Local bond issuance for future school capital-construction projects in New York could shrink dramatically under a proposal to cap funding approvals at $2 billion annually in Gov. Andrew Cuomo’s executive budget.

Currently, the state Education Department approves building aid reimbursement for about $4 billion annually, split between New York City and the rest of the state. The state share of funding for school projects varies according to different formulas and is disbursed over 15 to 30 years, depending on the type of project. The aid is often pledged to pay debt service on bonds issued by the district or city. 

If adopted, Cuomo’s proposal would retroactively cap funding approvals from a new competitive construction fund on project applications received after Feb. 1, 2011. New York City could reserve $1 billion of funding approvals annually if it meets an April 1 deadline.

Under the current system, a school district goes to the Education Department to finds out what kind of reimbursement the state will give them on a particular project. Reimbursement rates for approved projects on debt are based on a district’s economic profile, with poorer districts receiving higher reimbursement than wealthier ones. Reimbursement also includes interest costs based on a formula.

The district then takes its proposal to a referendum. Following voter approval, the district returns to the Education Department for final approval. It can then begin to work on the project and sell bonds to finance construction.

Cuomo’s plan would change building aid from being an entitlement to a competitive process that ranks projects based on how necessary they are to fulfill specific needs.

“The reimbursement rate is need-based, but whether or not the project gets reimbursed is not need-based,” said Division of Budget spokesman Morris Peters. “You might have school districts that have buildings that in most states people would say, 'This is a perfectly fine building,’ but here in New York, where we reimburse projects really generously, they might look to replace it.”

The proposal would also create reimbursement ratios based on current fiscal capacity rather than historical capacity, as is the case in the current system.

Cuomo’s program bill, S. 2808 / A. 4008, lays out a six-tiered system under which projects would be categorized, with first-tier projects receiving priority.

Generally, the first tier would be for projects necessary to ensure health and safety of a school’s students or surrounding residents.

Second-tier projects would be for projects that address overcrowding.

Third- and fourth-tier projects would replace buildings that have been in use for more than 40 years and more than 20 years, respectively.

Projects that add capacity and augment classrooms or laboratories, or include renovations that extend the useful life of a building for at least 15 years, would be in the fifth tier.

Projects that don’t fall into any of those categories could be in the sixth tier, provided they modernize or renovate buildings that are more than 20 years old.

The Education Department, which approves about 2,000 projects annually, not including ones in New York City, would have to create a system to evaluate and rank proposals.

“That raises questions about how does this work with the voter-approval process,” said Robert Lowry Jr., deputy director of the New York State Council of School Superintendents, a professional and advocacy organization.

Instead of presenting the voters the cost of new high school building or renovations that includes state building aid reimbursements, referendums would have to include conditional language. 

“Here, you have to say, if we get approved, the state will reimburse 'X’ percent,” Lowry said. “It would make it harder to get projects approved.”

Lowry said the proposed system would be “administratively burdensome for the department.”

“They already have a backlog in processing these proposals,” he said. “The governor’s proposal would create more work for them because they would have to set up some sort of system and then go through the process of ranking the proposals.”

Since 2001, issuers have sold $25.34 billion of new-money bonds for schools, including $2.61 billion in 2010, according to Thomson Reuters. Those figures do not include data for bond issues that combined new money and refunding.

School construction aid for projects already approved would total $2.66 billion in fiscal 2012, according to the governor’s proposed budget.

Charles Bastian, a municipal consultant at the financial advisory firm Bernard P. Donegan Inc., said the proposed system could mean the beginning of conflicts between school districts.

“If they have to rank these projects, now you’re going to start into the struggle back and forth between school district A and school B in terms of 'hey, my project’s more important than your project’ and 'why is that project approved and this one’s not?’ ” Bastian said.

Another problem in setting up the rules would be figuring out how to determine the age of buildings for ranking projects into tiers. 

“I just got out of a meeting earlier with a district that’s got a building that was originally built in 1931, and then had a 1995 science wing addition and then a 2002 addition put on,” Bastian said. “So now what do you say the building’s age would be?”

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