Special Report
Federal

Facilities Bonds Prove Hot Item Under Stimulus

By Alyson Klein — October 06, 2009 6 min read
  • Save to favorites
  • Print

Construction bonding authority—a technical, and often obscure, source of capital funding for school districts—has emerged as a hot ticket for those looking to finance school facilities work under the federal government’s economic-stimulus program.

With little stimulus money expected to be left for construction after states make up for recession-driven budget cuts, districts are scrambling for some $24 billion or more in zero- or low-interest bonds under the $787 billion American Recovery and Reinvestment Act.

“This is a once-in-a-lifetime deal,” said Judy Marks, the associate director of the National Clearinghouse for Educational Facilities, based in Washington. Not only are bonds available, she said, “the cost of construction materials is down, the cost of labor is down, a lot of contractors who would be busy bidding for [office buildings and other projects] are competing for school construction.”

One result: stiff competition in some places for a new program created under the stimulus law—Qualified School Construction Bonds—that can be used to build, upgrade, or repair school facilities.

Bricks and Mortar

Congress included aid for school facilities in the American Recovery and Reinvestment Act, including:

Qualified School Construction Bonds:$22 billion for rehabilitation or repair of public school facilities. Investors who buy these bonds, new under the stimulus program, receive tax credits worth 100 percent of the interest, allowing state and local governments to obtain interest-free financing.
Qualified Zone Academy Bonds: $2 billion for rehabilitation and repair of public school facilities. This existing program, known as QZAB, includes noninterest-bearing loans for schools and districts with a large proportion of low-income students.

Congress is considering legislation that would create a federal grant program for school facilities. Bills include:

Student Aid and Fiscal Responsibility Act: By overhauling the student-loan system, proponents of the bill say they have freed up more than $4 billion for school facilities. The bill has passed the House, and a version is expected in the Senate.
Fiscal Year 2010 Spending Bill: The Senate version includes $700 million for a school facilities grant program

SOURCE: National Clearinghouse for Educational Facilities; House Education and Labor Committee; Senate Appropriations Committee

In California, school districts applied for QSCB tax credits to cover $3.7 billion in projects, even though the state got to allocate just $700 million in construction bonding authority under the stimulus law for this fiscal year. The state decided to hold a lottery to determine which districts should get the funding.

Tennessee received funding authority for $121 million in projects under that same program, but it got applications for around $305 million worth, leaving some districts out of luck.

The 5,300-student Loudon County, Tenn., school system, for example, had hoped to use the bonding authority to help finance a number of projects, including the construction of a new middle school. At the current middle school, some classes are being held in locker rooms and other less-than-ideal spaces, said Jason Vance, the district’s assistant director of schools.

The funding “would have gone a long way” toward helping with those projects, Mr. Vance said. “We were ready to stick a shovel in the ground.” He said the district would apply again, if the opportunity presented itself.

Tennessee’s 5,000-student Maryville city school system, near Knoxville, was more fortunate. The district will use the $20.4 million in bond proceeds to build a new intermediate school, serving students in the 4th through 6th grades. That project had been stalled because the district couldn’t afford the interest rate on traditional bonds.

“We don’t know how much longer it would have sat there, just because of the way the economy is,” said Stephanie Thompson, the district’s director of schools.

Funding Sources

Funding for school facilities was a major flash point in congressional negotiations last winter over the stimulus law, which includes about $100 billion in aid for education. Opponents feared that the inclusion of money for construction would set a precedent for federal spending in an area typically left to states and districts. (“Congress Revisits Construction Tiff,” Feb. 25, 2009.)

In the end, a compromise allowed states and districts to use any money left over from the $39.5 billion State Fiscal Stabilization Fund to finance school modernization and repair.

But states’ still-dire fiscal circumstances have made it difficult for them to take advantage of that option, since most of that direct aid has gone to plug budget holes and make up for personnel and program cuts.

According to an Education Week review of stabilization-fund applications, 31 states reported they will have leftover money once all cuts to K-12 and higher education have been backfilled in the 2009 and 2010 budget years.

Not all the state fiscal-stabilization money has flowed yet, so more states may choose to use a portion of the second round of funding, to be allocated later this year, for facilities. But the projected $5 billion in leftover cash would amount to only about 14 percent of the total in the stabilization fund set aside specifically for K-12 and higher education.

In addition, just three states—Arkansas, Oklahoma, and West Virginia—were able to use a portion of a separate, $8.8 billion Government Services Fund in the stimulus program for school modernization and repair, according to the Washington-based 21st Century School Fund and the Education Week analysis. The three states plan to spend just $24 million in all on facilities.

Faced with a limited pool of direct stimulus funding for facilities, states and districts have seized on the bonding programs that were created or expanded with little fanfare in the stimulus law.

Most significantly, the ARRA created the $22 billion QSCB program, which gives bondholders tax breaks on the bonds, allowing them to offer them to schools interest-free.

Congress also expanded the existing Qualified Zone Academy Bond program, which permits states to borrow money for school repairs, with the interest paid by the federal government through a tax credit to bondholders. The national limit for those bonds was increased to $1.4 billion each in fiscal 2009 and fiscal 2010, which began Oct. 1.

Challenges Remain

Despite the high demand for those programs, some school districts, particularly those in areas hit hard by the recession, have had a tough time convincing voters to approve bonding projects, said Mary Filardo, the executive director of the 21st Century Schools Fund, a nonprofit research and advocacy organization.

“The really poor districts are saying, ‘We don’t even have the money to pay back the principal,’ ” she said.

In part to help head off that potential problem, West Virginia, which received nearly $80 million in bonding authority under the federal program in fiscal 2009, decided to administer the bonds at the state level. Unlike districts, in West Virginia, the state doesn’t need voter approval to issue bonds.

“We get the money; we just give it [out],” said Mark A. Manchin, the executive director of the state’s school building authority.

So far, West Virginia has been able to fix 17 of its leakiest roofs and replace 15 HVAC systems. The state also plans to build at least one new school with the help of the bonds.

School construction advocates also are holding out hope that reluctance to provide direct federal funding for K-12 facilities work.

Bills Pending

A longtime champion of such funding, Sen. Tom Harkin, D-Iowa, recently became the chairman of the Senate, Health, Education, Labor, and Pensions Committee. He already chairs the Senate appropriations subcommittee that oversees education spending.

Sen. Harkin has included $700 million in mandatory funding for a school modernization grant program in the fiscal 2010 education appropriations bill, which is working its way through Congress.

Rep. George Miller, D-Calif. , the chairman of the House Educationand Labor Committee, included more than $4 billion over two years in new, mandatory funding for school facilities in a broader measure overhauling the federal student-lending program that was approved by the House of Representatives last month.

Sen. Harkin is planning to include at least some funding for school facilities in the Senate’s version of the legislation, which has yet to be introduced.

Assistant Editor Michele McNeil contributed to this story.

Coverage of the American Recovery and Reinvestment Act is supported in part by grants from the William and Flora Hewlett Foundation, at www.hewlett.org, and the Charles Stewart Mott Foundation, at www.mott.org.
A version of this article appeared in the October 07, 2009 edition of Education Week as Facilities Bonds Prove Hot Item Under Stimulus

Events

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Student Well-Being Webinar
Attend to the Whole Child: Non-Academic Factors within MTSS
Learn strategies for proactively identifying and addressing non-academic barriers to student success within an MTSS framework.
Content provided by Renaissance
Classroom Technology K-12 Essentials Forum How to Teach Digital & Media Literacy in the Age of AI
Join this free event to dig into crucial questions about how to help students build a foundation of digital literacy.

EdWeek Top School Jobs

Teacher Jobs
Search over ten thousand teaching jobs nationwide — elementary, middle, high school and more.
View Jobs
Principal Jobs
Find hundreds of jobs for principals, assistant principals, and other school leadership roles.
View Jobs
Administrator Jobs
Over a thousand district-level jobs: superintendents, directors, more.
View Jobs
Support Staff Jobs
Search thousands of jobs, from paraprofessionals to counselors and more.
View Jobs

Read Next

Federal Biden Drops Out of Race and Endorses Kamala Harris to Lead the Democratic Ticket
The president's endorsement of Harris makes the vice president the most likely nominee for the Democrats.
3 min read
President Joe Biden speaks at a news conference July 11, 2024, on the final day of the NATO summit in Washington.
President Joe Biden speaks at a news conference July 11, 2024, on the final day of the NATO summit in Washington. He announced Sunday that he was dropping out of the 2024 presidential race and endorsing Vice President Kamala Harris as his replacement for the Democratic nomination.
Jacquelyn Martin/AP
Federal What We Know About Kamala Harris' K-12 Record, and Other Potential Biden Replacements
Harris is the frontrunner for the top of the ticket. A look at her record on K-12, along with those of other Democratic contenders.
8 min read
Vice President Kamala Harris embraces President Joe Biden after a speech on healthcare in Raleigh, N.C., March. 26, 2024. President Joe Biden dropped out of the 2024 race for the White House on Sunday, July 21, ending his bid for reelection following a disastrous debate with Donald Trump that raised doubts about his fitness for office just four months before the election.
Vice President Kamala Harris embraces President Joe Biden after a speech on health care in Raleigh, N.C., on March 26, 2024. Biden on Sunday announced he wouldn't run for reelection and endorsed Harris as his replacement.
Matt Kelley/AP
Federal Opinion The Great Project 2025 Freakout
There's nothing especially scary in the Heritage Foundation's education agenda—nor is it a reliable gauge of another Trump administration.
6 min read
Man lurking behind the American flag, suspicion concept.
DigitalVision Vectors/Getty
Federal Data Is the Federal Agency That Tracks School Data Losing Steam?
A new study of U.S. data agencies finds serious capacity problems at the National Center for Education Statistics.
3 min read
Illustration of data bar charts and line graphs superimposed over a school crossing sign.
Vanessa Solis/Education Week and iStock/Getty images