Final
Capital Construction Funding

SCHOOL FINANCE SYSTEM

Votes:
Action Taken:
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09:17 AM -- K-12 Capital Construction Funding through the Colorado Department of Education

Vody Herrmann and Ted Hughes, Colorado Department of Education (CDE), came to the table to discuss K-12 Capital Construction funding provided through the Colorado Department of Education. They provided two hand-outs (Attachments B and C). Mr. Hughes presented a Powerpoint presentation on the state Capital Construction Grant Program. He specifically discussed the statutory criteria for evaluating and awarding grants through this program. He discussed the criteria identified as immediate health and safety concerns. Representative King asked Mr. Hughes about supplemental funding for projects that are ongoing or for which there have been cost overruns. There was additional discussion about addressing cost overruns that result from such issues such as asbestos abatement. Representative King commented on awarding funding to school districts when initial costs have been miscalculated. Mr. Hughes indicated that these types of supplemental requests are not always awarded, but are looked at on an individual basis.


09:32 AM

Senator Windels discussed her experience as a member of the capital construction advisory committee. Mr. Hughes continued his presentation by discussing the types of projects that do not qualify for funding. He said that criteria for looking at school districts include looking at the per pupil assessed valuation of the district and the school districts that have reached more than 90 percent or more of their limit on bonded indebtedness. Mr. Hughes commented further on the ranking system used by the committee, and Representative King asked for further clarification about the process. Mr. Hughes discussed specific examples of needs in several rural school districts, such as Woodlin School District, and how their needs might not be reflected in their individual school district ranking. Senator Spence asked whether construction costs in rural school districts can be higher than costs in urban areas. Mr. Hughes subsequently commented on how limited staff and resources may impact maintenance and subsequent costs in smaller school districts.



09:45 AM

Representative King asked about the awarding of funding under the current cycle, and Mr. Hughes described specific projects receiving funding for FY 2005-06. Representative King inquired as to how the committee weighs different needs such as asbestos abatement, heating and ventilation needs, and roof replacement. Mr. Hughes discussed the fact that additional projects may be awarded this year through the lottery "spillover" funds. Senator Windels discussed how difficult the choices can be in awarding projects. Mr. Hughes continued his presentation by discussing charter school funding and the matching funds required of school districts. He indicated that the committee comes up with a unique matching formula for each school district in the state.


09:54 AM

Mr. Hughes provided an overview of the process by which school districts apply for grants. The CDE staff works with the capital construction advisory committee to review projects and to make recommendations to the State Board of Education. The State Board of Education approves projects for funding in August. Senator Tupa asked questions about various sources of funding, including the State Education Fund. Mr. Hughes and Ms. Herrmann responded to further questions about the sources of funding for school districts and charter schools in FY 2005-06.


10:02 AM

Representative Penry asked questions about school districts' debt capacity. Ms. Herrmann discussed the impacts on many of the state's poorer school districts, which may a limited capacity to incur debt. Senator Windels asked whether all school districts in the state with capital construction needs apply for grants. Mr. Hughes indicated that CDE has told school districts to apply for funds only for critical needs, and that some school districts have lowered their expectations for capital construction because of limited funding. Senator Spence about the application of Colorado's historical and current capital construction funding toward the Giardino settlement. Ms. Herrmann discussed the types of funding that have been provided and referred to her hand-out showing the history of funding. Representative Penry asked questions about the policy decisions around funding. There was discussion about the lottery "spillover" funds and why these funds have not generally been considered as applicable toward funding requirements under the Giardino settlement agreement.


10:12 AM

Senator Spence commented on the state's responsibility for meeting the requirements in the Giardino settlement. Senator Bacon asked about the process by which the Capital Development Committee (CDC) reviews projects recommended for awards from the School Construction and Renovation Fund, as well as how the Joint Budget Committee reviews projects. There was additional committee discussion on the process for CDC review. Senator Tupa asked further questions about fulfilling requirements in the Giardino settlement agreement. Committee discussion ensued on funding that goes for administrative costs. The funding summary provided by CDE indicated that $522,747, or 0 percent, has been dedicated to administration of the grant program.


10:21 AM

The committee recessed.


10:35 AM

The committee came back to order.

10:35 AM -- K-12 Capital Construction Needs

Mary Wickersham, Donnell-Kay Foundation, provided a Powerpoint presentation on "Colorado's Crumbling Classrooms," and distributed a hand-out "Recommendations for a State School Capital Funding Program in Colorado,"(Attachment D). Ms. Wickersham said that the foundation's work has addressed three primary questions: how does Colorado fund K-12 capital construction? what are the current needs in the state? what are the resulting recommendations? She said that Colorado's system is a system that is primarily property tax-based and indicated that the historical passage rate for school district bond issues has been 65 - 70 percent. She said that in the past 10-15 years, a wave of states have implemented programs to equalize capital construction funding. She discussed the examples of New Mexico, Wyoming, and Arizona, as neighboring states.


10:47 AM

Ms. Wickersham continued her presentation by showing the disparity in per pupil assessed value across school districts. Ms. Wickersham said that the current system is both inequitable and inadequate. She noted that 70 school districts educating over 20,000 Colorado students have a total bonding capacity of under $6 million. Ms. Wickersham referred to a state map and photos of school buildings as part of her presentation.



10:54 AM

Ms. Wickersham discussed bond limits in surrounding states and said that 21 Colorado school districts, with almost 200,000 students are near or at their bond limits. Ms. Wickersham discussed specific issues faced in school districts that are near or at their bond limit. Ms. Wickersham said that political considerations and high priority projects are usually the focus of bond issues brought to voters, rather than the school district's actual capital needs.


10:59 AM

Senator Windels asked Mr. Hughes to return to the table to respond to questions about specific projects as Ms. Wickersham continued her presentation. Ms. Wickersham indicated that the Donnell-Kay Foundation conducted a school district survey and utilized a consulting firm to conduct a needs assessment. She said that the Foundation's estimate of the total cost of capital needs in the state was $5.7 billion. Ms. Wickersham discussed the recommendations contained in the Donnell-Kay report. The recommendations include: a professional statewide needs assessment; minimum prescriptive statewide health and safety standards; oversight and administration in a distinct board created for that purpose; appropriate staffing for an oversight board; a plan to address the backlog of capital needs immediately and establish a sustainable funding source for capital needs; a plan that addresses capital construction needs in priority order according to a statewide needs assessment; and a funding formula based on school districts' capital capacity and current tax effort.


11:14 AM

Ms. Wickersham said that in some cases she feels that a measure of a district's average personal income could be a better measure of a school district's relative wealth than per pupil assessed valuation. She recommended different state programs for addressing repairs and renovations, new school construction, technology, and emergency circumstances. Ms. Wickersham indicated that the Donnell-Kay Foundation recommended funding capital needs through a combination of state and local revenue. She also recommended a waiver procedure for a local match. Representative Merrifield commented on the statutory requirement for a school district's capital and insurance reserve. Ms. Wickersham responded to Representative Merrifield's questions and discussed revenue options for capital construction, such as an increase in the state sales tax, a real estate transfer tax, which is currently prohibited by the Taxpayer's Bill of Rights (TABOR), and oil and gas severance tax revenue. Ms. Wickersham responded to questions from Representative Penry and advocated an approach that takes a statewide needs assessment into account from the beginning of a funding plan.



11:27 AM

Senator Tupa asked questions about school district bonding capacity and asked about the impacts of the Gallagher and the TABOR amendments. Ms. Wickersham commented on the history of funding K-12 capital construction in Colorado and in other states. She said that some lawsuits in other states have been based on facilities, and many have been successful. Senator Windels asked additional questions about recent lawsuits in other states. She also asked about assessments done by the Donnell-Kay Foundation in 16 Colorado school districts. Ms. Wickersham described the assessment in greater detail.



11:35 AM -- School Trust Lands and the Permanent School Fund

Karen Gerwitz, Director of State Board Relations, Colorado Department of Education, provided a history of trust land holdings and distributed three hand-outs (Attachments E, F, and G). She discussed her involvement in the Colorado School Land Trust Steering Committee. Ms. Gerwitz discussed the nature of the permanent school trust and the duties of the State Treasurer and the State Land Board. Ms. Gerwitz discussed the earmarking that some states use when allocating a certain portion of the revenue from their trust. She also discussed the new provisions in Senate Bill 05-196 for capping the amount of revenue from the timber sales, rental payments, and mineral leases on public school lands that goes to the Public School Income Fund at $12 million. Ms. Gerwitz described the obstacles to growing the Permanent Fund, including existing statutory and constitutional requirements.


11:53 AM

Ms. Gerwitz discussed the fact that revenue from the school land trust is the first payment to the school finance act. Ms. Gerwitz provided comparisons of growth in the Permanent Funds in neighboring states. Her presentation continued with a discussion of the current revenue from mineral royalties in Colorado. Concerns include the fact that the Permanent Fund is not growing significantly and that the Treasurer is forced under current law to invest in low-risk, lower-yielding investments. The State Land Board has certain constrictions as well, according to Ms. Gerwitz. Ms. Gerwitz concluded by discussing a 2006 Advocacy Agenda for the Colorado School Land Trust Steering Committee.

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12:03 PM

Ben Stein, Office of State Treasurer, provided a hand-out concerning the Permanent School Fund and the investments made by the Treasurer (Attachment H). Mr. Stein discussed the current statutory constraints on investments from the Permanent School Fund. Representative King asked about TABOR implications for the Permanent School Fund and lease income.


12:13 PM

Britt Weygandt, Director of the State Land Board, highlighted several points and data contained in a hand-out (Attachment I). She discussed the revenue increases in trust lands, largely due to mineral leases. Income from surface rights have increased as well. She discussed increases that can be made above the $12 million cap for school finance. Ms. Weygandt and Mr. Stein responded to additional questions about the potential for income from mineral royalties.


12:19 PM

The committee recessed.


01:36 PM

The committee came back to order.