Despite receiving considerably less attention than it did a few years ago, school construction continues to surface in policy debates at the federal, state, and local levels. In Washington, the issue arose earlier this year as part of congressional debate over expanding education tax credits. Democratic leaders have highlighted the issue in calls for economic stimulus, and it is certain to come up again when Congress deals with the 2003 education appropriations bill. Around the country, with 11 million children attending schools in need of renovation or repairs and 45 states facing budget crises, concern about school construction and the question of how the federal government can best help states and local communities meet these needs isn't going away anytime soon.
Unfortunately, however, the debate on this issue isn't waning either, but continues to center on proposals for tax credit bonds that have been mired in partisanship for years. That's too bad -- the need for assistance is real and lack of it harms our most vulnerable students. Fortunately, there is a novel approach available for the federal government to address school construction that is both better policy and less burdened by partisan baggage than past proposals.
State Infrastructure Banks (SIBs) are special banks established by states using federal seed money that offer communities a variety of loans and other affordable options to finance school construction. Modeled after successful programs for transportation and clean water, SIBS enable regions to undertake projects they couldn't otherwise afford and to do more with limited resources. By creating SIBs for schools, Washington could leverage state and local investment while leaving primary responsibility for school construction where it belongs -- with states and communities. This flexible approach is more fiscally responsible and is better matched to the needs of the neediest schools than one-size-fits-all tax credit bond and grant proposals, and offers a way to move the school construction debate forward beyond the current impasse.
The following explains how the school construction issue became mired in partisanship, why the old lines of thinking on this issue fall short, and how State and Regional Infrastructure Banks represent a Third Way approach to break this stalemate and provide real school construction assistance to schools in need.
Since 1996, when the Clinton administration first proposed federal school construction assistance, the issue played a key role in annual partisan battles over education funding that became political gold for Democrats. The key proposal, tax credit bonds, gained support from a majority of the House of Representatives, including most Democrats and a significant number of moderate Republicans. However, compromise was often thwarted by party differences on application of the Davis-Bacon wage requirements to federally supported school construction projects.1
Congress and the president managed to agree on some smaller school construction initiatives. The 1997 tax bill created a small tax credit bond pilot program for schools in low-income communities called the Qualified Zone Academy Bond (QZAB) program. The 2001 budget included funding for a small Urgent School Repairs grant program and a demonstration program for financing charter school facilities. Although QZABs were renewed in both 1999 and 2001, appropriations for the urgent repairs and charter facilities programs ceased in 2002 are currently under debate for the 2003 budget.
Democrats have continued to advocate tax credit bonds and extension/expansion of the Urgent School Repairs program in the 2002 and 2003 budget and tax debates, and during reauthorization of the Elementary and Secondary Education Act in 2001. Hostility to school construction from both the Bush administration and Republican congressional leaders makes success on these proposals highly improbable. The tremendous political baggage school construction has acquired in its more than six years under consideration has not only prevented successful compromise around the major proposals, but has also obscured some relevant policy issues.
The federal role in education was originally created to enhance equity for disadvantaged and minority children who have historically been denied educational opportunities, and this remains the guiding principal for national education policy. But existing federal programs cannot address the significant disparities between school buildings attended by disadvantaged students and their more affluent peers. Nationwide, one in four schools is overcrowded and one in five needs extensive repair or replacement. Poor, minority, and rural children disproportionately attend such schools.2 This problem does not reflect a lack of state and local effort.3 During the 1990s states and local communities dramatically increased investments, but because of rapid enrollment growth and deferred maintenance from the 1980s, this barely allowed them to tread water.4 Further, lack of access to credit due to bond limits and "supermajority" voting requirements prevent many communities from raising any money for school construction. Schools and states need help in addressing the education facilities crisis, even more so given the budget shortfalls many schools and districts now face.
Facilities problems also undercut promising education reforms, especially charter schools. Charter schools are public schools of choice that may be established and run by organizations other than school boards or districts but are open to all students and publicly accountable for results. Charter schools are a promising school reform strategy that enjoys bipartisan support, but lack of access to adequate facilities is a serious threat to the long-term stability of both individual charter schools and the movement as a whole. Thus, many Republicans and Democrats have joined Sens. Tom Carper (D-Del.) and Judd Gregg (R-N.H.) in supporting charter facilities aid. But, while there is a good case for charter facilities aid separate from that for school construction generally, such aid will never be politically secure or as substantial as necessary in the absence of broad school construction assistance. It is therefore shortsighted for those who support charter facilities aid to oppose school construction programs as a whole.
School construction assistance could also help states and school districts meet the requirements of the No Child Left Behind Act. That law allows children in failing schools to transfer to better performing schools in their district, but news reports note that many eligible children have not been able to transfer because better performing schools are overcrowded and have no space for them.5 Facilities aid that enables schools to expand or renovate their buildings to eliminate overcrowding could improve transfer options for these students. Moreover, charter facilities aid, by addressing a key obstacle to the creation of new charter schools, is important to developing more good schools and transfer options for students in low-income communities where failing schools tend to be concentrated.
Given the magnitude of these needs and their negative impacts on promising school reforms, it is unfortunate that federal support has become mired in partisan breakdown. However, rather than digging in their heels on existing proposals, the current stall on the school construction debate should spur school construction supporters to reevaluate their flawed policy prescriptions. There are two primary components to these proposals:
Most of the debate on school construction has focused on tax credit bonds. With this proposal, the federal government would pay the interest on school construction bonds through a tax credit to bondholders, allowing school districts to finance construction at no interest costs. The problem with these bonds is that they are a one-size-fits-all strategy that is cumbersome for schools, districts, and states and would provide no aid to some of the most needy schools. The QZAB program demonstrates some of the difficulties of this approach.6 And, although using tax expenditures rather than direct spending and spreading them over time makes tax credit bonds look cheap, they are actually an inefficient way for the federal government to support school construction -- the cost of which could easily balloon in the future.
Also at issue are grants for school repairs. The Urgent Repairs grants created in the 2001 budget have not been funded since, however the program did establish a foothold for school construction in federal policy. Funding the program again and expanding it to include construction might be less contentious than creating a new school construction program. But grants alone are not a reasonable long-term federal strategy for school construction. The size of the need is so great that the amount of federal funds that could be expected with any degree of political plausibility, particularly in the current budget climate, can have more than a token impact only if they successfully leverage state, local, and private investments. Direct grants for construction cannot effectively do that in a way to help the neediest schools. Unfortunately, having won this program once, school construction supporters seem more interested in the symbolic victory of re-funding repairs grants than is practical.
Ground is emerging for a compromise on school construction. The severity of school construction needs and state budget crises will only increase pressure for federal assistance, and the public school choice requirements of the No Child Left Behind Act have focused additional attention on widespread overcrowding. The serious obstacles for charter schools to obtain facilities have led a growing number of moderates in both parties to support federal facilities assistance for charter schools, making it more difficult for Republicans to oppose any federal role in school facilities across the board. At the same time, new proposals by Third Way policymakers that are less fraught with partisan baggage present an opportunity to bridge the broken-down debate on school construction and also address the policy shortfalls of past proposals.
State, or Regional, Infrastructure Banks would be new financial institutions created for the express purpose of providing low-cost loans or credit enhancement to schools that otherwise cannot obtain financing or afford school construction. By granting loans at lower interest rates than the market, these banks would reduce the cost of school construction or repairs for local taxpayers, and schools that can't otherwise borrow or issue bonds due to debt caps or difficulty passing bond levies could obtain funding from them. As loans are repaid, the banks would use the repayments to assist additional schools, maintaining a steady source of affordable financing for school construction aid.
While SIBs offer an economical approach to school construction financing for schools and school districts, they require capital investment to get started. Providing seed funding to create these banks is an effective way for the federal government to spur and support state and local investment in school facilities. As loans are repaid, Infrastructure Banks become self-sustaining, creating a long-term source of assistance without extended commitment of federal aid. This one-time investment would place these banks and their programs in the control of states (or multi-state partnerships), not the federal government, thus giving them wide flexibility to structure banks and aid to match their unique needs and policies. Focusing control in state or voluntary multi-state partnerships should reduce concerns about federal intrusion in an area traditionally the sole province of states and localities. By limiting federal involvement in start-up aid, SIBs are a more cost-effective and fiscally responsible approach than tax credit bonds or grants, which can provide assistance only as long as the federal government continues to appropriate funds or sacrifice tax revenue for their support. State and federal policymakers are already familiar with this strategy through the successful Clean Water State Revolving Fund and Drinking Water State Revolving Funds created with federal start-up funding and now operating in every state.
Congresswoman Ellen Tauscher (D-Calif.) and Sens. Jean Carnahan (D-Mo.), Hillary Clinton (D-N.Y.), Dianne Feinstein (D-Calif.) and Tom Harkin (D-Iowa) have introduced legislation to provide start-up funding for SIBs over the next five years. Policymakers seeking to repair the dysfunctional debate over school construction should look to these proposals as a starting ground for action. In addition, Congress should ensure funding for charter school facilities assistance, including the charter facilities finance program and matching grants to states for charter facilities aid authorized in the Carper-Gregg amendments to the Elementary and Secondary Education Act.
For more than six years, an increasingly dysfunctional partisan debate over federal school construction assistance has played out in Congress, while schools and states have struggled to address critical facilities needs and millions of children remain in overcrowded, ill-equipped, and even unsafe schools. Unfortunately, players in Washington are invested in the political details of specific proposals at the expense of broader policy concerns. The budget crises now afflicting many states and communities, as well as growing recognition of the severe obstacles facing charter schools, only make the need for action now more apparent. Rather than continuing to play politics on school construction at the expense of children's well-being, policymakers should reach agreement on SIBs as the most promising approach, in both political and policy terms, to end the stalemate on school construction and improve conditions for children in our neediest schools.
1. The Davis-Bacon provisions are attached to federal programs that require workers on federally supported projects to be paid "prevailing wages," or those paid to a majority of similar workers on similar projects in the local area. Because tax expenditures are not automatically covered by existing Davis-Bacon requirements in federal law, congressional debates on tax credit bonds for school construction have broken down along partisan lines over whether or not to attach these provisions to tax credit bond legislation.
2. Lewis, Laurie, Kyle Snow, Elizabeth Farris, Becky Smerdon, Stephanie Cronen, and Jessica Kaplan, U.S. Department of Education, National Center for Education Statistics, "Condition of America's Public School Facilities: 1999," NCES 2000-032, Project Officer: Bernie Green.
3. However, some states and communities have indeed neglected their responsibility to provide adequate school buildings for their children. Rather than argue against school construction aid, PPI presents an argument for federal aid that can provide an important and encouraging level in enabling states and communities to meet their responsibilities.
4. Ibid; General Accounting Office, "School Facilities: Construction Expenditures Have Grown Significantly in Recent Years," GAO/HEHS-00-41, March 2001.
5.Schemo, Diana Jean, "Few Exercise New Right To Leave Failing Schools," New York Times, August 28, 2002; Editorial, "School Choices," Washington Post, August 29, 2002.
6.Mead, Sara, "Early Returns: Do Tax Credit Bonds Work for School Construction?," Progressive Policy Institute, September 2002:
http://www.ppionline.org/ppi_ci.cfm?contentid=250833&knlgAreaID=110
&subsecid=900023.
Sidebar:
Facilities problems are particularly acute for public charter schools. Outside of political opposition, difficulties in obtaining facilities are the greatest threat to charter schools. Charter schools often cannot access facilities financing due to their brief credit histories, length of charters, and increased risk inherent in the competitive charter school model, and in many states they receive no funding for facilities at all. By supporting initiatives to enable charter schools to access facilities financing, the federal government can address this need in a cost-effective manner. Unfortunately, however, facilities assistance for charter schools has been entangled in the same partisan breakdown that plagues school construction aid in general.
The 2001 federal budget included a small charter school facilities finance demonstration program. Amendments by Sens. Tom Carper (D-Del.) and Judd Gregg (R-N.H.) to the No Child Left Behind Act authorized extending and expanding this initiative, as well as matching grants to states that provide facilities allocation to charter schools. However, breakdown over school construction aid overall prevented these initiatives from being funded in the 2002 budget.
As Congress approaches the 2003 budget debate, school construction remains mired in partisan breakdown, as some school construction supporters continue to block charter school aid in the absence of broader school construction programs. This is flawed logic on policy grounds, because the rationale for charter facilities initiatives is fundamentally different from larger school construction aid. And it is the wrong strategy for school construction advocates, because it prevents them from building support based on common ground with charter supporters. Further, although the reasoning for the two initiatives is different, charter facilities aid is a foot in the door for school construction that undercuts the ideological "no federal role" argument against such aid. To address charter facilities issues, two steps are required:
1. Break the link between charter facilities aid and school construction, and fund the Carper-Gregg initiatives. The federal government, in both the Clinton and Bush administrations, has made a special commitment to foster charter-based reform to improve achievement and educational choice and opportunity for low-income and minority students. For this reason, and because charter schools face unique obstacles to obtaining facilities that are a major threat to their success, the federal government should fund charter school facilities initiatives regardless of the debate over school construction aid in general.
2. Establish State or Regional Infrastructure Banks as a broad federal approach to school construction. While charter schools face their own facilities challenges, traditional public schools also have needs that merit federal investment, and charter school facilities aid is more politically secure when assistance is also available for traditional public schools. State Infrastructure Banks (SIBs) represent a promising strategy to end the partisan breakdown on school construction, and supporters of both school construction and charter schools should find common ground in these banks. Where proposals like tax credit bonds can't aid the neediest schools without access to financing, SIBs provide the greatest benefit to schools that lack access to capital and are thus particularly well-suited to aid both the most disadvantaged traditional public schools and charter schools, which both deserve equal access to federal school construction assistance.
Sara Mead is a policy analyst with the Progressive Policy Institute's 21st Century Schools Project.
