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The President's FY 2001 School Modernization Bonds Proposal

Questions and Answers

Q: How is the Administration's FY 2001 School Modernization Bonds proposal different from the proposal the Administration offered last year?

A: The Administration's new School Modernization Bond proposal is the same as last year's proposal, although it may include small technical modifications.

Q: How much would the Administration's proposal cost?

A: According to the Administration's estimates, the proposal would cost the U.S. Treasury $2.4 billion over five years.

Q: Why is federal help needed on school construction?

A: School construction is primarily a state and local responsibility, and it will remain so. The vast majority of school facility needs will be met with non-federal resources. However, states and school districts are facing urgent school facilities needs, and some state and local governments have not been able, on their own, to meet their needs. The Administration's proposal would support school construction and modernization in a manner that helps states and communities to increase their efforts to provide adequate school facilities for all children.

In 1995, the General Accounting Office (GAO) reported that one-third of America's schools need extensive repair or renovation of one or more buildings. About 60 percent of schools have at least one major building feature in need of repair. More than half have at least one unsatisfactory environmental condition, such as poor ventilation, heating, or lighting. The GAO estimates it would cost $112 billion to bring existing schools into good condition.

Many schools are already overcrowded, and the National Center for Education Statistics estimates that elementary and secondary enrollment will swell from 52.7 million in 1998 to 54.3 million by 2008. School districts will need to build 2,400 new public schools by the year 2003 and thousands more in later years to accommodate growing enrollments.

The federal government is not new to the school construction business. Currently, it allows states and local communities to issue school construction bonds to exempt from federal taxation the interest earned by the bond holder. The President's proposal changes the federal government's role by creating a new type of bond for school modernization: a tax-credit bond. Under this proposal, the Federal government gives the bond holder a tax credit in lieu of a cash interest payment. A tax-credit bond is a better value for the community because the federal government pays all of the interest whereas, under tax-exempt bonds, the community recoups only one-third of the interest payments.

Q: How will School Modernization Bonds help rural and high-growth suburban districts?

A: The Administration's school modernization proposal provides a great deal of flexibility to states in the use of the $11 billion in School Modernization Bonds reserved for them. States may issue the bonds or suballocate them to localities according to each state's own assessment of needs. Thus states will be able to provide rural and suburban districts with the funding they need to address their urgent school facilities problems.

In determining how they will allocate School Modernization Bonds, states must simply target the bonds to localities with a combination of inadequate school facilities and inadequate resources to address their school facility needs. These criteria could provide special consideration to rural areas — which often face urgent needs for school modernization and repair but lack a strong tax base to meet these needs — and to growing suburbs that lack the resources to build enough schools to meet their rising enrollments.

Q: Why does the School Modernization Bonds proposal reserve half the money for 100 urban districts?

A: Urban, rural, and high-growth suburban areas all face different and difficult school modernization needs; however, many school facilities problems are concentrated in urban districts, and these districts often have limited financial resources to meet their needs. In 1996, the GAO reported that 38 percent of central city schools have at least one inadequate building, as compared to 29 percent of schools in suburbs and large towns and 30 percent of small town and rural schools. In addition, 67 percent of central city schools (compared to 57 percent of suburban/large town schools and 52 percent of small town/rural schools) had at least one building feature, such as a roof, plumbing, or heating and air conditioning, needing repair or replacement.

The 1996 GAO report also points out that urban districts spend disproportionate sums to meet the special instructional needs of poor and immigrant students, and thus often forgo construction spending. The limited construction funds available in urban districts are often spent on emergency repairs, leaving little funding for new school construction or the modernization needed to bring existing schools into good condition.

Q: Will School Modernization Bonds help states and communities that have already passed school construction bond referenda?

A: Yes, states and communities that have recently passed school construction bond referenda could take advantage of the new School Modernization Bonds as long as they have not yet issued their school construction bonds.


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Last Updated -- April 3, 2000 (mhm)