Page 31 - School Planning & Management, October 2017

funding vehicle obligating the payment of the debt plus interest by a specific time, and the release of funds by the issuing entity. There are regulations regarding the referendums margin of passage, and the interest rate will be dependent upon the agency’s ability to pay (bond rating). Also, if the school system is not fiscally indepen- dent, the issuing government agency may restrict the flow of cash based upon their ability to pay.
Certificates of Participation, if allowed by state statute, are a similar funding mechanism to general obligation bonds except they do not require voter approval and are usually project specific.
Pay-as-you-Go funding is used when revenue exceeds obliga- tions. Since school projects tend to be multi-year while revenue sources and obligations vary, pay-as-you-go funding requires a substantial amount of trust between agencies and of the three traditional methods of financing is used less frequently.
But many districts are finding themselves up against a long- term debt ceiling or a low tax base that makes traditional methods of funding almost impossible.
Alternative Funding Sources
Capital funding sources that are formula-based are promising because they seem to be more or less stable and reliable. Because of this some states have permitted local entities to use (with the approval of the voters) “special purpose local option sales taxes” to fund capital projects. Although the 2008 downturn reduced this funding source for a few years, it has been a relatively continuous source of revenue for capital outlay that is unencumbered by the usual political considerations once approved by the voters.
Michael Bobby, former CFO of Charleston County (SC) Schools and currently director of operations for Pinnacle Charter Acad- emies, says that the revenue from the local option sales tax in Charleston has given that district the ability to tackle its mainte- nance backlog, the technology refresh, and the ongoing need for additional capacity. With the local option extended he anticipates Charleston will be debt free by 2020.
Quite a difference between that scenario and other districts
in the state, that have very limited revenue to maintain and/or rebuild aging infrastructure and ultimately are forced to bulldoze their oldest maintenance backlogs and build new facilities — renovation by demolition. The drawback is that the local option tax takes time to work its way through the legislative and approval process and the facilities are needed yesterday.
Because additional capacity is often a result of growth, some local agencies have used “impact fees” to fund that additional ca- pacity. These fees on new development are not always supported by the development community, but are an alternative to sole reliance upon property taxes as the funding source for capital projects.
Where state law permits, some districts have turned to “lease/ purchase” as a way to fund their capital needs. The lease/purchase option, or capital leasing, is used infrequently by school districts. Most capital leasing firms require the leasee to be a bond-rated public agency. The total cost and timing of those leases are com- petitive with traditional financing. Some leasing firms will finance charter school facilities with this method. These costs (because of the perceived risks) tend to be much higher.
Facility ownership is the key issue here. Some districts feel that owning the school building is important. Others, taking their cue from large corporations, prefer to limit their facility inventory and the cost of ownership. They have begun to look at alternatives that still give them use of facilities without the burden of un-monetized inventory.
Still another option for facilities has been created by the interest in conserving resources and the potential to reduce and/or eliminate utility costs. Robbie Ferris of SfL+a Architects, an architectural firm with offices in the southeast United States, has been doing “energy- neutral and energy-positive school projects” since 2006. “The first cost premium on these projects is about two-percent or $1 million. That works out to about a five to seven year payback depending upon
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OCTOBER 2017 / SCHOOL PLANNING & MANAGEMENT 31