Funding Building Projects in a Tough Economy

Funding Building Projects in a Tough Economy

Hidden money will help you construct and maintain your buildings.

The federal government last formally assessed the state of the nation’s schools in the 1999 report “Condition of America’s Public Schools,” which estimated that it would take $127 billion to bring our nation’s schools to “good condition.” The American Society of Civil Engineers (ASCE) issued its own report card the same year. In “The Report Card for America’s Infrastructure,” the ASCE gave schools a D grade and estimated an even greater dollar amount ($322 billion) was needed over five years to bring schools into good condition.

Funding these needs remains a huge challenge, and a policy statement ASCE adopted in 1999 has evolved and is a focus in the organization’s 2011-2012 priorities. The statement includes a concern that the nation would continue to struggle in the 21st century to make students competitive: “The neglect of public school buildings and their inability to support 21st century education erodes our society’s ability to compete globally. Quality education is essential for the continued competitiveness and viability of our nation. Modern school facilities that meet modern safety standards and the evolving needs of a burgeoning school population are essential. … Designing, constructing and retrofitting school buildings and their infrastructure to meet or exceed the latest building codes and standards and to specifically address local hazards is the best way to assure that continuity of operation.”

ASCE also encourages creative financing options such as lease financing, where the facility is privately owned, and public-private partnerships, which can provide a combination of financing, ownership and use arrangements to facilitate construction. ASCE also supports federal programs to reduce school bond interest rates.

Data compiled by the 21st Century School Fund and its Building Education Success Together (BEST) partners in 2011 suggests that districts have an estimated $271 billion (averaging $4,883 per student) of deferred building and grounds maintenance in their schools. In 2010, in fact, 10 states reported a need for an average of $4,400 per student for deferred maintenance.

According to a 2011 report from the 21st Century School Fund and its BEST partners, districts spent $49 billion (or 10 percent of their operating budgets) on maintenance and operations and $9.4 billion on utilities in 2008. Districts also reported spending $59 billion for capital outlay on construction and land/building acquisition in 2008, with a reported $369 billion in long-term capital debt.

Primary Funding

While the primary funding source for school facilities has been local and state tax revenues, with some limited support from state and small federal initiatives, the methods for determining state support vary by state and are often political. The average state share of funds for capital projects between 2005 and 2008 was 30 percent, but 11 states contributed no funds for school facility projects, and three states and the District of Columbia funded 100 percent of these costs.

Thanks to the American Recovery and Reinvestment Act (ARRA) of 2009, districts received additional federal funding for instructional facilities improvement. According to the 2011 expenditure estimate, $89.6 billion of ARRA dollars made their way into education. Funds for capital improvements were disbursed primarily through the State Fiscal Stabilization Fund (SFSF). Nearly $54 billion in SFSF funds were used to support modernizing, renovating and repairing school and college facilities, and to retain teachers and impact student achievement in part by improving teacher effectiveness and establishing college and career data systems that track progress.

Governors applied for these funds at the state level and, of the $48.6 billion that went to state governors, 18 percent of the state award went to support education (including school modernization renovation and repair), public safety and other government services. Out of each state’s allocation, 82 percent of the funds was reserved for the education block grant which had to be spent in certain ways and of which a portion stayed at the local level focused on education. Governors had discretion about how these funds were allocated. Of the $48.6 billion that went to state governors, only about $26 million went to public school facilities improvements.

Hidden Public Funds

There is some uncertainty about finding funding today. However, some less well-known sources exist, such as Local School Construction Bonds and Qualified Zone Academy Bonds. Local School Construction Bonds are typically used to finance a building or capital project. Public school districts use them to construct new facilities or renovate existing buildings, for example. The laws governing construction bonds vary by state and locality, as do the amounts of the bonds. The National Clearinghouse for Educational Facilities offers listings of bond issues.

Qualified Zone Academy Bonds (QZABs) can also be used for renovating school buildings. Established in 1997, QZABs are administered by the Internal Revenue Service as a provision of the tax code. These bonds provide interest savings (0 percent for 15 years) for financing school renovations and repairs but cannot be used for new construction. The annual appropriation for the QZAB program is $400 million. A state’s allocation is based on its population under the poverty line.

The money can only be used for qualifying schools, which are those where 35 percent or more students are eligible for free or reduced-price meals or those that are located in an Enterprise Community or Empowerment Zone based on poverty. A list of Empowerment Zones and Enterprise Communities is available on the QZAB site at www.qzab.org. Local education agencies (LEAs) are required to secure a 10 percent private-entity partner contribution in cash or in-kind services and to have a district-approved plan to ensure equity in what standards are used and how students are assessed. Districts apply to their state for the funds.

Federal Funds

Although the U.S. Department of Education plays a small and somewhat informal role in addressing the needs of school facilities, there are some dedicated funding programs that may help meet facility improvement needs. Funds for modernization, emergency repairs, new construction and maintenance are available through the Impact Aid Discretionary Construction Grant Program and the Impact Aid Facilities Maintenance Program. Impact Aid services students who reside on Indian lands or federal property. Many local districts include within their boundaries parcels of land that are owned by the federal government or that have been removed from the local tax roll by the federal government, including Indian lands.

The Impact Aid Discretionary Construction Grant Program provided an estimated $17.5 million in 2011. And 40 percent of these funds are set aside for districts receiving Basic Impact Aid Support payments every year. The other 60 percent are awarded competitively to cover emergency repairs or modernization costs to districts. A grant cannot exceed half the cost of the project for which it was awarded.

Impact Aid Facilities Maintenance grants help maintain school facilities operated by LEAs that serve military installations. There is no application form, as project needs are determined through LEAs. In 2009, the latest year for which figures are available, $1.2 million was awarded.

Several programs are available to plan, design and implement charter schools, such as the Credit Enhancement for Charter School Facilities Program ($10 million in FY 2011) and the State Charter School Incentive Grants Program ($15 million in FY 2009, $15 million in 2010 and $13 million in 2011). Information about the next competition will be posted on the DOE’s Web site when available.

Funding may come through yet other federal agencies, as well. For example, a dedicated fund for kitchen improvement, the Equipment Assistance Grants for School Food Authorities, can be found through the Department of Agriculture. This funding provided $100 million to public school facilities in 2009.

The Department of the Interior, which is responsible for protecting America’s natural resources and heritage, has the Bureau of Indian Affairs—Elementary and Secondary School Construction fund, which is responsible for constructing, improving and repairing education buildings on Indian lands. In FY 2009, this fund provided $129 million in regular funds to schools. The Department of Defense offers the Military Construction Program, which provides construction resources for DOD-operated schools on military bases around the world. A future funding plan was announced in 2010 to address $3.7 billion in construction needs for schools on military bases.

Other federal programs may allow funding for school facilities, even though their programs are not specifically dedicated to school facility improvement. The Department of Health and Human Services’ Head Start program includes grants that can be used for purchasing, renovating and constructing facilities. In FY 2009, the program put $7 billion of potential resources into public schools. The Energy Department’s State Energy Program grants provided $39 million in funds in 2011 through formula grants. Formula and competitive grants focus on energy efficiency. Districts apply to the state for competitive grant funding.

Creative Funding

Administrators can be creative. For example, the State Energy Program Grants can be used for purchasing and installing equipment and materials for energy-efficiency measures and renewable energy measures, including design costs. The Federal Emergency Management Agency’s (FEMA) Public Assistance Program Grants for districts help to reconstruct and repair school facilities damaged or obliterated by a disaster. In FY 2009, $263 million flowed into public education facilities through FEMA’s grants. School districts can apply through FEMA directly.

FEMA provided $3 billion to public school facilities between 1998 and 2010, which included $2 billion to schools in Louisiana following Hurricane Katrina. FEMA is now assisting schools on the East Coast devastated by Hurricane Irene, as well as others across the nation affected by floods and natural disasters.

The Department of Agriculture has a small Rural Community Facilities Program to help rural communities improve their facilities. It is not specifically designated for schools, but is an allowable program for districts. The program’s grants, along with its direct and guaranteed loans, are available in areas up to 20,000 in population. The amount of assistance available depends upon the median household income and community population. Applications are filed with the USDA Rural Development field offices in each state. Together, these federal grant programs, including FEMA, the departments of Interior and Agriculture, Head Start, and Impact Aid programs, provided a combined $7 billion to public school facilities in 2009-2010.

Competitive Grants

Finally, competitive grant funds are an ongoing and exciting potential source of revenue. These funds can come from federal or state agencies or from private grants awarded by community and corporate foundations. (Foundation funding is often localized, with a foundation awarding funds to schools within its community or served by its company.)

Monitoring grant opportunities to identify those that will allow capital projects can lead to other sources of funding for renovations, repairs and modernization improvements. Federal grant opportunities are posted on the grants.gov Web site, and information about funding releases and priorities are made available from the Department of Education at www.ed.gov. Enlisting the services of school funding experts, such as RedRock Reports, the Foundation Center and Education TURNKEY Systems, can ensure that relevant funding opportunities are not missed.

In the Green

On top of typical renovations and building programs, there are funding possibilities for energy efficiency and renewable energy projects.

Secretary of Education Arne Duncan spoke in February at the Green Schools National Network Conference in Colorado to discuss the growing importance of recognizing green schools, environmental literacy and educating students about environmental stewardship and sustainabiliy. Research shows that schools that implement energy-saving strategies—from following green building design to using energy-efficient building components to encouraging behavioral change—can reduce energy use by as much as one-third, resulting in major environmental benefits and cost savings. This will reduce subsequent operating costs and thereby offset the investment in the capital project. Additionally, as districts turn to local bonds as a potential funding source, environmentally friendly repairs and renovations may be ones that voters will support.

In addition to the aforementioned State Energy Program Grants, the Department of Energy has several programs to support energy-efficient school facilities. The Energy Efficiency and Conservation Block Program provides formula-based block grants based on population to states, U.S. territories, large cities, counties and Indian tribes within the United States. These funds are dedicated to energy-efficiency and conservation projects and programs.

The Tribal Energy Program supports projects dedicated to energy efficiency and conservation for federally recognized Native American tribal governments. From 2002 to 2008, more than $16.5 million was provided by the Department of Energy for 93 tribal energy projects.

The Environmental Protection Agency addresses environmental concerns in buildings through the Brownfields Program, which is focused on preventing, assessing, safely cleaning and sustainably reusing brownfields. A brownfield is a former industrial or commercial site that has suffered potential environmental contamination. School districts are eligible to apply for funding from the EPA through three programs: the Area-Wide Planning Pilot Program, the Assessment Grants Program, and the Clean Up Grants Program. With some ingenuity, each of these funds may be used creatively by combining it with other funds and developing multifaceted projects of which capital improvements are a part. Information is at epa.gov.

In addition to government sources, many private foundations and corporations support the green movement and may be willing to support facility needs. The EPA’s Web site includes information on such funding (www.epa.gov/greenbuilding/tools/funding.htm).

Persistence Will Pay Off

As you work to find resources to strengthen the buildings that support your students, remember that the money is out there. Just start hammering away until you find the sources that will work for you.

Paula Love is vice president for research and funding at RedRock Reports. Kathy Krapf, director of custom consulting at RedRock Reports, contributed to this article.


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