Policy Brief

Addressing California’s School and University Building Needs

Alternatives to Proposition 1D

Executive Summary

Proposition 1D would authorize $7.3 billion in general obligation debt for primary education (K-12) and $3.1 billion for higher education facilities. Together, this debt package would have annual debt service costs of $680 million per year and a total cost to taxpayers of $20.3 billion. This money would be available to fund construction for modernization projects, new construction, and vocational education facilities, among other uses.

Over the past ten years, state voters have authorized $28.1 billion in general obligation debt for K-12 school facilities. Approximately $3 billion of these funds remain unused at this time. Additionally, local school district voters have authorized an additional $41 billion in local bonds to fund school construction. School construction is also supported by developer fees paid when new homes are built. Overall, California has made a $95 billion dollar investment in K-12 and higher education facilities over the past decade.

Yet, state general obligation bond funding is a poor way to finance school construction. It is expensive (interest payments make it nearly twice the cost of the principal), places an unfair debt burden on future generations, and represents a cop-out by legislators unwilling to make difficult decisions to provide funding through the normal budgeting process. This gives politicians greater incentives to spend money irresponsibly on pet projects and programs and then rely upon desperate voters to fund “critical” programs by asking them to approve infrastructure bonds. Local bonds tend to be more accountable and more closely tied to real local needs and are a better way to use debt where appropriate for building new schools.

In addition, Proposition 1D leaves the current school facility program in place and does not address the inherent problems with the school facility process in California.

The complex regulatory process in California forces long delays in school construction while other factors, such as prevailing wage rules, increase the cost of school projects. Local school districts also play a significant role in the inefficient use of school construction funding. Districts vary drastically in their construction approaches, accounting methods, contracts and budgets, so it’s difficult for the public to know when money is wasted or lost. There is no single state watchdog agency that ensures that districts spend bond money efficiently.

Proposition 1D also does not earmark any money for districts facing growing enrollment. Instead it creates a free-for-all atmosphere where the savviest districts may win more of the bond money. Yet there are clear shifts in enrollment patterns from one district to another.

It also fails to place the primary responsibility for school construction funding at the local level which would offer school districts the financial incentive to better manage their school facilities programs. In California both the school construction financing mechanism and the actual school building process need to be reformed with incentives for school districts to utilize innovative school building strategies such as lease-leaseback and developer-built schools.

Rather than a series of large-scale state-level general obligation bonds to fund school construction in California the state should fund schools at the local level. Growing areas should be able to cover the majority of their new school costs through developer fees-especially if they utilize developer built schools. In rapidly growing areas, districts should rely heavily on developer-built and leaseleaseback arrangements to build new capacity quickly. In addition, a state-level per-pupil component that is financed out of the general fund should give local districts a stable funding source that can be bonded against or aggregated over time to fund schools.

Public-private partnerships should play an important role in the development of new schools in California. Because the private builder assumes the risk of building a new school and has real money to lose from construction delays, he has an incentive to build schools quickly and under or at budget. Since the developer finances the school up-front school districts or the state can redirect school construction bond money to more efficiently modernize and build new schools.

The state level per-pupil facility grants should offer districts an incentive for using innovative private delivery mechanisms to build schools quickly for a lower cost. The state level financing from the general fund should include performance incentives for those districts that build schools on time and on budget. A 10 percent reward above the states per-pupil allocation would be appropriate for those districts that leverage state construction funds to build schools in a timely manner. The public-private partnership is one mechanism for achieving that goal. A school district could offer builders financial rewards for on-time performance. However, any school district that can build schools on budget within a pre-set time frame should be eligible for performance bonuses above the minimum level of state funding.

Many California children continue to languish in deteriorating and overcrowded classrooms in spite of the fact that in the past decade California has made a massive $95 billion investment in K- 12 and higher education infrastructure. Proposition 1D would continue this trend with another $10.1 billion education bond. Yet, the proposition offers no help for the school children who are stuck with deteriorating schools, not because of a lack of funding, but because of the highlyregulated school construction process and the ineptitude of school district facility programs. It is time to revamp the school construction process in California. Regulations should be streamlined, local districts should take the primary responsibility for their school facilities needs, the districts should utilize the cost saving benefits of public-private partnerships, and the work should be performance-based to ensure that school districts build schools on time and on budget.