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A r c h i v e d  I n f o r m a t i o n

The President's FY 2001 Urgent School
Renovation Loans and Grants Proposal

Questions and Answers

Q: How is this proposal different from last year's School Construction proposal?

A: The President's FY 2001 budget proposal renews last year's plan to create a School Modernization Bond initiative that would provide $24.8 billion in tax-credit bonds over two years to help modernize or construct over 6,000 schools. To complement these bonds, this year the President is also proposing direct spending for loans and grants to support about $33.5 billion over five years for urgent renovation projects in high-need school districts.

Q: Who would be eligible to receive the grants and loans?

A: We expect the grant program to be targeted directly to areas with the very highest need. The loan program will also be based on need, but will provide more school districts with the opportunity to receive assistance than will the grant program.

Q: The Administration has proposed school construction measures three previous times. Why do you believe it will pass this year? Is there Congressional support?

A: There is growing momentum in Congress for greater support for school facilities. Last year, a bipartisan House majority co-sponsored school construction legislation. For example, over 230 members co-sponsored either Rep. Charles Rangel's proposal, Rep. Nancy Johnson's proposal, or both. With the strong support of the President, we can enact school construction legislation this year.

Q: Overall, what percentage of schools are in need of emergency funding?

A: A 1995 report by the General Accounting Office found that 40 percent of schools reported needing a total of $36 billion to repair or replace one or more building features. In addition, GAO found one-third of schools needed a total of $65 billion to make major repairs and replacements.

Q: Does the funding address the overall problem? What percentage?

A: Unfortunately, current and comprehensive data on school renovation needs are not available. In 1995, the General Accounting Office concluded that $112 billion was needed to bring all schools into good condition.

Under the President's proposal for interest-free federal loans and grants, $1.3 billion in federal funds a year would leverage state and local funds to support nearly $6.7 billion in school renovation. Over five years, this federal-state-local partnership will make a significant difference in the physical condition of our nation's schools.

Q: The projected federal cost of the grant and loan program is $1.3 billion a year, but the projected renovation supported is $6.7 billion a year. How does the proposal leverage additional funding?

A: The proposal provides school districts with interest-free loans. Districts would be required to repay the principal they borrow. The cost to the federal government is the interest subsidy and any defaults. The Office of Management and Budget estimates that $1.3 billion of federal funds would support roughly $6.7 billion in loans and grants.

Q: How much of the $1.3 billion per year would go to loans and how much to grants?

A: The proposal provides $175 million for grants, including $50 million for school districts with high concentrations of Native American students. The remaining $1.125 billion would support roughly $6.5 billion in interest-free loans.

Q: Can the loans and grants be used for major renovation, such as a new plumbing system, or will their use be restricted to smaller projects so more projects can be funded?

A: Loans and grants should be sufficient to pay for large renovation projects, such as plumbing, heating and cooling, electricity, and roof repair or replacement. However, the loans and grants will probably not be large enough to pay for whole-building renovation.

Q: Can the loans and grants be used for school construction, such as building a new school?

A: No, the loans and grants are intended to help school districts meet the pressing need for high-priority school renovation projects. However, the Administration is also proposing school modernization bonds to help districts afford new construction.

Q: Who would administer the grant and loan program?

A: The program would be administered by the Department of Education. The Department will administer the origination of loans, servicing of loans, or both through a performance-based contract.

Q: Would the Davis-Bacon Act prevailing wage requirement apply to the school renovation loans and grants?

A: Yes. Section 439 of the General Education Provisions Act makes the prevailing-wage requirements of the Davis-Bacon Act applicable to construction and minor remodeling carried out under programs administered by the Department of Education. Because the proposed program would be administered by the Department, it would be covered by Davis-Bacon, just like the Department's other programs are.

Q: Will districts have to issue bonds or otherwise borrow to pay back the federal loan?

A: It's possible, depending upon the circumstances of the district. However, the loan size and repayment terms will be designed to allow most districts to repay the loans out of their annual budgets. The loans are expected to average about $1 million per project and districts will have seven years to repay the loans interest-free. As a result, districts would be required to make an annual payment of only about $150,000 per loan, on average.

Q: How will the Department ensure that federal funds are used to supplement, not supplant, existing activities?

A: Under the proposal, the Department will require recipients to certify that federal funds will be used only to supplement, and not supplant, the amount of school renovation that the state or community would have otherwise undertaken.

Q: What will be the outcome if the funding is not approved?

A: Under current projections, states and localities will continue to spend about $20 billion a year on school construction and renovation. This level is far short of the national need. As a result, millions of students would continue to attend sub-standard school facilities.

Q: Can towns and school districts take out federal loans if they can't issue bonds?

A: School districts will generally not have to issue bonds in order to borrow school renovation loans. However, it's possible that some communities and school districts may face debt ceilings that do not permit them to participate in the program.

Q: How would I know if my district should seek funding through school modernization bonds, Qualified Zone Academy Bonds (QZABs), loans, or grants? What are the different eligibility criteria and restrictions upon use?

 

Permissible Uses

Eligibility

Characteristics

Qualified Zone Academy Bonds

QZAB proceeds may be used for renovating school buildings; purchasing equipment; developing curricula; and training school personnel.

Under current law, the proceeds may not be used for construction. However, the President's proposal would make new construction an allowable activity.

States allocate bonding authority among schools, which must (1) be located in an empowerment zone or enterprise community or (2) have at least 35 percent of their students eligible for free or reduced-cost lunch.

-- Available now.

-- Helps low-income communities meet their most pressing needs school renovation needs and other necessary activities such as investing in technology and training teachers.

-- Requires public-private partnership.

School Modernization Bonds

Bond proceeds could be used for school construction and extensive repairs.

Half of the bonding authority would be allocated to (1) the 100 districts with the most children living in poverty and (2) states to allocate according to their priorities.

-- Would help districts accommodate rising enrollments by building new schools.

-- Would be available to more communities than QZABs.

School Renovation Loans

School renovation and repair projects including roofs, heating and cooling systems, and plumbing.

Targeted to areas of need.

-- Would help high-need school districts meet urgent renovation needs.

-- Would jump-start renovation quickly.

School Renovation Grants

Same as above.

Targeted to areas of highest need.

-- Same as above.

-- Would not need to be repaid.

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Last Updated -- April 3, 2000 (mhm)