SBA Proposal

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SBA Proposal

• January 20, 2004

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

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...unfortunately, the programs 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

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Fully funding all projects under the current
program would cost over 760M in FY05
CurrentReimbursements
Approved Waitlist
MoratoriumOverridden
ReformCommission
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Key SBA data
School Projects onWaitlist with Shovelsin the
Ground
School Projectson Waitlist
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
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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

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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

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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 states share
  of local school construction debt
• Eliminates uncertainty of the annual
  appropriations process

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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

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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

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Construction reform is necessary

• Allow flexible construction options
• Eliminate filed sub-bid requirements

Accelerates the clearing of the waitlist and
saves money
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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

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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

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What you need to know

• SBA will move from the states 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