Happy New Year
January Newsletter 2015

Latest News from SchoolWorks
State Budget Analysis

Happy New Year!  The first thing that happened this year was the announcement that the January SAB meeting is cancelled.  Then the Governor's Budget proposal was released.  I have been reviewing, digesting and trying to evaluate both what is in his proposal, those items missing from the proposal, and the overall impacts of the infrastructure plan.  Although there is generally a good message in the budget in terms of increased allocations for school budgets, there are several items that we need to discuss in terms of the future of funding for school facilities.

 

First, the budget does include a one-time allocation of $273 million to provide the final payment for the Emergency Repair Program (ERP).  So for all districts that have applied for funding and have been waiting for their allocations, those should happen in the 2015/16 fiscal year.  Of course this only covers projects that were received by the State within the original $800 million program budget.  If your project was one of the many that were turned in later, then you are still sitting on a listing beyond authority.  In this case, it looks like you will not be funded unless there is adequate savings from the projects that are being funded.

 

The State budget does not include a proposal for a school bond or for a general fund line item to fund the school facilities program or at least, not yet.  Instead, there is a proposal for a new vision for school facilities funding.  Historically, the costs have been shared between local bonds, developer fees and State bonds.  The new vision is to increase the local school's responsibility by increasing local bond capacities, increasing developer fees and for districts to set aside general fund moneys for facility projects.  Then, last of all, the State would create a modified facility program that would be a safety net for districts that could not meet their facility needs using local dollars.  This would be a competitive program unlike the current program which has been a first come, first served basis.  By competitive, we are talking about the projects determined to be the ones with the highest level of need would be funded first.  This would require a priority point system to see which projects would be funded first


 New District Facility Infrastructure Funding Vision

Local Bonds

The biggest component of the Governor's plan for school facilities relies on local bonds and proposes to increase the bonding capacities so even those districts that have reached their bonding capacity can still generate additional revenues.  The challenge to this concept will be resistance from Prop 13 advocates and, of course, concern over how much schools can charge before the voters become fatigued with approving school bonds.  From a statistical standpoint, this plan could work even in a district with a stable property tax basis.  The bonds could be passed every 25 to 30 years since that is the typical payoff period.  This would coincide with how often the district facilities need to be modernized or upgraded.  Of course, the bigger issue is whether or not the bonding capacity is adequate to cover facility needs, which is why a State program is needed for those that do not have the required resources.  For districts that are growing, there would also be a projected increase in bonding ability so the bond funds could also be used to help pay for new schools.   

Developer Fees

The biggest use of developer fees has been for new school facilities.  The Governor's plan would replace the current options of Level 1, 2 and 3 fees with a single system that would equate to somewhere between the Level 2 and Level 3 fees.  This would result in an increase in developer fees for all districts.  These fees would be in place to help cover the costs of new schools and additions to existing schools.  They would be augmented with school bonds to cover the costs due to growth.  Any shortfalls would then rely on the State Building Program for a safety net.  There is likely to be some resistance to this concept from the home builders as it would result in increased costs for new homes. 

District Facility Fund

This item is not much different from existing trends and patterns.  Many districts allocate a portion of the annual revenues towards maintenance, deferred maintenance and even modernization and new construction projects.  The challenge has always been how much is really needed in this category from the general fund versus how much should be coming from other sources like developer fees or bonds.  The Governor's main concept for this item is to remove any restrictions from the funds that are deposited so they can be used for any of a district's facility needs instead of just routine maintenance.  Districts would also be encouraged to use this fund for any shortfalls between their facility needs and the resources available from the local bonds and developer fees.

State Building Program

The State Building Program would likely be totally revised.  The Governor expects that over the next few months, a conversation would develop the details on how a new system could be created.  It would be a competitive program so those in more need would be funded first.  The safety net would exist to assist districts that have needs in excess of their local bonding capacity and developer fee revenues.  I anticipate the Governor would allocate an annual amount to this trimmed-down program, likely to be much less than $1 billion per year.  No funds have been designated yet.  An initial review of his January budget indicates the revenues for 2015/16 are likely to be higher than he has projected, so there could be additional funds available by the May revise which could be allocated to the Program.  My concerns would be whether the Program would be designed to provide funding to the districts that qualify in a timely basis. 

CASH
There is significant resistance to the new infrastructure vision already.  CASH has already begun an initiative to place a $9 billion State school bond on the November 2016 ballot.  This is in direct competition with the Governor as he would like a "pay as you go" system instead of using State bonds.  The State bond initiative will need 366,000 signatures by September in order to be considered for the ballot.

 

My biggest concern with the Governor's plan is the lack of any mention to the over $1 billion in projects which are in line for State funding.  The proposed changes do not provide a cash flow for the projects that are in line and may have been funded with loans that need State funding to be re-paid and also those projects that need State funding so they can be started.  The lack of any mention of these projects is a big concern and may be one of the key reasons for the State bond effort by CASH.

 

The next SAB meeting is scheduled for February 25th at which point we can see any reaction from the SAB members to the budget proposal. 

Final Note

Some significant planning is likely to be needed over the next year or two for school districts to make sure their facility needs are being met.  It will be important to understand your demographics and enrollment projections as well as the impact they have on your facility needs.  The facility funding situation is likely to change many times between what we know now and what the final solution will be.  We will do our best to keep you informed as we work with the State to develop ideas that will help facilitate implementation of a program that will be successful for our clients.  We will continue to recommend the filing of applications with OPSC until or unless other options are available.  At this time there are no other options available for districts with projects underway or in the planning stages. If you have any questions or concerns please contact me by 

e-mail or phone.  


 

SchoolWorks will be attending the

Superintendents Symposium in Monterey on January 28th and 29th.  If you plan to attend, please stop by to visit our booth and discuss any thoughts you have on these items.  It was great to see all those who stopped by to see us at the CSBA conference in San Francisco in December.

 

Ken Reynolds

President

SchoolWorks

   6815 Fair Oaks Blvd., #3 Carmichael, CA 95608   Ph: 916.733.0402

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