Counties’ billion-dollar dilemma

NCACC Urban Issues Forum explores alternate means of paying for schools

By Jason King
Information and Communications Specialist

Walk into any county-owned facility and ask yourself: How would it look as a school?

From left to right, Durham County Manager Mike Ruffin, Pitt County Manager Scott Elliott, Pender County Commissioner F.D. Rivenbark and Durham County Chair Ellen Reckhow participate in a group discussion on innovative proposals to finance school capital projects. (Photos by Jason King)

With North Carolina looking at nearly $10 billion in school facilities needs over the next five years alone, county officials may be forced to look to non-traditional methods of putting roofs over the heads of students in the near future. That’s just what Wake County Deputy Manager Joe Durham was doing during a presentation at an NCACC Urban Issues Forum on “County Pressures: the Realities of School Construction Demands,” held Aug. 30 at Exploris Museum in downtown Raleigh.

“I don’t know if you know, but Wake County owns this facility,” Durham said. “I’m looking around and thinking it might make a pretty good school.”

The roughly 70 county officials who attended the forum were all ears as state and county representatives and public and private professionals reviewed options and ideas for financing school construction.

In no other county does growth outpace facilities like Wake, where more than $1.4 billion in capital needs were identified as part of a Department of Public Instruction survey. The shortage has the county looking to abandoned existing buildings, such as an old Winn-Dixie supermarket, to house classrooms. The county is also converting some schools to a year-round calendar to reduce the need for new buildings.

“There is a tremendous amount of pressure on the property tax in Wake County,” said Durham, who added that the $9 million the county is estimated to receive from the state lottery would pay for just half an elementary school. “The lottery is not our savior.”

Wake is floating a $970 million general obligation bond before its citizens on the November ballot. Without voter consent, however, the county cannot borrow money via the popular bond, which is traditionally the most cost-effective means North Carolina counties have to fund facility construction. Finding alternatives to the general obligation bond was just what the Urban Issues Forum was about.

Mecklenburg County, which recently saw voters reject a $427 million general obligation bond, has been forced to look at other alternatives. County Manager Harry Jones said $123 million in pressing needs will be funded via certificates of participation – a method of borrowing money that doesn’t require voter approval but is slightly more expensive than general obligation bonds – and the county will seek another bond referendum in 2007.

According to Jones, a lack of public trust in the school system led to the downfall of the 2005 bond referendum. That costly lesson has forced county and school officials to attempt to repair a damaged relationship.

Cabarrus County Commissioner Joni Juba and Deputy State Treasurer Vance Holloman participate in a group discussion on innovative proposals to finance school capital projects.

“A school system that a public has confidence in is a driver of economic development in your communities,” Jones said.

In order to cut construction costs, the county has also looked at building schools without cafeterias and contracting with private providers to serve meals onsite.

Due to the high cost of land, counties should also consider building schools that facilitate walking and biking, which would reduce parking and busing needs, suggested David Salvesen of the UNC Center for Urban and Regional Studies. Salvesen also said one way to cut costs would be for schools to jointly use facilities such as ball fields and gymnasiums.

Durham agreed with that approach, saying that schools need to realize that at $150,000 to $200,000 per acre of land, it’s not cost effective for each school to have its own football field.

While a local-option, half-cent sales tax that would have benefited all 100 counties failed to gain the approval of the Legislature during the 2006 short session, counties did gain a measure of support with S2009, which authorizes local boards of education to enter into public-private partnerships for the purpose of leasing property such as school facilities. Sen. Vernon Malone, a former Wake County commissioner, suggested counties make use of the new legislation and warned not to expect much help from the General Assembly next year.

“We know you have a problem,” he said, “but we don’t yet know how to solve it. We anticipate we’ll have serious problems come this time next year.”

Malone acknowledged that the state could provide counties a hand by ending its mandate that counties participate in financing the state’s share of Medicaid costs.

“There are a lot of counties in this state that are really struggling with the cost of Medicaid,” he said. “That’s one of the ways that we feel we can provide some assistance to you.”

Cabarrus County Manager John Day, Buncombe County Finance Director Donna Clark and Mecklenburg County Manager Harry Jones answer questions following a panel discussion on innovative strategies.

Malone also suggested that legislators grant counties a “smorgasbord of options” to help counties pay for new schools, but counties have been unsuccessful in convincing the majority of lawmakers that potential revenue sources such as impact and land transfer fees could help lessen dependence on the property tax to pay for exploding school needs.

“We’re really back to square one deciding what to do,” said Mike Ruffin, manager of Durham County, which lost a court battle to levy impact fees without the Legislature’s approval. The county attempted several times through the General Assembly to gain the authority to charge an impact fee on new development to help finance new schools, only to fail – as all counties have since 1987.

With the county’s per-pupil cost coming in at around $2,500, the property tax won’t pay for one child per household, according to Ruffin. He added that two good things did come out of the county’s failed attempt to charge an impact fee: a few large developers have offered to voluntarily pay the fee, and it proved to legislators that a huge problem exists.

One county that has been able to keep up with growth in its school-age population is Cabarrus. The county gained special legislative approval for an adequate public facilities ordinance and enacted it seven years ago, later coupling it with strict subdivision and zoning ordinances in unincorporated areas. According to County Manager John Day, the ordinances have yet to slow growth, but they do ensure adequate school infrastructure is in place.

“For whatever reason, the developers don’t seem too bothered by it,” he said.

The county uses a formula to determine whether existing school capacity can handle growth from a new development.

“If the test indicates adequate capacity, they can proceed,” Day said. “Of course, it never does, and they can’t proceed.”

Developers can get around the red light by providing money or land for schools to increase capacity.

The Urban Issues Forum was planned and produced by the Association’s strategic goals team charged with facilitating regional and intergovernmental collaboration.

Presenter PowerPoint presentations are linked below in Portable Document Format (PDF).

• David Salvesen of UNC Center for Urban and Regional Studies: State and Local Obstacles to School Construction (755K)
• Bob High of Davenport and Associates: Strategic Capital Planning (163K)
• N.C. State and Local Finance Division Deputy Treasurer Vance Holloman: Role of Local Government Commission in School Financing (23K)
• Wake County Assistant Manager Joe Durham: Strategies to Meet School Capital Needs (226K)
• Cabarrus County Manager John Day: Strategies to Meet School Capital Needs (770K)
• Buncombe County Finance Officer Donna Clark: Innovative Strategies to Meet School Capital Needs (106K)

Other presenters included:

Attendees also participated in small group sessions in which they provided answers to four questions. A synopsis of responses follows:

1. What are your most pressing school capital needs?
In short, answers centered on money and land – no surprise there. Attendees cited pressing needs for middle and high school facilities, and renovations to existing facilities, as well as other capital needs such as cafeterias, technology, restrooms, ADA compliant equipment and desks. Cheap land is in demand, and Durham and Camden counties cited success in encouraging developers to donate land for schools. Durham also had two of the county's largest developers donate land – without the county asking for it. Attendees also cited a need for proper planning, as population shifts and uneven growth have led to a shortage of schools in some areas of the county. Counties that lack a positive working relationship between the Board of Commissioners and Board of Education cited a need for successful methods to bring the two boards together.

2. Describe any innovative proposals that deal with the costs or financing of school capital, including programmatic and operating practices, that have been used in your county.
Wake County, which will float a $970 million school bond referendum before voters in November, is considering shifting more schools to a year-round calendar, thereby reducing the need for seats by 20 percent to 30 percent. Currituck, Cabarrus and Stanly counties all have an adequate public facilities ordinance, forcing developers to help in meeting school demands that new developments are creating or delaying those developments until the county can pay to put schools in place. Some counties have been successful in securing legislative approval for alternative revenues – a 1 percent land transfer tax or local-option sales taxes – for schools. Some counties have used citizen facility advisory committees for input, and others – Durham in particular – have seen success in encouraging developers or private companies to donate land for new schools. Entering public-private partnerships, as allowed under S2009, is a potential solution, as is financing school construction through Certificates of Participation (COPs) rather than voter-approved General Obligation Bonds. County officials mentioned a number of options for partnering with others or agreeing to joint-use facilities with municipalities or recreational programs. Others have simply used existing school buildings for a longer period of time, or incorporated schools within schools – one high school campus in Mecklenburg County, for example, actually houses four high schools – and added grade levels to elementary schools to reduce the burden on middle and high schools. Others have trimmed school construction costs by going with "cookie-cutter" designs, or obtained outside funding (such as PART-F) by sharing land with a recreational facility.

3. What barriers, if any, has your county encountered in implementing school capital strategies?
A lack of local funding and cooperation, coupled with unfunded mandates from the state and demands from the judicial system, are seen as barriers to school capital solutions. On the local front, boards of education were cited for lacking a clear understanding of forecasting needs and a necessary balance between school and other county needs. The public, too, was faulted for not supporting bond referendums. In some cases, boards of commissioners are simply not willing to raise the tax rate to accommodate school growth. A major theme from all small groups was that the lottery has not solved the problem, regardless of perception that it has. The unpredictability of lottery revenue, along with the distribution formula – which discriminates against counties with conservative tax rates – drew criticism. Lobbying efforts from special interest groups, such as the home builders and real estate professional associations, are seen as a problem with generating alternative revenues for school construction, such as impact fees and land transfer taxes. The state-county Medicaid cost share inhibits counties from allocating more property tax revenues toward school construction, as do other pressing needs such as jails and court facilities. A mandated reduction in class sizes has further stressed school construction funding needs. Finally, attendees cited a need for school capital funding formulas in use in other counties.

4. What unexpected allies have stepped forward to assist in meeting school capital facility needs in your county?
While many counties are finding the fight for school capital needs to be a lonely one, others have had success within the community and in the state Legislature. While the lottery is not the end-all solution, it is a help. A small handful of counties have received legislative approval to levy impact fees and other alternative revenues, and many are hopeful that state legislation allowing public-private partnerships (S2009) will provide a new avenue. Durham and Mecklenburg have found an unexpected ally in the development community, which has stepped forward with land on which to build schools. The business community has often stepped up with contributions toward capital campaigns, while other companies and corporations have helped build facilities such as gymnasiums and rehabilitation centers. Various community groups, such as Kiwanis clubs, YMCAs and park and recreation departments, have lended vocal and political support for bond issues. Partnerships with community colleges can lead to space solutions. Finally, foundations have been of aid to some counties, providing grants and training for teachers.

Media coverage from the event: