Order Code RS20171
Updated August 28, 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
continues to be an issue in the 108th Congress, although school construction has
generally been considered a state and local responsibility. According to the National
Center for Education Statistics (NCES), the unmet need for school construction and
renovation is estimated to be $127 billion, a higher amount than the General Accounting
Office (GAO) previous estimate of $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 estimated at 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,†and “Legislative Action in the 106th-108th Congress†in this report for updated
legislative activity.
Legislative Action
The ESEA reauthorization, the No Child Left Behind Act (H.R. 1) was signed into
law on January 8, 2001 as P.L. 107-110. The final law 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 Consolidated
Appropriations Act for FY2003 (P.L. 108-7) provided $24.8 million for Credit
Congressional Research Service ˜ The Library of Congress
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Enhancement for Charter School Facilities and $44.7 million for Impact Aid
Construction, but did not provide funding for emergency repair or renovation for public
schools generally, as in the FY2001 appropriation.
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 calendar year 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 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 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
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. Beginning with FY2002, Impact Aid
construction increased to $48 million in appropriations.
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 were authorized for LEAs that lacked fiscal capacity and where school buildings were 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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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. However, GAO and NCES have
surveyed needs and projected costs to fulfill those needs.
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
need at $127 billion.6 The average dollar amount per school for renovation 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. School
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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construction reports indicate that growing enrollment is crowding both high schools and
middle schools in a large number of school districts. According to the School Planning
and Management’s 2003 School Construction Report, school construction valued at an
estimated $21.6 billion was completed in calendar year 2002, an “ absolute high pointâ€
for school construction. Of this amount, an estimated $12.4 billion went into the design
and construction of new schools. Plans for 2003 project approximately $20.8 billion in
construction dollars, representing a slight decline. However, construction dollars remain
at a high level, and the school construction “explosion that started in 1996 appears to have
continued virtually unabated.†The Construction Report indicates that school districts
appear to be building the “classrooms they have needed for the last decade.†The national
median cost of building a new elementary school is estimated at $8.5 million for a school
serving 650 students; for a middle school the national median cost would be $13.6 million
for a school serving 800 students; and for a high school serving 1,200 students the
national median cost would be $25 million.
FY2004 Budget
President Bush’s FY2004 budget proposed to fund the Credit Enhancement for
Charter School Facilities program at $100 million, and Impact Aid Construction at $45
million. President Bush’s education agenda in the FY2004 budget recommended that
local funds pay for school construction, encouraged the use of private activity bonds, and
indicated that supplemental funds were necessary for those schools with large percentages
of federally connected students and those residing on Indian lands.
Legislative Action in the 106th-108th Congress
Ticket to Work and Work Incentives Improvement Act of 1999, (P.L. 106-170)
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 received 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 were for competitive grants for use under the Individuals with Disabilities
Education Act (IDEA) or school technology, at the discretion of the local educational
agencies.
107th Congress: Some Selected Legislation
H.R. 1076 (Johnson, 107th Congress), America’s Better Classrooms Act.
Authorizes new tax credit school modernization bonds patterned after QZABs with limits
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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.
P.L. 107-110, No Child Left Behind Act. 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 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.â€
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 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
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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low-income children, but would have eliminated a separate authority for school
construction. His amendment failed. However, P.L. 107-116 did not contain funding for
school construction except for Impact Aid Construction ($48 million, reserving $1 million
for Ronan School District in Ronan, Montana for a new middle school, and providing $50
million to build and repair schools specific to Iowa).
P.L. 107-147, Job Creation and Worker Assistance Act of 2002. Extended the
current Qualified Zone Academy Bond program through 2003.
108th Congress: Some Selected Legislation
Consolidated Appropriations Act for FY2003. P.L. 108-7 provided $44.7 million for
Impact Aid school construction and $24.8 million for the Credit enhancement for Charter
school facilities program, with no general funding for emergency repair and renovation
of schools for FY2003.
FY2004 Labor, Health and Human Services and Education and Related
Agencies Appropriations (H.R. 2660, S. 1356). The House-passed version would
provide $75 million for the credit enhancement for charter school facilities program
whereas the Senate Committee bill recommends $0. The House-passed bill would
provide $44.7 million for Impact Aid Construction, the same as the Senate Committee
bill. There was no separate funding recommended for emergency renovation or repair for
schools.
H.R. 120 (Hoekstra). (Introduced January 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.
H.R. 717 (Rangel), America’s Better Classroom Act of 2003. (Introduced
February 26, 2003.) Similar to H.R. 930 (Johnson). To amend the Internal Revenue Code
to expand incentives for construction and renovation of public schools. Provides for a
limited tax credit and allocation formula for qualified public school modernization bonds,
qualified school construction bonds, and qualified zone academy bonds. No further
action.
H.R. 740 (Sanchez). (Introduced February 12, 2003.) To amend the Internal
Revenue Code to encourage school construction through the creation of a new class of
bond. No further action.
H.R. 1844 (Andrews). (Introduced April 29, 2003.) To establish state revolving
funds for school construction. Sets up a state revolving fund pilot program. No further
action.
S. 856 (Rockefeller). (Introduced April 10, 2003.) To amend the Internal Revenue
Code to expand incentives for construction and renovation of public schools. No further
action.