School Facilities Infrastructure: Background and Legislative Proposals

School Facilities Infrastructure: Background and Legislative Proposals

Order Code RS20171
Updated January 27, 2006
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 109th 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 Government
Accountability Office (GAO, formerly the General Accounting Office) 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 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. P.L. 108-311
extended Qualified Zone Academy Bonds through 2005. In the wake of hurricane
Katrina an estimated 400 schools need to be rebuilt in Louisiana and Mississippi. S.
1765 and S. 1766 were introduced to authorize grants for schools affected by Katrina for
repair, alteration and construction, as well as help with the influx of displaced students
entering other schools. See sections on Legislative Action and Legislation in the 109th
Congress for updated legislative activity.
Legislative Action
The ESEA reauthorization, the No Child Left Behind Act, P.L. 107-110, contained
a cursory reference to school renovation in general; 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 under Impact Aid
Congressional Research Service ˜ The Library of Congress

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construction. The Labor, Health and Human Services, Education and Related Agencies
Appropriations for FY2006 (H.R. 3010/P.L.109-149) provided $17.8 million (excluding
the across-the-board rescission) for Impact Aid construction. The final FY2006
appropriation provided $36.6 million (excluding the across-the-board rescission) for
credit enhancement for charter school facilities, whereas the Senate Committee would
eliminate funding for the program.
Background
One major issue of concern in the 109th 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) and then through calendar year 2005 by
the Working Families Tax Relief Act of 2004, P.L. 108-311.
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 Brief Explanation; 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 RL31885, Impact Aid for Public K-12
Education: General Overview and Current Status, by Rebecca R. Skinner and Richard N. Apling.
Beginning with FY2002, Impact Aid construction increased from $12.8 million to $48 million
in appropriations.
5 The Infrastructure Act authorized direct federal grants for repair, renovation, alteration and
(continued...)

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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.
5 (...continued)
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.
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 research from NEA affiliates in all 50 states.

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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 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 2005 School Construction Report, school construction valued at an
estimated $20.2 billion was completed in calendar year 2004, rallying from a low point
in 2003 ($19.96 billion). From the 2004 construction level, an estimated $12.2 billion
went into the design and construction of new schools, with the remainder of the money
for renovation and additions to existing school buildings. Plans for 2005 project
approximately $19.6 billion in construction dollars, representing a slight decline. The
school construction “explosion that started in 1996 appears to have continued virtually
unabated” until 2003, but has rallied again in 2004. The national median cost of building
a new elementary school is estimated at $11.0 million for a school serving 600 students;
for a middle school the national median cost would be $15.0 million for a school serving
750 students; and for a high school serving 1,200 students the national median cost would
be approximately $31.0 million.
FY2006 Budget
President Bush’s FY2006 budget proposal to fund the Credit Enhancement for
Charter School Facilities program was $37.0 million, the same as the FY2005
appropriation, and Impact Aid Construction’s proposed funding was $45.5 million.
President Bush’s education agenda in the FY2006 budget recommended that local funds
and private activity bonds pay for school construction, that grants were to leverage funds
for charter school construction, and indicated that supplemental federal funds were to be
used for those schools with large percentages of federally connected students.
Legislative Action in the 106th-109th Congresses:
Some Selected Legislation
P.L. 106-170, Ticket to Work and Work Incentives Improvement Act of 1999,
extended authority to issue QZABs for 2000 and 2001with an allocation of $400 million.
P.L. 106-554, The Consolidated Appropriations Act, 2001 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.

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107th Congress
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
see CRS Report RS20932, Tax Exempt Bond Provisions in the “Economic Growth and
Tax Relief Reconciliation Act of 2001”, by Steve Maguire.
P.L. 107-110, No Child Left Behind Act. (H.R. 1) This reauthorization for most
elementary and secondary education programs under ESEA was signed into law on
January 8, 2002. As initially passed in the Senate, it would have allowed LEAs to use
funds for construction under “Innovative Education Program Strategies.” However, the
law did not retain the Senate amendment’s school construction initiative. H.R. 1
contained a credit enhancement plan for charter school facilities construction, as well as
a school facility emergency repair and modernization program under Impact Aid
construction. This section is primarily directed toward impacted school districts serving
children of parents in the military or children living on Indian land. It gives priority for
emergency repair to impacted districts based on severity of conditions and repairs needed;
and for LEAs that have a limited capacity to issue bonds.
P.L. 107-116, FY2002 Department of Labor, HHS, and ED 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 P.L. 106-554. Funds
would have been distributed to state educational agencies based on Title I-A, ESEA
allocations. 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
P.L. 108-7, Consolidated Appropriations Act for FY2003. 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.
P.L. 108-199, Consolidated Appropriations Act for FY2004. Provided $37.3
million for the credit enhancement for charter school facilities program and $45.9 million
for Impact Aid Construction. There was no funding for school repair in general.7
7 Other Legislative Proposals in the 108th Congress: 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.
(continued...)

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P.L. 108-311, Working Families Tax Relief Act. Extends Qualified Zone
Academy Bonds through calendar year 2005.
P.L. 108-447, Consolidated Appropriations Act, FY2005. For Impact Aid
construction, the final appropriation provided $48.5 million for Impact Aid construction.
For Charter school credit enhancement the final appropriation provided $37.0 million for
charter school credit enhancement for FY2005.
109th Congress (First Session)
S. 1055 (Kennedy) (introduced May 17, 2005). No Child Left Behind
Improvement Act of 2005. Authorizes $250 million for FY2006 for school construction
and renovation grants aimed at overcrowded schools and those LEAs fulfilling school
choice requirements. No action.
S. 1538 (Rockefeller) (introduced July 28, 2005)/H.R. 1742 (Rangel) (introduced
April 20, 2005)/America’s Better Classroom Act of 2005. To amend the Internal
Revenue Code to expand incentives for construction and renovation of public schools.
Provides for a tax credit and allocation formula for qualified public school modernization
bonds, qualified school construction bonds, and qualified zone academy bonds. (similar
to H.R. 1076 in the 107th Congress) authorizes new tax credit school modernization bonds
patterned after QZABs with bond limits of $11 billion for 2006 and 2007, expands
QZABs to include new construction, and provides the QZAB limit of $1.4 billion for
2006 and 2007. No action.
S. 1765 (Landrieu)/S. 1766 (Vitter) (introduced September 22, 2005) Louisiana
Katrina Reconstruction Act. Assists areas impacted by Katrina to repair, renovate, alter
or construct facilities critical to the educational needs of students. Also assists areas
impacted by the large influx of displaced students. No action.
H.R. 4297 (Thomas)/S. 2020 (Grassley). Tax Relief Extension Reconciliation
Act of 2005. Would extend Qualified Zone Academy Bonds through 2006. H.R. 4297
passed the House 12/8/05. S. 2020 passed the Senate 11/18/05.
7 (...continued)
No 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 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 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 action.