HB 533, establishing a cap on school building aid

Docket

DNHPE Comment: This bill would make a very small amount available for building aid, several million dollars per year for the next several years.


SPONSORS: Rep. Ladd, Graf 5; Rep. Boehm, Hills 27; Rep. Jasper, Hills 27; Rep. Fleck, Carr 5

COMMITTEE: Special Committee on Education Funding Reform

AMENDED ANALYSIS
This bill revises the calculation and distribution of school building aid grants

FISCAL IMPACT:

The Department of Education states this bill, as amended by the House (Amendment #2011-2801h), may decrease state expenditures and local revenue by $2,296,655 in FY 2015, and $4,906,655 in FY 2016, and decrease local expenditures by an indeterminable amount in FY 2014 and each year thereafter. There is no fiscal impact on state or county revenue, or county expenditures.

METHODOLOGY:

The Department of Education states this bill caps the annual amount of school building aid paid by the state to local school districts at $50,000,000, and also changes the methodology by which these aid payments are made. The Department states the budgeted amount for the school building aid program in FY 2013 is $47,076,655, and it estimates the eligible amount of aid under the program to increase annually by approximately $2,610,000, the average increase during the years 2001 through 2010. As a result, the Department estimates the cap will have no effect on the program in FY 2014, as it projects school building aid spending of $49,686,655 ($47,076,655 FY 2013 budget + $2,610,000 average increase). However, the Department estimates the cap may decrease aid under the program by $2,296,655 (($49,686,655 + $2,610,000) – $50,000,000) in FY 2015, and by $4,906,655 (($49,686,655 + $2,610,000 + $2,610,000) – $50,000,000) in FY 2016, resulting in decreases of those amounts in state spending and local revenue.

The Department also states the changes to the manner in which school building aid payments are made are significant, although the net impact of those changes is zero. The Department states this bill would now require school building aid grants to be paid to local school districts as a lump sum amount at the beginning of each project, as opposed to the method in current law which pays the grant annually over the term of the project financing. By receiving school building aid payments as a lump sum at the project beginning, the Department assumes local school districts will be required to borrow a smaller amount, which in turn will result in a decrease in local debt service expenditures of an indeterminable amount. The Department states the amount made available by this bill for new projects, approved for the program after July 1, 2013, will be equal to the $50,000,000 cap less the payments on old projects, those approved for the program before FY 2011. The Department states as time goes on, the amount available for new projects increases as the so-called ‘tail’ on old projects is extinguished. The Department estimates the amount available for new projects as follows:

Tail Payments Amount for

Fiscal Year Cap Amount for Old Projects New Projects

FY 2014 $50,000,000 ($43,593,773) $6,406,227

FY 2015 $50,000,000 ($42,174,416) $7,825,584

FY 2016 $50,000,000 ($39,589,383) $10,410,617

FY 2017 $50,000,000 ($35,096,242) $14,903,758

FY 2018 $50,000,000 ($33,521,192) $16,478,808

The Department states, because of the lump sum nature of this bill’s changes, the number of school districts receiving school building will decline substantially from the current number of roughly 20 projects, especially in the next few years as the bulk of funding will go towards ‘tail’ payments.

The Department states the average amount of new construction approved annually by school districts in the four years before the moratorium was put into place was about $100,000,000. At the grant program rate of 30%, the Department estimates a state portion of $30,000,000. Due to ‘tail’ payments, the Department estimates that $30,000,000 of state funding for new projects in the program would not be available until at least FY 2024, and by that time the Department also assumes inflation will have driven construction costs significantly above $100,000,000. The Department states this potential shortfall in state funding may force school districts to increase the share of local funds used, or defer projects until state funding is available, which the Department states may increase safety risks and lead to more costly repairs. The Department states this bill eliminates the incentive for construction of high performance schools, which typically cost 2% more than standard construction to build but could also see a reduction of annual operating costs by as much as 25%.