EXECUTIVE SUMMARY





School Division Capital Improvement Funding Process




Joint work session with the School Board to discuss the School Division Capital Improvement Funding Process



Tucker, Castner, White, Breeden, Behrens, Reaser




AGENDA DATE:                     

August 9, 2005


ACTION:      X                              INFORMATION:    



     ACTION:                               INFORMATION:



ATTACHMENTS:      Yes (4)







As Albemarle County becomes more urbanized, increasing demands are placed on the County’s finances to fund  infrastructure improvements for the growing urban population.  Since more than 50% of County residents now live in the growth areas, rather than in the rural areas,  the County faces the financial challenge of paying for new roads,  sidewalks, stormwater facilities, fire stations, recreational space, libraries, etc. for the increasing urban population.  These urban demands were not as visible ten to twenty years ago, when more of the County’s capital financing was directed at building new schools and expanding existing schools for the growing student enrollment. The struggle to secure revenues for the growing infrastructure needs became more apparent during last year’s capital improvement budgeting process, when both the school division and local government submitted capital requests in excess of available resources.


With the County facing continued pressure to finance urban capital needs, while the need for school capital projects has leveled off due to a fairly level enrollment growth, the Board of Supervisors recognized the need to revisit the way we allocate resources, particularly debt service, in the CIP between the school division and local government needs. The Board of Supervisors requested that we hold a joint meeting with the School Board to discuss the issue of competing demands for capital improvement resources and agree upon a process for allocating capital funds between the school division and local government.


This executive summary identifies the problem with the current debt service allocation and proposes a funding method for debt service and a proposal to improve the capital improvement decision making process. Both school division and local government staff worked together to develop this proposal and support the recommendations outlined throughout this executive summary.


For background information, Attachment D provides a summary of the approved School Division CIP projects for FY06 – FY10, as well as the planned school projects for planning years FY11-FY15.  



4.2 Fund County services in a fair, efficient manner and provide needed public facilities and infrastructure




There are two identified problems or issues to be resolved:  (1) the great majority of CIP outstanding debt and debt service is currently allocated to school projects and does not, therefore, allow for increased local government debt for growing infrastructure needs; (2) the current process between the School Division, the CIP Technical Committee and the Board of Supervisors does not work well and can create an adversarial relationship between the Board of Supervisors and School Board over the reduction or “cutting” of the School Capital Improvement Plan. 


School Debt and Debt Service

The School Division has incurred the majority of County debt over the past 20 years, mostly due to an aggressive building and renovation program and the ease of debt issuance through Virginia Public School Authority (VPSA) bonds.  Based on the currently approved CIP, total outstanding debt at June 30, 2006 will be $90.5 million for the School Division and $24.7 million for Local Government. The attached chart (A) shows the County’s total obligated debt and each division’s share of that total.  In FY06, the School Division’s share of the total debt is 72%; Local Government’s share is only 28%.  


In looking at annual debt service, Chart B shows that in FY06, the Schools have 85% of the debt service, while Local Government has only a15% share. With an established financial policy of debt service to revenues ratio of 10% and a goal of   aligning the County’s ratio with other Triple AAA bond localities at 7%, school debt cannot be maintained at the same share of debt capacity and still allow for the growing debt service for the County’s infrastructure needs without increasing the available revenues or setting a specific target/limit for the School Division CIP.


CIP Decision Process

Currently the process for submitting and approving a School CIP Request often leads to a conflict between the School Board’s approved request and what the BOS is able to fund.  The Long Range Planning Committee develops a CIP request based on projected enrollment demands and other factors, which is then submitted to the School Board for approval.  The approved CIP request is then submitted to OMB to be reviewed by the CIP Technical Review Committee, comprised of County and School Division staff, BOS and School Board members and citizens. The majority of committee members do not have the knowledge to judge the validity, the timing or the increased cost estimates for the school projects, nor the authority to feel that they can reject or rearrange school projects that have already been approved by the School Board. Therefore, each year the School’s CIP projects are either approved as submitted, or if they significantly exceed revenues, the proposed changes would go back to the School Board for approval before a recommended CIP is submitted to the Planning Commission and the Board of Supervisors. Often, as was the case this year, the short budget review time frame does not allow time for the School Board to revise their requests prior to budget work sessions. This process, therefore, results in the perception that OMB and/or the Technical Committee cut the School Board’s approved CIP budget.


Proposed Solution

School Debt and School Debt Service

If the County intends to keep its annual debt service close to the ratio of debt service to revenues set by other Triple AAA localities (7%) and if the debt capacity of Local Government must grow to meet increasing infrastructure demands, then the share of school debt service must level off over the next ten years or additional revenues must be added to the CIP.


The attached Chart A of total obligated debt shows school debt going from 72% of the total to 58% in FY10 and 52% in FY15, while local government total debt goes from 28% to 48% bringing local government obligated debt and school obligated debt to a more equitable level.


The attached Chart B shows total county annual debt service rising from approximately $13 million in FY06 to $27 million in FY15. The School Division share of this debt goes from the current 85% to 62% in FY10 and 54% in FY15, while local government debt increases from its current 15% of the total to 38% in FY10 and 46% in FY15, again a more equal balance between schools and local government debt service.


Attachment Chart C shows that if these debt service targets are adhered to, the County’s overall debt service to revenue ratio will be in line with other Triple AAA localities.


These debt service targets, which will begin to equalize the debt service between the Schools and Local Government, will form the basis of the Capital Improvement Program projects funded by debt.  If these intended targets can be agreed upon by both Boards, then School Division projects will be requested within these debt parameters. This change will require school staff to perform more up front analysis on the impact of requested project costs on their debt service capacity and the impact of staging or sequencing projects to meet these targets.  School staff and the School Board will be able to add or delete projects or move projects into different years, as long as they stay within these approved debt targets.  It is important to understand that these targets do not reduce the level of school debt service, which in the approved CIP goes from approximately $11 million in FY06 to $15 million in FY15, but only the share of total debt service.  Even keeping to these targets, the School Division will still be able to issue $52.3 million additional debt for project costs over the next 5 years. 


Everyone recognizes that a ten-year plan will change, so unexpected changes caused by emergency situations or unplanned enrollment growth may occur. However, these should be rare exceptions to keeping requested projects within the debt service targets. Most changes will be accommodated by the School Division by adjusting their projects within the approved debt parameters.  However, if a new high school is to be considered necessary within the next 15 to 20 years, the joint boards must carefully consider the funding of debt, since a project of this proportion may not be able to be funded within the current debt service targets.


CIP Request, Recommendation and Approval Process
To alleviate the problems cited above and become more efficient with our time and more effective in our results, both School and Local Government staff is recommending that the request, review and approval process be revised in the following way:


The Long Range Planning Committee can still fulfill its role for the School Board in looking at long-term school needs and making recommendations for future projects.  However, the committee will need to understand the approved debt service parameters and, with guidance from School Division staff, will need to request projects that stay within the planned debt service targets. Their recommendation would still be forwarded to the School Board for review.


CIP Staff Review Team:  The function of this small staff team will be to review the technical details and cost information on requested local government CIP projects and then to rank projects based on our established CIP criteria.  The team would not rank or change school projects if they were within the allowable debt service limits.  If school projects did exceed available revenues, the team would resolve the discrepancy using team members from the School Division and OMB to work out the details.  This staff team will balance general government projects to revenues using OMB’s estimates of available revenues and debt service.


CIP Oversight Committee: This larger CIP committee would be broader based and comprised of staff members, representatives of the Board of Supervisors, the School Board and the Planning Commission, and community representatives. This committee would focus more on the broader policy issues and priorities in the Capital Improvement Program and would review the recommendations of the CIP Staff Review Team and provide input on priorities, timing and costs. This committee, would not need to review the technical aspects of each project, i.e. whether the square footage is correct, whether the costs have been estimated correctly, whether all costs have been accounted for, whether all revenues are there to support the project, etc. This review and analysis should already have been done by the staff team before it is presented to them.


This committee will not spend its valuable time trying to balance the projects against projected revenues or debt service, which is a complicated and detailed task, but will instead provide input on a funding and sequencing scenario(s) developed by the staff team.  Taking the details out from under the purview of this larger committee will free up their time to look at the big picture and countywide impacts, not the details of each individual project.


The final decision on the proposed Capital Improvement Program rests as always with the County Executive based on the recommendation of the Staff Review Team and the CIP Oversight Committee.



Staff recommends approval for the following:


·         Agree to the outstanding debt and debt service targets for school projects as shown on Chart A and Chart B;


·         Agree that the long term planning for funding a new high school in 15 to 20 years needs to begin no later than 2010;


·         Direct the Long Range Planning Committee to build their CIP project request within the agreed upon debt service targets;


·         Direct County Executive to form a CIP Staff Review Team to analyze the technical and cost details for requested CIP projects and make funding recommendations. School projects will be reviewed by this team, but not changed if they are within the approved debt service targets. Any funding discrepancies between school projects and debt service targets will be resolved by OMB and school staff representatives on this team;


·         Direct the County Executive to form a CIP Oversight Committee to include representatives of the Board of Supervisors and the School Board, staff and community members to review the recommendations of the Staff Review Team and provide input on priorities, costs and county wide CIP impacts.



Attachment A – Total Obligated Debt

Attachment B – Total Annual Debt

Attachment C – Debt to Revenue

Attachment D - Schools CIP Projects FY06-FY15

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