Do We Really Need Another School Bond? Rethinking the Conventional Wisdom

One of the most important − and most expensive − responsibilities of state government is to plan and maintain the capital needs of state agencies. Although specific estimates vary, over the past year, the General Assembly and the governor have been considering several billion-dollar bond packages. These projects range from school construction to water and sewer services to land conservation initiatives:

•  Public School Referendum: $1.5 billion to $2 billion for new classrooms, repairs and renovations (not yet formally introduced).
• Higher Education: $500 million to $1.2 billion for land for acquisition, planning, renovations, new classrooms, a new dental school at UNC, and a new companion animal hospital at NCSU (HB 1473 with Senate amendments).
• Transportation: $1 billion for new road construction and maintenance on existing roads (not yet formally introduced).
• Raleigh Infrastructure: $283 million for a resource center, two state administrative buildings, a secondary data center, a visitor’s center, and two parking structures in downtown Raleigh (governor’s recommended budget).
• State Infrastructure: $250 million for water and wastewater systems (governor’s recommended budget).
• Corrections: $144 million for new prisons, additions to prisons, prison hospitals and new juvenile justice facilities (governor’s recommended budget).
• Conservation: $100 million for state land conservation (governor’s recommended budget).
• Law Enforcement: $78 million for administrative buildings for the Highway Patrol and State Bureau of Investigations, as well as capital projects for the departments of Justice, Juvenile Justice and Delinquency Prevention; and Crime Control and Public Safety (governor’s recommended budget).
• Cultural Resources: $74 million for visitor centers, museum exhibits, and a state records center/library for the blind and physically handicapped (governor’s recommended budget).

All in all, these proposed initiatives amount to $5.5 billion in long-term capital improvement projects. Traditionally, the state has financed such projects through the sale of general obligation revenue bonds. General obligation bonding, which must be approved by the Legislature and a vote of the people, pledges the full-faith and credit of the state’s taxing authority to repay the loan. As such, general obligation bonds differ from certificates of participation (COPs), which do not require voter approval.

What Do the Voters Think?

Limited financial resources, of course, make it impossible to fund all of the ideas proposed above. Instead of heeding the advice of special-interest groups, the Legislature should choose which projects to fund by consulting the people of North Carolina. Once they do so, they will find a strong consensus exists regarding which bond proposals are necessary and which are not. According to our June 2007 DecisionMaker Poll this is what the voters think about the various bond projects:

• New/renovated schools: 45 percent support
• No new state borrowing: 15 percent support
• Road construction: 12 percent support
• University renovations: 4 percent support

Our poll also revealed that 87 percent of respondents oppose allowing the General Assembly to authorize $1.2 billion in indebtedness without a voter-approved referendum. In other words, the Senate’s plan to issue $1.2 billion in COPs debt for UNC renovations is unpopular – not only because the public thinks such construction is unnecessary, but also because of the funding mechanism.

School Bond Referendum

The initiative that enjoys the most popular support is K-12 school construction. It is likely the Legislature will present voters with some form of school bond referendum within the next year. Over the last six months a consensus has emerged among legislators and special interest groups that the range for an education bond referendum will be $1.5 billion to $2 billion. The last statewide education bond referendum was in 1996, when voters approved a $1.8 billion for school construction and renovation projects. If the conventional wisdom is that another K-12 referendum is likely to enjoy overwhelming popular support, Civitas’ polling suggests otherwise. Only 45 percent of voters support a school bond referendum as a first choice. In fact, a full 15 percent of voters don’t want any new bonds at all. Moreover, there are strong reasons why a statewide bond referendum may not be the best way to address the current capital improvement needs of North Carolina’s public schools.

• Enrollment increases are not uniform. There are 115 school districts in the state. According to the North Carolina Department of Public Instruction, 19 school districts will grow by 10 percent or more over the next five years. Over the same time period, 57 school districts are expected to lose enrollment.

Schools with largest projected growth in ADM 2006-2011:

•  Is a statewide referendum fair? If only a handful school districts are expected to gain enrollment, is it right to ask taxpayers statewide to support enrollment increases in specific high-growth areas? Should parents in Asheville be asked to support new schools in Johnston County?

A statewide referendum masks shortcomings of current system. North Carolina statutes (G.S. 115C-408(b)) mandate: “It is the policy of the State of North Carolina that the facilities requirements for a public education system will be met by county governments.” Still, the state supplies local school districts with significant monies to assist with school construction. These resources include:

Public School Building Capital Fund (PSBCF): PSBCF assists county governments in meeting public school building capital needs and their equipment needs under their local school technology plan. The fund distributes a portion  (5/69ths of total revenue) of corporate tax revenue to school districts to assist with school construction. PSBCF distributed approximately $113.5 million to districts to assist with school construction in FY2006-07. 

North Carolina Education Lottery: State law designates 40 percent of education lottery proceeds for school construction. This past year, the N.C. Education Lottery distributed $131 million to local schools to assist with school  construction. Of these monies, 65 percent of the total is distributed to counties based on total school enrollment. The  remaining money is distributed to counties with higher tax rates than the state average (with distribution also based on  average daily membership (ADM)).

Because most school construction assistance is distributed according to ADM, larger school districts receive the bulk of the assistance. In light of current needs we should ask: How have school districts spent monies designated for school construction? Should the current law and formula be reviewed to target more resources to areas of greatest need?

Can School Facility Needs Be Met Without a Statewide Bond Referendum?

• Local bond referendum. Since costs are tied to local needs and facilities benefit those who pay these costs, local school bond referenda remain the most fair and effective vehicle for resolving school facility questions.
• Revenue changes. Formulas for distributing Public School Building Capital Funds should be revised to target more revenue to high-growth districts.
• Alternative Schools. Effective use of charter schools, modular schools, public-private partnerships, year-round schools of choice, satellite campuses, and virtual schools can help ease overcrowding and the demand for new facilities.
• Better use of resources. By using a better mix of pay-as-you-go funding, schools can significantly reduce interest paid on debt and increase the amount of funds available for facility construction.