With four competing proposals, it is very likely North Carolina will have a plan for school construction by the end of this year’s legislative session. How it will be funded and how much Wake County might receive when everything is final is anybody’s guess at this point.
The four plans vary in the amount spent on K-12 capital needs and how the state will pay for school renovation and construction. It is estimated that North Carolina has more than $8 billion in school capital needs, and none of the plans would spend more than $2 billion in this cycle.
The most ambitious plan and the one with the highest amount of funding is Gov. Roy Cooper’s proposal to spend $2 billion out of a total $3.9 billion bond package. The remaining money would be spent on community colleges, state universities, museums, and water and sewer improvements. Under the governor’s proposal, which would require approval from the legislature and voters, Wake County Public Schools would receive about $94.4 million. As of this writing, a bill is expected to be introduced by legislators in the coming days.
The bond bill that was passed by the House last week was proposed by Speaker Tim Moore, who exercised a rare option to serve as a bill sponsor. Moore’s plan, House Bill 241, would require legislative and voter approval as well, and it would spend $1.9 billion overall, with $1.5 billion for K-12 and the remaining $400 million split equally between the UNC system and community colleges. Each county would receive a minimum of $10 million, and WCPSS would receive about $109 million under this plan.
The third plan is one supported by Senate President Pro Tem Phil Berger which passed the Senate last month. Senate Bill 5 proposes a pay-as-you-go plan with annual funding coming from tax revenue. This plan would save the state money in interest payments, but it is unclear how much money would be available for school districts and how that money will be allotted. Also, this money can be redirected in the future if needs are greater elsewhere or revenue falls due to an economic recession.
The most recent plan was filed by House members this week as House Bill 381 and it is very similar to Senate Bill 5. It proposes using cash instead of borrowing, and it would spend $2.1 billion on K-12 capital needs over 10 years. WCPSS would receive about $96 million under the plan. Unlike the Senate the bill, this bill specifically allocates funds for the next 10 years as well.
All four plans have merit because they will provide state funding for school construction and renovation. In many parts of the state, local governments don’t have the tax base to raise funds for construction and schools are in dire need of repair or replacement. Unlike local bonds, state bonds do not raise taxes, and state leaders have cut personal and corporate tax rates over the past decade.
What’s ahead for state leaders is answering a philosophical policy question: How should the state fund its capital needs for public education: cash or debt financing? No matter what, paying for construction will ultimately come from operating funds, according to a report from the Budget and Tax Center at the North Carolina Justice Center.
NC State Economics Professor Dr. Michael Walden recently compared this dilemma to something more relatable: buying a house. Most Americans who purchase a primary residence use a combination of cash and debt to buy a home. The “down payment and mortgage” model is a standard example, and many buyers pay at least 20 percent of the purchase price at the time of sale.
As Walden wrote, paying with debt allows the homeowner to enjoy the house now while paying for it over many years. Having the building now is even more important when it comes to education. The longest a child stays in one school is the six years of elementary school. There’s only a short window of time for students to learn in a safe, functional environment.
The cash-plus-borrowing model is what Wake County used in its bond referendum last year. The total spending package was $653 million, with $105 million, or 20 percent, coming from cash and $548 million coming from borrowing in the form of bonds that will be repaid over 20 years. Like a standard home mortgage, bond interest rates are fixed at the time the county sells the bond.
With that money, WCPSS will build six new schools and renovate 11 more over the next few years. If it were a cash-only plan, it would probably take close to two decades to complete that amount of work. That’s about the same amount of time taxpayers would pay for the construction bonds anyway, and as in Walden’s analogy the schools are available to students more quickly.
This is a viable model that will support both methods of paying for school construction while giving local governments the ability to plan projects based on available funding and the assurance that the money will be there when projects are ready. The state would save some money in interest payments, especially if the cash were used instead of debt to fund smaller capital improvements like roof or HVAC replacement. Larger projects like renovations, additions, and new schools could be built with bond money making them available to communities now but paid for over several years.
From a Wake County perspective, it’s not important how the state finances school construction, but how much and how quickly money is available. Even if a state bond referendum were to pass at the ballot box, WCPSS school board members saythe school system will still need another local bond referendum of its own in 2020.
WCPSS has been on a steady pace of school renovation and construction for more than two decades in response to exploding growth in residential development. Although student enrollment growth has slowed in recent years, the need to catch up to the growth has not. Whether it’s a renovation or new construction, all projects add capacity to schools.
Despite the slowing enrollment, several schools in the county are operating above capacity, meaning they are overcrowded. There are about 900 to 1,000 modular classrooms, also known as trailers, on campuses around Wake County, and about 22,000 students learn in modular units each day.
On top of that, even if the school system were caught up to its growth with no need for modular classrooms, a recent change to state law set class sizes in kindergarten through third grade at an average of 17 students per class. WCPSS officials estimate a need for about 400 more classrooms to comply. That’s equivalent to about 10 elementary schools, and it doesn’t account for the larger classes in fourth and fifth grades caused by the smaller sizes in K-3. In other words, WCPSS couldn’t build its way into compliance and will have to rely on other ways to get class sizes right.
North Carolina used to put a bond referendum on the ballot every 10 years until 1996, but there hasn’t been a referendum since. No matter how school construction is financed by the state, the amounts proposed are not nearly enough to address the estimated $8 billion needed today. A statewide bond referendum would be better than a pay-as-you-go plan. It makes money available immediately and guarantees funding unlike a cash-only plan which is subject to changes in annual state revenue.