need

• Recent school finance adequacy cases have included the condition of school facilities as a component of adequacy

• There are potential equity concerns with traditional approaches to facility funding

• The potential cost of providing equalization aid for facilities is high

• The link between quality facilities and student performance is not clear, although all students should be able to attend safe, clean schools