Build and Repair Schools Now Talking Points

Transcription

1 Build and Repair Schools Now Talking Points The Coalition for Adequate School Housing (CASH) proposes that $3.0 billion in voter approved Proposition 51 state school bonds be sold in the fiscal year. The Governor has proposed only $640 million, which is less than the annual application backlog growth. There is a greater than $3.0 billion backlog in unprocessed applications to build and repair schools. Proposition 51 has more than $7.5 billion in unsold voter authorized bonds to fund that backlog and the new applications that are being submitted. With current staffing, the Office of Public School Construction (OPSC) has shown they can process the applications to meet the amount of available state school bond funds. At one time OPSC could process $300 million to $400 million per month in applications. The CASH proposal is only $250 million per month. Adding another $2.36 million (which when added to the proposed $640 million results in $3.0 billion) in Proposition 51 school bond sales would only increase the K 12 state school bond debt service by $20 million in the fiscal year, if an additional $1.0 billion was added to the Fall bond sale and the remainder added to the Spring 2019 bond sale. The Governor s $640 million would only fund applications submitted before October Everything submitted alter that would have to wait until Fall 2019 MORE THAN 5 YEARS AFTER THE COMPLETED APPLICATIONS WERE SUBMITTED. The Coalition s proposal should fund applications submitted through Summer Because of selling $2.36 billion more in voter approved Proposition 51 bonds, the State General Fund revenues in should increase more than $20 million (in fact, by our estimates General Fund revenues increase by more than $150 million). This is because school construction projects are shovel ready projects. Contracts have to be completed within 120 days of receiving state funding authorization. School construction creates high paying construction jobs and each $1.0 billion in construction creates at least 13,000 jobs. The Governor s budget only supports the sale of $640 million of state school bonds in FY ; or enough to cover 20% of these shovel ready projects and 9% of K 12 facility construction authorized by voters in The State s obligation to schools is embedded in the Constitution, which states that students shall have equal access to safe, secure, and peaceful schools. [California Constitution, Article 1, Section 28 (f)]. New facilities are desperately needed in districts with population growth and existing school facilities that are aged require updates and repairs to ensure the health and safety of students. Even in districts without population growth, schools need to build CTE facilities and labs to provide students alternative pathways to future careers. 02/12/2018 Page 1 of 6

2 CASH s Ask of Legislature Sell an additional $2.36 billion in K 12 school bonds in , in addition to the budget proposal s $640 million. Include budget language to require at least $3.0 billion in projects be processed for State Allocation Board (SAB) apportionment in CASH s Ask of the State Allocation Board Direct OPSC to process all complete applications received by July 1, 2018 no later than December 31, 2018 and all complete applications submitted after July 1, 2018 no later than 90 days after submittal. Direct OPSC to have six Priority in Funding (PIF) rounds per year to allow a smoother apportionment process. The SAB request Pooled Money Investment Board (PMIB) for loans under the current loan structure approved by voters in Proposition 51. The loans would be to bridge between apportionments and bond sales. The SAB direct OPSC to bring projects to the Board for apportionment after each PIF round. 02/12/2018 Page 2 of 6

3 CASH s Proposal for Changing Governor s Budget In addition to the Governor s proposed $640 million, add $2.36 billion in bond sales at a General Fund cost of $20 million in the fiscal year. Specific Increase Proposal 1. In October 2018 sell $1.0 billion more Proposition 51 bonds than proposed in Governor s Budget. Because state bond interest payments are every six months, the General Fund cost at 4.0% annual interest means payments of $20 million in April 2019 (six months after November 2018) and an additional $20 million in October 2019, which is in the fiscal year. 2. In April 2019, sell an additional $1.36 billion more than proposed by the Governor s Budget. General Fund cost of $27.2 million for first interest payment in October 2019 (in the fiscal year) and an additional $27.2 million in second interest payment in April 2020, also in the fiscal year. 02/12/2018 Page 3 of 6

4 Delaying Bond Fund Distribution Is Expensive, Inefficient If the state does not start authorizing more sales of bond funds for distribution in a timely manner, school districts will see construction costs and interest rates escalate. This, in turn, will diminish their purchasing value, forcing districts and taxpayers to pay more for less return. Currently, it is anticipated that the state will pay approximately 3.5% 4% per every $1 billion in bond sales annually. This translates into annual debt service of $35 40 million per every $1 billion of school facilities bonds sold out of a $179.5 billion budget. However, if school bond sales continue at this rate and interest rates rise, costs will increase. The table below demonstrates the escalating interest rate costs per $1 billion in unsold bonds, if bonds are sold later with higher interest rates compared to today s rates: Interest Rate Increases Cost per $1.0 Billion Cost per $2.0 Billion Cost per $6.0 Billion % interest rate $41 million $82 million $246 million % interest rate $82 million $162 million $492 million + 1.0% interest rate $162 million $324 million $972 million Construction costs typically escalate at a rate of 6 percent annually, which could result in school districts losing at least $60 million annually in purchasing value for every $1 billion in bonds that remain unsold. The table below demonstrates the cumulative loss of purchasing value per year for every $1 billion in unsold bond sales: Cumulative $1 billion in unsold bonds $2 billion in unsold bonds $6 billion in unsold bonds First Year Loss $60 million $120 million $360 million Second Year Loss $116.4 million $233.2 million $700.2 million Third Year Loss $169.4 million $338.8 million $1,016.4 million Based upon the above projections, if construction costs increase by 6% annually and interest rates increase by a rate of 1% annually, California taxpayers will pay nearly $1 billion more in interest costs for $1 billion less value in new school construction and existing classroom renovation. Further delaying the sale of school bonds will leave school districts in an impossible situation diverting funds away from educational programming to complete mission critical facility projects, or delaying or downsizing planned projects such as building new classrooms, fixing leaky roofs, upgrading old wiring and electrical systems, and/or retrofitting buildings with seismic safety and accessibility upgrades. This will force schools to pay more for less a burden that can be easily avoided by the Legislature and the Governor s administration by authorizing more robust bond sales in /12/2018 Page 4 of 6

5 Selling State School Bonds Selling voter approved state school bonds will create almost 13,000 California jobs for each $1 billion in school bonds sold and will increase State General Fund revenue during the fiscal year that a state school bond is sold. For the subsequent fiscal year, State General Fund revenue caused by the sale should be greater than the interest costs owed on the bond sold in the prior fiscal year. This almost immediate General Fund revenue increase occurs because current policy requires that school districts sign construction contracts within 90 days after apportionment. The money does not sit idle it is put to work creating needed jobs. To demonstrate State General Fund revenue effect when bonds are sold (using very broad numbers and assuming bonds are not redeemed in the first two years), the following is an outline of how State General Fund revenues should increase in the first twelve months after a state school bond sale: Assuming a $2 billion state school bond sale in , General Fund interest payments in the first fiscal year would be approximately $20 million if $1.0 billion were sold in fall 2018 and $1.0 billion sold in Spring If 30% of the bond proceeds ($600 million) are used to purchase building materials, then $600 million times the state sales tax share means $30 million would be for the State General Fund. If the remaining $1.4 billion is divided into 70% salary and 30% benefits, then $980 million is salary. At 5% California income tax (assumed average of marginal rates), the State General Fund revenue could be up to $50 million. If people use 10% of their salary to buy sales tax eligible products, then the state sales tax revenue is about $6 million. The combined material sales tax, income tax, and personal expenditures sales tax should be about $86 million, while first payment interest costs for a $2 billion bond sale should be about $20 million if they are sold under the usual sale structure. However, because the bond has a local match requirement there will be another $2 billion in local bond funded economic activity, doubling the state General Fund revenue from $86 million to $172 million. This is seven times the interest cost with a net $152 million for the General Fund. The second year has secondary economic effects, which will be less than the net $152 million state General Fund, but still more net income than the second year $40 million interest costs. CASH believes this analysis justifies the maximum possible sale of state school bonds to create jobs, generate State General Fund revenue, and avoid higher bond interest costs (increasing state taxpayer costs) and loss off construction purchasing power because of construction cost escalation. 02/12/2018 Page 5 of 6

6 Proposition 51 New Construction and Modernization Cash Flow Analysis Estimated Fund Release by Bond Sale October/April Bond Sales: $600,000, / / / / / / / / / / $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 0 Fund Release By: $60M July 2018 July 2019 July 2020 July 2021 New Construction July 22 July 23 Modernization July 24 Projected Projects July 25 July 26 July 27 Feb. 28 Total Bond Sales: $6 Billion Notes: 1. Based on funding lists published in the April 2017 SAB Agenda. 2. Assumes OPSC capacity to process at least annually. Assumes State s capacity to sell in bonds annually between April and October bond sales. 5. Assumes apportionments biannually at SAB Meetings in May and December. 6. Assumes fund release within 60 days of apportionment. 7. Assumes participation in PIF Funding process per SFP Regulation Sections and Estimated State Funding amount is as shown on SAB Acknowledged List, calculated based on grant amounts at time of submittal; subject to OPSC review. 02/12/2018 Prepared by School Facility Consultants Page 6 of 6 May 3, 2017