Q&A: Keeping Up With School Construction

MACo has adopted four top priorities for the 2017 General Assembly Session. This post outlines MACo’s school construction priority. For additional information about MACo’s priorities, read all of MACo’s top initiatives.

Q: Why is School Construction a County Issue?

A: Schools have a vital role in every community and are important to quality of life throughout Maryland.

County governments seek to promote a better quality of life throughout Maryland and county elected officials know that schools are an integral facet of every community. The quality of schools is not only important to families and children, but to those who teach and work at schools, those who attend classes or play sports events at schools in evenings, and even those who use schools as their polling place or their emergency management shelter.

Schools have a strong effect on property values, and can draw higher-income families to neighborhoods, increasing income-tax bases. In many ways, schools are the heart of a community. As described further below, county governments have responsibility for local school construction costs. In Maryland, unlike most states, local school boards are fiscally-dependent on state and county funding and cannot raise their own revenue through taxes or levies.

Q: Has Maryland Been Keeping Up With School Construction?

A: No, not really.

School construction costs have risen rapidly in the past ten years for a variety of reasons, including labor markets, state and federal regulations, and educational program changes, such as in increase in the use of technology in the classroom.

At the same time, several areas of the State have experienced student enrollment increases. Population estimates indicate that Maryland will experience record high school enrollments over the next ten years due to the baby boom prior to the recession.

Despite rapidly increasing school construction costs, the state’s commitment has not increased, leaving the difference in funding required to meet basic school construction needs the responsibility of local governments, straining local budgets.

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Figure 1 Annual funding for the State’s main school construction program has not changed significantly over the past several years.

screenshot-2016-10-20-13-46-06Figure 2 Construction costs have increased dramatically over the past several years, as illustrated by these estimates from the Public School Construction Program.

As described by the Public School Construction Program, if the State’s commitment had kept pace with increasing school construction costs over the past decade, the State’s year-to-year goal for school construction should have been $475 million per year, rather than $250 million.

“In the summer of 2003, a study of the cost to bring all Maryland schools to minimum standards of performance indicated a need for a $3.85 billion total expenditure. If a similar study were undertaken today and the same or equivalent deficiencies were found, the total cost to correct the deficiencies beginning in the summer of 2017 would increase to almost $7.4 billion. The $2 billion that was defined as an eight-year goal for State funding in the Public School Facilities Act of 2004 would need to be increased to approximately $3.8 billion, or about $475 million per year over eight years.” – Public School Construction Program presentation to the Capital Debt Affordability Committee

Several county governments experienced major cost-overruns of school construction projects in this time-period. In some counties, the state’s funding commitment had already been set, and could not be adjusted upwards to accommodate rapidly rising costs, leaving even more expenses for county governments. For more information, see our previous posts:

Q: How Are Counties Helping Out?

A: County governments provide more funding for school construction than the state or the federal government.

K-12 capital needs are the second largest category of county government spending, second only to spending on public works, which includes essential infrastructure such as roads, bridges, drinking water and sewer systems. In fiscal year 2016, K-12 capital spending made up 28% of county capital budgets.

In FY 2016, annual county capital budgets for K-12 capital projects totaled more than $1 billion, while state funding for school construction was approximately $338 million. Federal funding for school construction is minimal.

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The 2016 State of Our Schools Report found that Maryland’s state funding for school construction was 26% over a 20 year period, ranking it 15th among states in school construction support.

While the state provides more school construction funding to counties with less wealth, all county governments are responsible for the many costs that are not eligible for state funding. For example, the State does not contribute any funding towards the acquisition of property to build a school, or towards a school’s interior furnishings, including classroom technology.

Q: Did the State Ever Contribute More for School Construction?

A: Yes.

It was not always this way. The state used to provide funding towards many more public school construction costs. As described by the Public School Construction Program 2016’s Capital Improvement Program, the State contribution was generally about 95-99% of the project cost when the school construction program began,

When the Public School Construction Program first started, the State paid for architectural and engineering fees and movable furniture and equipment in addition to the construction costs of the project. The State contribution was generally about 95-99% of the project cost. . . In the mid-1970s the responsibility for architectural and engineering fees was shifted to the localities, and the cost of movable furniture and equipment was similarly shifted in the mid-1980s. Starting in the mid-1980s a shared State-local cost formula was implemented to determine the State participation in eligible school construction costs. The formula took into consideration the relative wealth of a jurisdiction.

Q: How Can Maryland Meet School Construction Needs?

A: County governments have proposed the following suggestions for making the most effective use of taxpayer dollars while meeting the needs of school construction:

Increase State funding: Maintain and strengthen the State’s commitment to school construction capital funding in recognition of increases in school construction costs. Integrate student technology expenses and other costs resulting from State mandates into the State’s funding formula for school construction.

Develop Incentives for Effective Spending: Create incentives for use of cost-effective measures including repeating the same school design, cost-effective construction management practices, and remove impediments to alternative financing.

Streamline School Construction Processes: Examine the timeline for school construction and consider ways to better coordinate the timeline with local budget processes so that local planning efforts are streamlined and state funding is not left in limbo.

Reduce Regulatory Cost-drivers: Assess the cost-drivers of modern school construction, such as achieving new environmental and energy standards, satisfying heightened needs for technology, ensuring student safety, fulfilling community resource needs, and integrating evolving teaching methods. Then, determine if there are more cost-effective means to achieving regulatory aims and provide options for pursuing less costly alternatives within state law and regulation. At the same time, the state should review and revise labor laws and regulations that apply to the school construction sector, including the prevailing wage law and regulations. Delaying the effective date of state laws and regulations that may increase school construction costs will allow for study of potential effects.

Create a Statewide Maintenance Fund and Promote School Maintenance: Provide a predictable and accountable State-level commitment to school facility maintenance funding. This funding will enable school board spending on maintenance at 2% of current replacement value, a widely accepted methodology for protecting capital investments.

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