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SBA Proposal

SBA Proposal. January 20, 2004. Current interest rates provide a window of opportunity. Short-term Interest Rates. Long-term Interest Rates. The School Building Assistance program is critical to the delivery of a quality education to our children….

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SBA Proposal

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  1. SBA Proposal January 20, 2004

  2. Current interest rates provide a window of opportunity Short-term Interest Rates Long-term Interest Rates

  3. The School Building Assistance program is critical to the delivery of a quality education to our children… • Historically, a successful partnership between the Commonwealth and its local governments • Over 700 school projects are currently receiving at least half their project cost, including interest, from the state

  4. ...unfortunately, the program’s popularity caused an explosive growth in its waitlist • Notwithstanding double-digit increases in state appropriations, the waitlist has grown to 420 projects worth more than $4 billion • Even assuming a modest growth in funding, 50% of waitlist projects will not receive a first payment for a decade • The current moratorium on the School Building Assistance program is neither sustainable nor desirable

  5. Fully funding all projects under the current program would cost over $760M in FY05 CurrentReimbursements Approved Waitlist MoratoriumOverridden ReformCommission

  6. Key SBA data School Projectson Waitlist School Projects onWaitlist with “Shovelsin the Ground” School Projects onWaitlist AwaitingConstruction - = 420 198* 222 Number of Projects: - = $5.7B $2.9B $2.8B Total Project Costs: Commonwealth Share: - = $4.1B $2.1B $2.0B * Based on 12/03 DOE audit

  7. Avoiding the problem is not a viable option. We need to step up and face reality • Local governments have a right to know that the state will honor its commitment to this program • Delay only costs more money for everyone • Extending the short-term borrowing period adds cost • Delaying construction adds costs • The Commonwealth needs on-going school renovation and new school construction

  8. The Romney “Legacy of Learning” SBA Initiative • Honors existing reimbursement rates for both projects receiving reimbursement and on the waiting list • Clears 100% of the current waitlist by FY09 • Switches to an up-front, cash payment and away from a multi-year reimbursement schedule • Allows necessary streamlining of building costs through construction reform • Establishes a commission to recommend rational project selection guidelines and other reforms for future school projects not currently on the waitlist

  9. Projects currently receiving reimbursements (748 projects) • The Commonwealth will issue state debt to pay-off its full obligations to local governments • Cash Now: all funds raised will be deposited into an escrow account on behalf of the local government for the repayment of the state’s share of local school construction debt • Eliminates uncertainty of the annual appropriations process

  10. Projects on the Waitlist (420 projects) • 100% of the waitlist will receive up-front cash grants for construction by FY09 • Reimbursement rates will remain the same • The state will publish a construction grant schedule based on the current order of the waiting list • Eliminates uncertainty of the annual appropriations process • Local governments will only borrow for its share of the school project

  11. How does this work? • Useful life of school assets is more like 40 years than 20 years • Commonwealth is moving from a 20 year term to a 40 year term • Extending the term lowers annual payments • Cash savings will be used to accelerate taking projects off of the waitlist • Lower project cost through construction reform

  12. Construction reform is necessary • Allow flexible construction options • Eliminate filed sub-bid requirements Accelerates the clearing of the waitlist and saves money

  13. Future school projects • Firmly believe that the entire school planning, designing and building process needs to be reconstituted • A commission will be established comprised of members from the executive and legislative branches and local officials • The commission will have six months to make recommendations for a reformed program • The reforms will allow us to end the moratorium for future projects

  14. Key takeaways • Fulfilling full obligations of the Commonwealth • Projects currently receiving payments and waitlist projects • Eliminating uncertainty for cities and towns • Establishing a roadmap to clear 100% of waitlist by FY09 • Redesigning the SBA approval process for new projects to ensure program sustainability • Ending the moratorium

  15. What you need to know • SBA will move from the state’s operating budget to the capital budget • SBA will no longer appear on the cherry sheet or in the DOE budget • Refinancing will save the Commonwealth $150M in FY05 • Savings allows us to increase local aid during tough times • Staff will be holding working sessions and briefings with local government officials in the coming weeks

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