Use of State and District Construction Funds

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1 8 Use of State and District Construction Funds Through its long-range planning process, the district has met its facilities needs without issuing significant debt. To improve cost efficiency, however, the district should consider alternatives to new construction that could reduce costs. Conclusion The district properly uses state and local capital project funds to meet its construction and maintenance priorities but should aggressively pursue more costeffective options to meet facility needs. Historically, Martin County School District (MCSD) has operated its capital outlay program with state and local revenues without the need to issue significant debt. The district has been able to bring new facilities on line in a just-in-time fashion through the use of portable buildings and unfinished shell space. As the district enrollment has grown, new facilities have been built in response. The district has used a long-range planning process to develop and implement its construction program. Fiscal Impact of Recommendations The district could defer millions of dollars of new construction by changing attendance boundaries, grade configurations, timing of the school day, or by implementing year-round education. These options are used by other school districts to reduce facilities costs and should be considered by the Martin County School District and the citizens of Martin County. If the school district implements one or more of the above methods to improve capacity at the high schools and middle schools, approximately $55 million in construction costs projected over the next five years can be deferred. Because this is a potential deferral of construction costs, it is not included in the overall fiscal impact of this report. Background For the school year, Martin County School District has a budget of $45.97 million for maintenance and construction of school facilities. The district is reaching the end of the projects set out in the 1995 Educational Plant Survey and is in the process of developing a Gibson Consulting Group, Inc. 8-1

2 new five-year Education Plant Survey. It should be noted that the district has been developing five-year plans for facilities prior to the legislative requirement to do so. The district uses several documents to plan and report the use of construction funds. The Educational Plant Survey, which is required a minimum of every five years by the state, defines five-year facility needs based on state standards and state enrollment projections. This document is prepared with assistance by the State Office of Educational Facilities. The Five-Year Facilities Work Program is a comprehensive list of local construction projects for a five-year period that is updated annually and approved by the board. The district s current plan covers through The Project Priority List is a subset of the Facilities Work Program covering a single year that includes projects funded by certain sources of funds. Its purpose is to help ensure compliance with state established priorities. The Truth in Millage Advertisement List details projects that will be funded with a 2.0 mill property tax. The list satisfies a legal disclosure requirement. The Capital Budget is based on the first prospective year of the Facilities Work Program, plus or minus any adjustments approved by the board. Upon approval of the capital budget by the board, the district can assign project numbers to individual projects. During the past several years the district has focused on major maintenance and renovation projects in the absence of any significant new construction. For the coming five years the district plans to build an elementary school ($5.2 million), a middle school ($19 million) and a high school ($35.8 million). These school projects have not been approved by the state and will be considered during the update of the Education Plant Survey in Exhibit 8-1 Notable Accomplishment in the Use of State and Local Construction Funds Through the use of portable buildings and unfinished shell space, the district allows for enrollment at a campus to expand without overcrowding while new buildings are brought on-line. 8-2 Gibson Consulting Group, Inc.

3 1 The district properly uses state and local capital project funds to meet its construction and maintenance priorities, but should aggressively pursue more costeffective options to meet facility needs. The District Uses Capital Project Funds for Designated Purposes, but Should Improve Its Process for Analyzing Alternatives to New Construction The district's long-range planning process for new construction does not adequately consider alternatives before using construction funds. The district s Long-Range Planning Committee routinely considers the use of temporary buildings to meet temporary needs. When building new schools the district also constructs unfinished shell space to avoid major renovations when additional classrooms are needed. Currently, the district is evaluating a shared campus arrangement with Indian River Community College. All of these options lower the cost of new construction for the district. The abundance of capital project funds, however, has not pressed the district to seriously consider other alternatives to new construction, such as changing attendance zones, yearround education, revising the timing of the school day and grade configurations. These options, while more challenging from a community acceptance standpoint, provide opportunities to significantly avoid or defer the use of construction funds. This topic is also discussed in Chapter 9 of this report, page The District Uses Construction Funds According to the Designated Purpose of the Funds The director of Finance develops the capital outlay budget based on items in the Facilities Work Plan, which includes the priority list and the 2.0 mill levy projects as well as the district plant survey that details construction projects for a five-year period. Only projects that are approved by the board and set forth in one of these documents are included in the budget or assigned project numbers. The director of Finance assigns each construction project a unique project number and funds can only be released with an approved purchase order for that project. Using this method, all expenditures are tracked to ensure that they are in compliance with the designated purpose of the funds. Recommendation (See recommendation to consider alternatives to new construction in Chapter 9 Facilities Construction, page 34.) Gibson Consulting Group, Inc. 8-3

4 2 The district uses capital outlay funds for facilities construction projects and major maintenance and repair. However, it should limit capital project transfers to the Maintenance Department. The District Employs Procedures to Ensure that Educational Facilities Construction Funds Are Used Only for New Construction Renovation, Remodeling, or Upgrading Existing Facilities The district uses capital outlay funds for new construction, renovation, and to upgrade and maintain existing facilities. During the past five years the district completed a significant renovation program; for the next several years the district anticipates using the majority of capital outlay funds for the construction of three new schools. In the past the district transferred funds from capital outlay to the general fund to support facilities maintenance costs as allowed by law. For the school year, $1.5 million was transferred to support facilities maintenance costs. The district should determine staffing levels for ongoing maintenance needs and fund those needs through the operating budget. The Maintenance Department should be reimbursed for capital projects, but this reimbursement should not exceed 25% of the Maintenance Department budget. This percentage will ensure that sufficient Maintenance Department resources are dedicated to recurring maintenance activities. See related discussion in Chapter 10, page 21. The district s construction funds are expended only for capital outlay projects that have been approved by the district school bard. The district develops a Five-Year Facilities Work Program that is updated and approved annually by the board. Each year, district staff prepares a capital budget for expenditures planned for the following year. Projects cannot be assigned project numbers until the board approves the capital budget. As a part of the budget preparation process, the finance department conducts workshops for the board, including a workshop on capital outlay. The board is presented with and reviews all items in the district Facilities Work Program during the workshop. The District Uses a Variety of Methods to Determine Facility Needs The district uses state enrollment projections to develop the Educational Plant Survey submitted to the Department of Education, as required by law. The district uses the Florida Inventory of School Houses (FISH) data to determine a baseline estimate of facilities capacity. The district also prepares its own enrollment projections and completes spot surveys if facility needs are different from the Education Plant Survey. All spot surveys must be approved by the state. District staff indicated that the state estimate of total enrollment does not include certain special program students, such as pre-kindergarten, and some special education students. Martin County School District staff includes these students in estimates of enrollment for facilities planning purposes. Also, the district has historically grown faster than state projections. These factors have prompted the district to maintain their own enrollment projections and capacity estimates. 8-4 Gibson Consulting Group, Inc.

5 Recommendations Action Plan 8-1 Strategy The district should establish a target for capital project fund transfers to the general fund, not exceeding 25% of the Maintenance Department budget. Also see recommendation in Chapter 10 to monitor Maintenance Department resources dedicated to capital projects, page 23.) Action Needed Who Is Responsible School bard Time Frame September 1999 Recommendation 1 The district should establish a target for capital project fund transfers to the general fund, not exceeding 25% of the Maintenance Department budget Adopt policy for capital project fund transfers. Monitor percentage of time incurred by Maintenance Department on capital projects. 3 When designing and constructing new education facilities, the district incorporates factors to minimize the maintenance and operations requirements of the new facility. The District Identifies Equipment Standards for New Facilities, but Should Improve Its Analysis of Maintenance and Operating Costs The district follows the State Requirements for Educational Facilities, which contributes to operating efficiency by restricting size of spaces. The district also developed General, Mechanical, Electrical and Other Specifications that are applied in the construction of new schools. These standards were most recently updated in October The ten major categories of Equipment are covered by these standards. Heating, Venting and Air Conditioning (HVAC) Energy Management Pumps Chilled Water Lines Electrical Loads and Wiring Lighting Fire Alarm Intercom Television Sound Equipment Gibson Consulting Group, Inc. 8-5

6 Maintenance Department staff provide significant input into school design and equipment selection that is not reflected in the district s documented specifications. The district architect stated that the district uses acceptable industry standards and districtestablished maintenance standards when designing, constructing, equipping and furnishing new facilities to minimize maintenance and operations costs. Other than reports on chiller performance, the district does not have the information it needs to determine how effective these standards are in lowering facility operating and maintenance costs. The district is in the process of developing other operating and maintenance cost performance measures so that this information can be tracked and used. This issue is also discussed in Chapter 10, page 4 Facilities Maintenance. 4 The district uses, accounts for, and reports the use of educational facilities construction funds in a proper manner. The District Relies on Florida Statutes and State Requirements for Educational Facilities (SREF) to Define Educational Facilities Construction and Identifies Projects as Capital Outlay Before Expending Facilities Funds The district applies the following SREF definitions in its use of capital project funds: Educational Facility - Buildings and equipment, structures, and special educational use areas that are built, installed, or established to serve primarily the educational purposes and secondarily the social and recreational purposes of the community. Remodeling - The changing of existing facilities by rearrangement of space and/or of use. The use and occupancy of the spaces may be changed. Renovation - The rejuvenating or upgrading of existing facilities by installation or replacement of materials and equipment. The use and occupancy of the spaces remain the same. Maintenance and Repair - The upkeep of educational and ancillary plants including, but not limited to, roof or roofing replacement short of complete replacement of membrane or structure; repainting of interior or exterior surfaces; resurfacing of floors; repair or replacement of glass and hardware; repair or replacement of electrical and plumbing fixtures; repair of furniture and equipment; replacement of system equipment with equivalent items meeting current code requirements providing that the equipment does not place a greater demand on utilities, structural requirements are not increased, and the equipment does not adversely affect the function of life-safety systems; traffic control devices and signage; and repair or resurfacing of parking lots, roads, and walkways. Does not include new construction, remodeling, or renovation except as noted above. 8-6 Gibson Consulting Group, Inc.

7 In order to expend funds for a capital outlay project, that project must be on the boardapproved Facilities Work Program and included in the Capital Budget. See discussion of these planning documents in Chapter 9, page 14. The finance office does not release funds unless the projects have been approved. The finance office reviews all expenditures to ensure that they represent a capital project item. The finance department requires that all expenditures for capital outlay show the correct object code so that these can be properly tracked and reported. The Board Should Adopt a Policy Defining Educational Facilities Construction Funds and Their Use The district does not have a board policy describing educational facilities construction funds and their use. The Facilities Work Program provides a host of funding sources available for capital projects. Local Millage Public Education Capital Outlay (PECO) funds new construction PECO funds maintenance State capital outlay and debt service Capital Outlay Bond Issues (COBI) General obligation bonds Impact fees Fuel tax rebate Interest income on balances in capital projects fund Contingency reserves The Facilities Work Program distinguishes these line items in two categories - recurring and non-recurring sources of funds. Defining these sources in board policy would provide board members with necessary information regarding the nature of the funds and restrictions on their use. With the exception of transfers to the general fund allowed by law, the finance office has a process to ensure that capital outlay funds are spent only on approved capital outlay projects. The process by which the priority list and facilities work program are addressed in the Facilities Construction and Facilities Maintenance sections of this review. The School District Has a Unique Funding Source Code to Account for Receipt and Expenditure of All Educational Facilities Construction Funds The district uses funding codes to account for the receipt and expenditure of facility construction funds. All projects with a total value of $10,000 or more are assigned a unique project code. For smaller projects, a code is assigned for the type of project, for example, project code 0524 is Countywide Minor Roof repair, and code 0530 is Countywide Minor Renovation. Each funding source also has a unique code. Bond funds all have a fund number beginning with 200, and Capital Projects funds all have a fund number beginning with 300. Gibson Consulting Group, Inc. 8-7

8 The school district uses an accounting system with codes for Fund, Function, Object and Project and has a unique funding source code to account for receipt and expenditure of all educational facilities construction funds The District Should Adopt Policies and Procedures that Relate to the Use of Educational Facilities Construction Funds Section 2.1 of the SREF defines the proper use of PECO funds and state capital outlay and debt service funds. Section of the Florida Statutes defines the source and use of the district capital improvement fund. The actual uses of these and other funds are reviewed and approved by the board as a part of the budget development process. However, the board does not have a formal written policy that defines the use of funds or refers to state definitions of funds. Establishing a formal policy would help guide the board and district management in their decisions regarding capital project spending and help ensure that all sources of capital project funds are identified. The district submits an annual report to the Department of Education showing expenditures of all educational facilities construction funds. The district submits an annual Superintendent s Financial Report to the Department of Education. This report includes expenditures and changes in fund balances for all capital projects funds. Recommendations Action Plan 8-2 Strategy The board should adopt policies relating to the definition and use of capital project funds, including a requirement to periodically evaluate alternatives to new construction. Action Needed Recommendation 1 The board should adopt policies relating to the definition and use of capital project funds, including a requirement to periodically evaluate cost-efficient alternatives to new construction. Step 1: Draft a policy defining funding sources and their use based on state law, SREF and State Board of Education guidelines. Step 2: Submit the draft policy to legal counsel for review and approval. Step 3: Present the draft policy to the board for adoption. Who Is Responsible Director of Operations, director of Facilities, school board Time Frame October 2000 Fiscal Impact This recommendation can be accomplished with existing resources. 8-8 Gibson Consulting Group, Inc.