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Business Observer Friday, Oct. 9, 2009 9 years ago

Schoolhouse ROCKED

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When the Legislature shifted school construction dollars to cover operating expenses it rocked a school construction industry already on its heels, and may now add to districts' borrowing costs if they can sell bonds at all.
by: Jay Brady Government Editor

When the Legislature shifted school construction dollars to cover operating expenses it rocked a school construction industry already on its heels, and may now add to districts' borrowing costs if they can sell bonds at all.


Schools won't be getting built like they used to because of flat enrollment and nearly $800 million in cuts to school district capital budgets from Pasco to Collier counties.

Those cuts effectively cancel the region's combined total of $361 million in transportation stimulus funds and $250 million schools received in federal dollars.

And, ironically, the school capital budget cuts come at a time when the requirements under the class size constitutional amendment get much tougher next year.

Beginning with the 2010-11 year, the standard tightens from an overall school average to the “budget busting” classroom level in the words of State Sen. Nancy Detert, R-Venice. A former Sarasota school board member, Detert sits on the education pre-K-12 appropriations committee and chairs the committee on education pre-K-12.

“If class size were implemented to the letter of the law, we'd have to build schools we can't afford,” Detert says.

Tim McGonegal, superintendent of the Manatee school district, says it will cost state taxpayers $1 billion dollars just on the operating side to go to the classroom standard, but only $600 million is proposed in the governor's preliminary budget.

In 2008, the school capital millage rate — the property tax rate devoted to school construction, maintenance, renovations and buses — was cut from 2 mills to 1.75 mills. (One mill equals $1 per $1,000 of taxable property value.)
This year, the Legislature cut it to 1.5 mills, but required county school districts to tack it on to the so-called “discretionary” millage rate to pay for operating expenses.

And with about $236 million in federal stimulus funds for the eight districts helping out with K-12 operating expenses, the districts' K-12 operating budgets are down by an average of only 4.2%.

A notable single exception is the Manatee school district's operating budget which increased nearly 2% primarily after giving employees a 1% raise. Collier's operating budget was flat being up less than 0.2%. The other six districts cut operating budgets from 2.7% (Pinellas) to 8.1% (Lee).

But capital budgets are down nearly 24% across the region, right in line with the 25% cut to the capital millage rate over the past two years. Manatee had the second biggest percentage cut to capital budgets in the region, slicing 30% from last year's capital budget — or $102 million.

“There's been a profound change from new schools to maintenance and repair of existing schools,” says Harry Kinnan, a 13-year member of the Manatee County school board.

Yet, while the eight districts' combined enrollment of about 580,000 is down a hair — just 753 or 0.1% over last year — three of the eight districts have more students than a year ago. Combined, those three districts —
Hillsborough, Lee and Pasco — now have $363 million less in their capital budgets or nearly half of the decline in the eight districts' construction funds.

While this school funding shell game saved districts thousands of teaching jobs across the state, it also not only may have cost good-paying construction jobs, but also hindered school districts from taking fuller advantage of construction cost savings from lower bids.

“In the past we would have one or two new schools under construction. Now we have no new schools, just two remodeling contracts,” says Peter Tuffo, vice president of Kraft Construction, the Fort Myers based commercial contractor and school builder with offices up and down the Gulf Coast.

Tuffo also sees firsthand the changes in the competitive landscape: “Overall construction costs in the area have gone down so they're able to get more for their money. We used to get four or five trade bid packages; now we're getting anywhere from 10 to 15.”

While construction jobs are not a top concern for school officials, a new concern to the districts' financial officers is the effect the lower capital revenues may have on bond ratings and future borrowing costs.

'Downgrade next year'
Pasco school's chief financial officer, Olga Swinson, sees the writing on the whiteboard (an interactive electronic chalkboard, and a popular new capital item). “The decrease in the millage from 2 to 1.5, that's having an impact especially since the tax roll keeps going down,” she says, explaining the double-whammy of a lower property tax rate and lower taxable property values.

Having done the math, Swinson, who also serves as vice president of the Florida School Finance Officers Association, adds, “In my district we've reached the cap for what we can borrow,” adding, “If the tax roll goes down more, which we expect, then we won't be able to borrow any more money.”

She says she has seen statewide tax roll projections declining another 6.3% next year.

Another source of capital dollars from utility taxes, the Public Education Capital Outlay (PECO), “is the lowest on record going back to FY 1992-93,” according to an Aug. 14 letter sent to districts from Commissioner of Education
Eric Smith. And the $161.9 million forecast for FY 2010-11 is only 13% of the 2008-09 PECO dollars.

Swinson also cautions that in addition to rising property insurance costs, bond insurance is increasingly a problem now that there's only one company offering it, saying, “We really can't get our insurance anymore.”

Although Swinson is not aware of any bond rating decreases yet, she says, “I know most of us are reaching the limit. We're probably going to see the downgrade next year. I think our district will be borderline.”

Wayne Blanton, executive director of the Florida School Boards Association, wants the Legislature to act soon on increasing the capital millage. “We will be advocating this next session, that we be allowed to go back to 2.0. We wanted to keep it to at least 1.75.”

Blanton also points out that with assessments trending down for several consecutive years, “Two is going to be equivalent to 1.5 soon.”

And that will catch the attention of bond rating agencies already under fire. The agencies have received heavy criticism in Congress and elsewhere for giving too high ratings to mortgage-backed securities and community development district bonds, a form of municipal bonds now seeing widespread defaults along the Gulf Coast.

According to Blanton, the lower tax rates and taxable values are “going to cost us an additional 1 to 1.5% in borrowing costs.”

That's got Swinson's attention and her group, which she says will be right in there with Blanton next legislative session lobbying for an increase to the millage rate.

But Swinson also adds, “It's not just the bond rating, it's the additional funds we need for maintenance and to meet our capital needs.”
Education lobbyists may face tough questions from Detert, who says “The timing for raising millage is very bad when thousands are losing their homes.” Instead, the senator has other ideas: “We're going to work on the class size amendment,” she says.

Less = more, more or less


Gulf Coast public schools spend vast sums to educate children.

The spending per student ranges from a low of $12,630 per student in Charlotte and $14,844 in Pinellas to $23,928 per student in Collier and $21,666 in Sarasota.

Does all this public school spending translate into educational success?

The Review looked at 2009's 10th grade FCAT reading and math scores for each district compared to the districts' combined operating and total budgets for the 2008-09 school year.

We also looked at each district's rating by the state. Four are “A”-rated and four are “B”-rated districts.

The operating and total budget figures for each district were divided by the combined total of the reading and math scores which range from 623 (Collier) to 647 (Sarasota). So, the fewer dollars spent per point, one could argue the more efficient the district is in producing positive results — more bang for the buck.

The data shows that the four school districts with “A” ratings (Charlotte, Hillsborough, Sarasota and Pasco) spend 5.7% less per pupil than the four “B”-rated districts. In fact, the “A”-rated Pasco County school district spends the least — $13.26 per FCAT point — and the “B”-rated Lee County school district spends the most — $15.87 per FCAT point.

The difference is even greater when looking at total budgets — a 16.1% spending increase by “B” districts over “A” districts — but the capital budgets tend to fluctuate more from year to year.
Sarasota County is the anomaly, spending the second most per math and reading FCAT point, $15.75, and is an “A”-rated district with the highest FCAT scores in the region.

Demographics and income levels are likely explanations, and that the district is home to nationally recognized Pine View School, a magnate gifted school. This year, Business Week put the school for intellectually gifted students at the top of its list for the “Best Overall Academic Performance” of any Florida public school.

If you throw out the Sarasota district's $15.75 operating cost per FCAT point, the other three “A” districts spend 8.2% less than the “B” districts.

Charlotte County's school district is a close second to Sarasota in combined reading and math FCAT scores with 642 points. But the “A”-rated district is also the second-most efficient spending only $13.28, just barely topped by
Pasco's $13.26, another “A” district. Pasco, however, falls just below the region's 633 average combined math and reading score at 629.

While statewide, enrollment has been declining the past three years, it now appears that at least the rate of decline is slowing. Though a further decline of 10,000 students was contemplated for this year's budget, only 2,700 fewer are forecast for the 2010-11 year.

Meanwhile, as Florida Commissioner of Education Eric Smith points out, the limited state education dollars may go more toward community colleges with their growing enrollments. And demands on the state's general revenues are increasing as well.

Smith also notes that while federal stimulus funds are again expected to be available next year, stimulus funding tied to the increased matching rate for Medicaid is set to expire in December 2010. That, and the possibility that federal health care legislation will increase the state's Medicaid budget by 30%, according to State Sen. Mike Bennett, R-Bradenton, could put K-12 public school funding to the back of the class.

The good news is that good school districts show how others can do more with less.

Capital Millage Levy


Section 1011.71(2), Florida Statutes, authorizes each school board to levy not more than 1.5 mills against taxable value for school capital purposes (with limited exceptions allowing for an additional .25 mills). Funds may be used for new construction, remodeling, and site improvement; expansion to new sites, existing sites, auxiliary facilities, or ancillary facilities; maintenance; renovations; school buses; new and replacement equipment; lease purchase agreement payments; payment of loans; environmental regulation compliance costs; and leasing of educational facilities.

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