When the Schenectady City School District in upstate New York went to the voters to approve a $48.2 million bond issue in January 2007, they had a pretty good sales pitch: We won't have to raise your taxes to do this.
The passage of the bond issue by an overwhelming margin - 81% of voters were in favor - was a "win for everyone because we can get all this work done with no local impact on taxes," said Mike San Angelo, the district's assistant superintendent for business.
He said voters were inclined to vote yes knowing that a state aid program begun in 2006 would reimburse the school district for almost all of the costs of school renovations.
The Expanding Our Children's Education and Learning, or EXCEL, program is credited with boosting school district project proposals by 80% so far this year compared to last, according to the state Department of Education, which must approve school capital projects outside of New York City.
And thanks to EXCEL, more districts are poised to issue bonds in the next year or two, market participants said.
"We've certainly seen an uptick in building projects," said Charles Bastian, a consultant at Bernard P. Donegan Inc., a financial advisory firm. The new EXCEL building aid "really helped a lot of districts jump-start projects - necessary renovation projects that they may have had," he said.
"There's been a pretty heavy volume," said Standard & Poor's director Robin Prunty. "We've seen a lot of districts with bond authorizations."
New York school districts appear to be having an easier time passing bond referendums because the EXCEL aid has, in some cases, meant that districts can sell new-money bonds without having to raise taxes.
"In typical years if you did not have that program available maybe not all the voter referendums would pass, and they'd have to go back and revise things and see if they could come back in a year or two and have another voter referendum," Bastian said. "In this case it seems like with the grant dollars a lot of these projects are having a very successful passage rate the first time through."
The Department of Education sets a maximum cost for what is eligible for state aid reimbursement for each district. State aid will cover a percentage of the cost of those capital projects and the district will be responsible for whatever is not covered, its so-called "local share" of the costs.
The percentage is set by a formula based on the wealth of the district, under which poorer districts are eligible for a larger percentage of their projects to be covered by state aid than wealthier districts. New York allocates the building aid to the projects over several years.
In the case of the Schenectady district, they receive a 96.8% reimbursement from the state for their building costs and are eligible for $7.5 million of EXCEL aid portion. The district will use its EXCEL aid to cover its local share of the projects' cost.
Carl Thurnau, coordinator for facilities planning at the Education Department, said that they advise schools to take advantage of state resources.
"There's two ways to use EXCEL: one is simply as a dollar for dollar," he said. "If you have a million dollars of EXCEL, do a million dollar project. The other way is to leverage EXCEL with the building aid because the law does say you can use it in combination with the other available aid, and therefore if you design a project to use EXCEL as your local share, then the entire state share can be paid with normal building aid so you can leverage that to a much larger project."
Changes in school construction aid aren't felt immediately statewide because school districts have to get voters to approve bond issues and then go to the state department of education for approval. Two years after EXCEL was approved those projects are starting to show up in such a large number that the department of education has a backlog of proposals to review.
Thurnau said that not all of them will be approved in time for the summer construction season when most districts take advantage of empty schools for their projects.
He said that a number of programs have increased bond activity in the past 10 years. In 1998, the state Legislature increased school building aid to school districts by 10%, which led to an increase in capital projects a few years later.
"We have seen the same thing with EXCEL," Thurnau said. "The rate that projects are coming in [this year] is 80% greater than last year."
Normally the Education Department tries to approve projects within eight weeks but that has increased now that the department has a backlog of more than 1,000 projects. Part of the increase is seasonal since all districts want to get building permits during the summer when they can get heavy work done without students around, according to Thurnau.
"Starting in late fall and going into the spring we annually see a huge increase in the number of projects coming in," he said. During last year's spring rush the department was able to keep its approval process down to about 16 weeks.
"This year we do expect, because of the EXCEL bump, we're going to hit 25 weeks or so" to approve projects, he said. "It's just compounded this year because of the EXCEL."
Thurnau said the department would not be able to review all the projects in time for the 2008 summer construction season, but that was the case even last year with a lighter load. Another cause of the larger load has been that school districts made a review of capital needs in 2005, just a year before EXCEL was passed.
"Many districts had thought that these projects would move along quickly through the state Education Department and they'd be ready to issue bonds this June," said Mark Vislosky, president of Fiscal Advisors Inc. "But because of the backlog many districts are issuing notes or they're going to simply miss the summer 2008 construction cycle, so they're going to end up waiting until 2009. Whereas we had thought there'd be a lot of financing this spring, we're probably going to see a lighter bond market, a heavier note market, and then in 2009 you'll pick up with a heavier bond market."
The Schenectady district has had some of its projects approved but San Angelo said that they don't expect everything to get the OK this year. The district plans to renovate all 18 of its school buildings over a four-year period, financing the project initially with bond anticipation notes before fixing out the debt as bonds, possibly next year. The district sold $12.3 million of Bans in 2007 to begin work on the projects.
Statewide, more bond issues have been sold so far this year but in smaller amounts while there has been an increase in the amount of Bans issued compared to the same period last year, according to Thomson Reuters data. School bonds sold by districts to date this year total $265.9 million in 47 issues. This compares to 44 bond issues by this time last year totaling $636.7 million. Districts have sold $224.2 million of Bans so far this year compared to $180.2 million during the same period last year.
The biggest year for school bonds sold by special districts in the last 10 years was 2002, when 414 issues totaling $3.92 billion were marketed, compared to $1.01 billion in 1998 and $1.54 billion last year, according to Thomson Reuters data.
The Legislature authorized the Dormitory Authority of the State of New York to sell $2.6 billion of personal income tax bonds to offer EXCEL grants to school districts for capital projects. Most of those grants, $1.8 billion, are earmarked for New York City and the remaining $800 million is available to school districts throughout the state.
To date, DASNY has sold $1.44 billion of personal income tax bonds for the EXCEL program and has approximately $1.16 billion remaining in its authorization.
"The Dormitory Authority expects to be speaking with the NY state division of the budget as early as [this] week to discuss another issuance of bonds for the EXCEL program," DASNY spokesman Marc Violette said in an e-mail.