Order Code RS20171
Updated January 14, 2003
CRS Report for Congress
Received through the CRS Web
School Facilities Infrastructure:
Background and Legislative Proposals
Susan Boren
Specialist in Social Legislation
Domestic Social Policy Division
Summary
The federal government’s role in financing school construction and renovation will
continue to be an issue in the 108th Congress, although school construction has generally
been considered a state and local responsibility. According to a National Center for
Education Statistics (NCES) study, the unmet need for school construction and
renovation is estimated to be $127 billion, a higher amount than the General Accounting
Office (GAO) had previously estimated ($112 billion) using a similar methodology.
NCES indicates that three-quarters of the nation’s schools report needing funds to bring
their buildings into a “good overall condition.” The Department of Education (ED) has
documented that the average age of a public school building is 42 years, an age when
schools tend to deteriorate. Indirect federal support for school construction is currently
provided by exempting the interest on state and local governmental bonds from federal
income taxes, as well as other tax code provisions. P.L. 106-554 provided direct
funding of $1.2 billion for emergency school renovation and repair. The No Child Left
Behind Act (P.L. 107-110, the Elementary and Secondary Education Act (ESEA)
reauthorization) increased funds for Impact Aid construction and established a credit
enhancement plan for charter school construction. P.L. 107-16, the Tax Relief
Reconciliation Act of 2001, aided tax-exempt bond financing by loosening arbitrage
rebate rules and by expanding the definition of private activity bonds. See “ Legislative
Action” below and “Legislative Action in the 106th and 107th , and 108th Congress” in
this report, for updated legislative activity.
Legislative Action
H.R. 1, the ESEA reauthorization bill, entitled the No Child Left Behind Act of
2001, was signed into law on January 8, 2001 as P.L. 107-110. The final conference
report on H.R. 1 contained only a cursory reference to school renovation in general as it
pertained to health and safety of schools; but it did include enhanced credit provisions for
construction under an expanded charter school demonstration program, and provided for
school facility emergency repair and modernization in a construction section under
Impact Aid. The Senate-passed version of the FY2002 Labor, Health and Human
Congressional Research Service ˜ The Library of Congress

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Services, and Education, and Related Agencies (L-HHS-ED) Appropriations bill, H.R.
3061
, included $925 million for emergency renovation of schools. However, the final
conference version did not contain the Senate’s proposed funding level ($925 million) for
an emergency construction, renovation and repair program, but under Impact Aid,
increased the funding level for construction to $48 million (reserving $2 million for
Killeen Independent School District in Texas, and $1 million for Ronan School District
in Ronan, Montana for a new middle school), and provided $50 million for a construction
demonstration program specific to Iowa. The L-HHS-ED Appropriations Act for FY2002
was signed into law on January 10, 2002 as P.L. 107-116.
Background
One major issue of concern in the 108th Congress is whether the federal government
should assume greater responsibility for school construction. Some argue that the federal
government already provides indirect financial support for school construction by
exempting the interest on state and local governmental bonds from federal income
taxation, at a varying annual cost to the federal government.1 The exemption allows
bonds to be issued at lower interest rates that still provide competitive returns. In
addition, the Taxpayer Relief Act of 1997 (P.L. 105-34) authorized tax credits for a new
form of obligation called “qualified zone academy bonds (QZABs).” QZABs may be
used for schools based in Empowerment Zones or Enterprise Communities, or with 35%
of students qualified for free or reduced price lunches under the federal school lunch
program.2 QZABs were extended through 2003 by the Job Creation and Worker
Assistance Act of 2002 (P.L. 107-147).
The federal government’s direct role in financing elementary and secondary school
construction began with Impact Aid laws in 1950. There were also some precursors to
the Impact Aid legislation that provided funds indirectly for school construction. Some
relief bills during the New Deal expanded definitions3 of relief and public works to
include school construction. However, there has been a gap in federal funding for a formal
program for school construction, other than through the Impact Aid construction program,
which has had a substantial reduction in funding in the past. 4 In the 103rd Congress, the
1 The total revenue loss on the outstanding stock of tax-exempt bonds was estimated in 2000 at
$22.6 billion. The portion of that loss represented by construction bonds has not been calculated.
See CRS Report RL30638, Tax-Exempt Bonds: A Description of State and Local Government
Debt
, by Steven Maguire.
2 See CRS Report RS20606, Qualified Zone Academy Bonds: A Description of Tax Credit
Bonds
; and CRS Report RS20699, Funding school Renovation: Qualified Zone Academy Bonds
vs. Traditional Tax-Exempt Bonds
, both by Steven Maguire.
3 An extension of the Lanham Act (P.L. 137, 77th Congress) authorized funds for and included
school construction in the definition of “public works” projects.
4 For further information on Impact Aid, see CRS Report RL30075, Impact Aid: Overview and
Reauthorization Issues
, by Richard Apling. The Consolidated Appropriations Act for FY2001
provided $12.8 million for Impact Aid construction. For FY2002, Impact Aid construction
received $48 million in appropriations.

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Education Infrastructure Act of 1994, Title XII of the ESEA, was enacted as a federal
grant program for school infrastructure. The grant program was never funded.5
Estimates of Construction Needs
Accurate estimates of school construction needs are difficult to obtain and most are
based on opinion surveys of local school officials.
GAO Reports. Eight GAO reports have been issued (three in 1995, three in 1996,
one in 1997, and one in March 2000) dealing with school facilities. America’s Schools
Report Differing Conditions
(GAO, June 1996) surveyed a national sample of 10,000
schools. School officials were asked to estimate costs to repair or upgrade facilities to a
“good overall condition.” At a minimum, officials estimated that $11 billion was needed
to comply with federal mandates, with a total estimated need of $112 billion.
The last in a series of GAO reports, School Facilities: Construction Expenditures
Have Grown Significantly in Recent Years (GAO-HEHS-00-41, March 2000) concludes
that construction expenditures for public elementary and secondary schools (86,000)
across the nation have grown by 39% from FY1990 to FY1997, to about $25 billion in
inflation-adjusted 1998 dollars. However, average annual construction expenditures
varied widely from state to state ranging from $934 per pupil in Nevada to $37 per pupil
in Connecticut, with the national average at $473. According to GAO, states with the
largest per pupil expenditures for construction (e.g., Nevada), also had high enrollment
growth rates. Most school construction is financed by state and local governmental
bonds, the interest on which is basically exempt from federal income tax
. In most
states there is some combination of local and state funding, although 15 states provided
little or no state funding for school construction in 1998-1999. GAO indicated the data
are incomplete with regard to funding sources for school construction, and an accurate
estimate of the cost for construction needs is also difficult to obtain.
National Center for Education Statistics (NCES) Study. An NCES study,
Condition of America’s Public School Facilities (NCES2000-032, 1999), from its Fast
Response Survey System, used a similar methodology to GAO’s based on local school
officials’ reported construction needs. The study indicates that approximately three-
quarters of schools reported needing money for repairs, renovations and modernizations
to place the schools’ current buildings in a “good overall condition.” NCES estimates the
5 The Infrastructure Act authorized direct federal grants for repair, renovation, alteration and
construction of public elementary and secondary schools, school libraries, and media centers.
Grants are authorized for LEAs that lack fiscal capacity and where school buildings are in urgent
need of repair. The initial funding for the Infrastructure Act, Title XII ESEA for FY1995 ($100
million), was rescinded with no subsequent funding.

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need at $127 billion.6 The average dollar amount per school is about $2.2 million and the
average cost per student for repair and modernization is $3,800 per student.
Enrollment Projections and Construction
According to the Projections of Education Statistics to 2010 by NCES, the
projection for total K-12 enrollment for 2010 will be over 53 million students. According
to the 2002 Construction Report by School Planning and Management Magazine,
growing enrollment is crowding high schools and middle schools in a large number of
school districts. In 2000, $21.2 billion worth of school construction was completed, the
largest annual construction expenditure of all time, and in 2001, school districts spent an
estimated $20.34 billion on construction, the second largest construction year in U.S.
history. I t is projected that 2002 will be the third year in a row during which school
construction will total over $20 billion, although results are not final. The Construction
Report
indicates that school districts appear to be building the “classrooms they have
needed for the last decade.”
Legislative Action in the 106th and 107th Congress
P.L. 106-170, the “Ticket to Work and Work Incentives Improvement Act of
1999,”contained an extension of authority to issue QZABs. The proposal expanded
QZABs with an allocation of $400 million for both 2000 and 2001.
The Consolidated Appropriations Act, 2001, P.L. 106-554, contained $1.2 billion
for direct federal funding of school renovation and repair. Of the $1.2 billion, $25 million
was appropriated to fund a charter school demonstration project and $75 million was for
schools with at least 50% of their students living on Native American lands (only these
schools can use these funds for new construction). Also from the $1.2 billion, P.L. 106-
554 provided $3.25 million for grants to local educational agencies in outlying areas for
the renovation and repair of high-need schools. The Consolidated Appropriation Act
provided that the remaining amount ($1,096,750,000) be distributed to states under the
Title I, ESEA formula, with a set-aside of one-half of 1% minimum for small states.
School districts receive 75% of the funds through competitive grants for renovation and
repair, targeted to poverty level schools and rural schools. Twenty-five percent of the
funds are for competitive grants for use under the Individuals with Disabilities Education
Act (IDEA) or school technology, at the discretion of the local educational agencies.
Application forms were published for the program on May 18, 2001 and a distribution
table was printed delineating state allocations.
FY2003 Budget. President Bush’s FY2003 budget proposed to fund the Credit
Enhancement for Charter School Facilities program at $100 million, and Impact Aid
construction at $45 million (in FY2002 Impact Aid construction received $48 million, and
6 The highest estimate is from a National Education Association (NEA) study published in 2000,
Modernizing Our Schools: What Will it Cost? NEA suggests that the total funding need for
public school modernization is $321.9 billion. Of that total, $268.2 billion of the need is for
school infrastructure, and $53.7 billion of the need is for education technology. This report was
prepared as a state-by-state assessment, using several databases and research from NEA affiliates
in all 50 states.

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in FY2001 it received $12.802 million in appropriations.) President Bush’s education
agenda in the FY2002 budget proposed expanding the use of private activity bonds for
public school construction, increasing construction funds for schools with large numbers
of Native Americans, and increasing the Impact Aid Construction program.
H.R. 1076 (Johnson) (107th Congress). America’s Better Classrooms Act.
Authorizes new tax credit school modernization bonds patterned after QZABs with limits
of $11 billion annually on bond authority. Expands QZABs to include new construction
and increases the QZAB limit to $1.4 billion each year for 2 years. Both the expanded
QZABs and the new tax credit school modernization bonds would require compliance
with Davis-Bacon provisions.7 There was no further action.
P.L. 107-16, Economic Growth and Tax Relief Reconciliation Act of 2001. This
law contains two provisions aimed at encouraging more tax-exempt bond financing of
public school construction: loosening the arbitrage rebate rules for some issuers and
expanding the definition of private activity bonds. For a description of these provisions
and their likely effects on public school construction, see CRS Report RS20932, Tax
Exempt Bond Provisions in the Economic Growth and Tax Relief Reconciliation Act of
2001
.
H.R. 1 / P.L. 107-110. The authorization for most programs of federal aid to
elementary and secondary education under ESEA technically expired in FY2000. On
January 8, 2002, the President signed into law (P.L. 107-110) the ESEA reauthorization
bill, H.R. 1, entitled the No Child Left Behind Act. H.R. 1, as it initially passed the
Senate, would have allowed LEAs to use funds for construction under “Innovative
Education Program Strategies.” However, the conference version did not contain the
Senate amendment’s school construction initiative. H.R. 1 did contain an expansion of
the charter school demonstration program and a credit enhancement plan for charter
school facilities construction, as well as a school facility emergency repair and
modernization program under a construction section in Impact Aid. This construction
section is primarily directed toward impacted school districts serving children of parents
in the military or children living on Indian land. This section gives priority for emergency
repair to impacted districts in order of the severity of conditions and repairs needed; for
modernization in relation to the severity of the need for modernization; and for LEAs that
have a limited capacity to issue bonds. An expanded definition for school district
eligibility includes districts that are “40 percent impacted and are part of an LEA that has
no bonding capacity or has used up at least 75 percent of its bonding capacity, and has an
assessed value of taxable property per student that is in the lowest 50 percent of school
districts within the state.”
H.R. 3061 / P.L. 107-116, FY2002 Department of Labor, Health and Human
Services, and Education, and Related Agencies Appropriations Act. The Senate
version of H.R. 3061 included $925 million for grants to local educational agencies for
emergency school renovation and repair, patterned after the emergency program in P.L.
106-554. Funds would have been distributed to state educational agencies based on Title
7 See CRS Report 94-908, Davis Bacon: The Act and the Literature; and CRS Report RL31063,
The Davis-Bacon Act: Issues and Legislation During the 107th Congress, both by William
Whittaker.

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I-A, ESEA allocations. State funds would have been distributed to LEAs as competitive
grants. In the event the LEAs’ renovation applications were of insufficient quality and
quantity, any excess allocation could be used for any purpose (according to Section 5331
of H.R. 1), including professional development, acquisition of instructional materials and
school improvement activities. An amendment by Senator Gregg (S.Amdt. 2056,
November 1, 2001) attempted to take the $925 million for renovation and move that
authority into the “targeted grants” Title I formula, which would have increased the
money under Title I for low-income children, but would have eliminated a separate
authority for school construction. His amendment failed. However, the conference
version of H.R. 3061 did not contain funding for school construction except for Impact
Aid construction ($48 million) and a $50 million demonstration program to build and
repair schools in Iowa.
P.L. 107-147, Job Creation and Worker Assistance Act of 2002. Extends the
current Qualified Zone Academy Bond program through 2003.
Legislative Action in the 108th Congress
H.R. 120 (Hoekstra). (Introduced 1/7/2003). To amend the Internal Revenue Code
of 1986 to allow a credit against income tax for contributions for scholarships to attend
elementary and secondary schools,... for upgrading elementary and secondary school
facilities.
(Referred to House Committee on Ways and Means)