RICHMOND – When Gov. Glenn Youngkin signed his first budget in June, it included a record investment in public education, such as a 10% salary increase and one-time bonus for teachers – and $1.25 billion to leverage more than $3 billion for school construction and modernization projects. In the six months since, school divisions in fiscally distressed localities across the commonwealth have been eagerly waiting to tap into those funds, hoping to update or replace their crumbling school buildings.
The hold-up, during which state officials developed guidelines and criteria for grant applications, might be over soon. Kent Dickey, deputy superintendent of the Division of Budget, Finance, and Operations at the Virginia Department of Education, told members of the Commission on School Construction and Modernization at a recent meeting in Richmond that he expects the enrollment period to begin sometime in late January.
“We’re completing the final language that the Board of Education requested of the department, staff is working on a very final version of the guidance, and we are actively working with the office of the attorney general to complete that,” Dickey told the panel. “We’re as eager as anyone to get it launched and get it ready to go, but I think we’re looking at January and perhaps even later in the month.”
In the meantime, the commission – which the General Assembly created in 2020 to examine the state of K-12 school infrastructure across the commonwealth – adopted seven recommendations for lawmakers to consider when they convene in Richmond for the 2023 legislative session on Jan. 11.
Most of these proposals are designed to make more funds available for a greater number of school divisions while reducing the bureaucratic hurdles in the application process.
The recommendations – some of which are already consistent with the guidelines developed by the Board of Education – will be introduced during the upcoming session in the form of legislation and budget amendments.
Among them is a renewed push for the legislature to allow all localities in Virginia to impose a 1% increase in their sales tax, subject to voter approval and to be used solely for school construction or renovation. During the 2022 session, legislation sponsored by Sen. Creigh Deeds, D-Charlottesville, was passed in the Senate but was defeated by a Republican-led House subcommittee.
However, the General Assembly still approved an unprecedented investment of almost more than $1.2 billion in a combination of grants and loans for school construction. Of this amount, about $850 million have been allocated for grants, of which $400 million are formula grants that go to each school division with flexible use.
“This is similar to the program that existed prior to the recession,” Tyler Williams, a legislative fiscal analyst for the Senate Finance and Appropriations Committee, told the panel.
Under this program, all 134 school divisions in the commonwealth will receive a $1 million base allocation with the remaining $266 million being distributed based on a locality’s Local Composite Index (LCI), which considers property value, adjusted gross income, taxable retail sales, and the student and total population in each school division. The LCI is calculated every two years.
“Expenditures are pretty flexible and can be used for debt service on projects completed or initiated during the last 10 years,” Williams said, adding that divisions are allowed to carry a positive funding balance into future fiscal years.
Another $450 million will be made available in the new School Construction Fund and Program, a competitive grant program created during the 2022 legislative session by House Bill 563, sponsored by Del. Israel O’Quinn, R-Washington County, and Senate Bill 473, sponsored by Sen. Jennifer McClellan, D-Richmond, the commission’s chair.
This program follows a recommendation by the panel from last year and benefits divisions with poor building conditions and a higher fiscal need, helping to pay for school construction, renovation or the expansion of public school buildings. It directs 98% of the state’s gaming revenues from the four casinos approved in Virginia – Bristol, Danville, Portsmouth and Norfolk – to that fund, which is administered by the Virginia Board of Education.
Williams said that by October, total tax revenues from the Bristol Casino were $7.2 million, with $4.7 million going towards the school construction fund. “Lottery estimated that it would be about $23.4 million collected for Fiscal Year 2023 from Bristol, and my calculation is that it would be about $15 million for the gaming proceeds fund that would then be transferred to the school construction assistance program,” he said.
Williams added that the 2019 study of gaming in Virginia by the Joint Legislative Audit & Review Commission found that by 2028, the four casinos would “generate about $102 million that would then be the portion for the school construction gaming proceeds fund.”
The program also requires the Department of Education to develop and maintain a data collection tool to assist school boards in determining the relative age of each school building and amount of reserve funds needed to restore each building.
In Virginia, public school divisions get the bulk of their funding for school construction and modernization needs from their local tax base – an increasingly difficult undertaking especially for localities in the far Southwest suffering from population decline and economic downturns. Recent data provided by the Virginia Department of Education shows that the total cost to replace about 1,000 schools that are at least 50 years old would carry a price tag of more than $25 billion.
For many years, help from the state was mostly limited to providing access to the Literary Fund, a permanent and perpetual school fund established in the Constitution of Virginia that provides low-interest loans for school construction, grants under the interest rate subsidy program, and debt service for technology funding, all based on local composite index rates.
Revenues to the Literary Fund are derived primarily from criminal fines, fees, and forfeitures, unclaimed and escheated property, unclaimed lottery winnings and repayments of prior Literary Fund loans. In recent years, most school divisions primarily used the fund to help pay for teacher retirement.
But during the 2022 legislative session, lawmakers made modifications to the loan program through the $400 million fund. For example, they increased the maximum loan amount from $7.5 million to $25 million, with a maximum interest rate of 2%.
“The General Assembly allocated additional general funds to support teacher retirement costs, which freed up the Literary Fund to be able to issue construction loans for the first time in a long time,” Williams said.
Meanwhile, the Virginia Board of Education has worked to establish selection criteria for the competitive grant program, considering local funding commitment, local fiscal needs and local composite index and fiscal stress classification. After the legislature passed the legislation establishing the program for school construction, divisions haven’t always been sure if they qualify to receive money to help fund specific projects.
Under the program’s guidelines, project costs must include planning, design, site acquisition, core building construction and site work. Divisions can apply for grants covering up to 30% of approved project costs, at a $100 million cap for the project. “This is the basis for the competitive grant awards, and that’s dependent on the school division’s composite index and the fiscal stress designation of a locality,” said the VDOE’s Dickey.
Qualifying projects also must meet a minimum total score on competitive criteria in the categories of Commitment, Need and Poor Building Conditions. Awards are prioritized based on ranked project scores, with one grant awarded per project.
In devising the guidelines, the Board of Education reviewed drafts at its October and November meetings, offered opportunities for public comment and adopted a final version at its Nov. 17 meeting, with direction to DOE staff to incorporate language allowing projects beginning construction on or after July 1 to apply for funding.
“We’re currently working with the Attorney General’s office on language to weave into the guidelines,” Dickey said.
Once the open enrollment period begins early next year, school divisions may apply online for grant funding during what Dickey said will likely be an eight- to 10-week window. “With capital type projects it takes time locally, of course,” he said.
The submitted applications will be evaluated and scored on 11 competitive criteria the board established in the guidelines on “a maximum 100-point scale attempting to align to and reflect the commitment, need and poor building condition categories that the General Assembly established in the budget language,” Dickey said, adding that the minimum qualifying score is 65 points on the 100-point scale.
Additional criteria for application eligibility requires projects to be in the local planning phase, planned or documented in a locality’s Capital Improvement Plan (CIP). They must lack sufficient funding to cover full cost, and have not yet started construction, or projects beginning construction July 1 or after pending review by the attorney general’s office.
“Really the emphasis here is on new or emerging projects in high need localities that need state support,” Dickey said. “And school divisions should be in good standing with all other state requirements, regulations, policies and guidelines.”
If a school division is found to be in non-compliance, a project can be disqualified or awarded funds may be withheld. Following staff review of the applications, projects recommended for funding will be brought to the Board of Education for action.
Ken Nicely, the superintendent at Roanoke County Public Schools, said that school divisions like his have been waiting to get started with the application process in the competitive grant program.
“There’s a huge level of high interest to pursue those, and we’ve been eager since summer to know what the criteria is going to be and to be able to hit that send button,” Nicely said.
As Virginia’s 20th largest school division, Roanoke County serves 13,000 students in 27 schools, nine of which are currently part of the local CIP. But the division’s biggest capital project is the construction of a new Career & Technical Education Center to replace the aging Burton Center for Arts and Technology, which dates back to 1962. Construction is expected to cost up to $100 million.
In June, the county purchased the land for the new facility adjacent to Peters Creek Road between Airport Road and Burlington Elementary School. But some local officials voiced opposition to the scale of the center due to the potential cost, and without knowing whether the project will qualify under the state’s grant program, the county last week offered the school system a funding solution facility by allocating $80 million of what would be borrowed funds in fiscal year 2025.
“We’ve done all the due diligence to move forward with this replacement in making sure it’s on our CIP, garnered support from our Board of Supervisors, and we purchased the land to build our new CTE Center,” Nicely said. “The commitment is there, the preparation and work has been done to move this project forward.”
But Nicely added that the strict criteria for the competitive grant program has him worried. “I am very concerned we are not going to reach the 65 percent threshold with the emphasis on factors that we don’t measure up to,” he said. “We’re the third or fourth highest taxed county in Virginia, so the commitment is there in terms of what the public is willing to put into that. But I also want to encourage this commission to continue to keep this at the forefront, especially ahead of the new General Assembly session.”
Apart from its renewed push for allowing all localities in Virginia to impose a 1% increase in their sales tax to fund school construction, the commission recommended to modify the guidelines using multiple years of composite index and fiscal stress data for determining the grant award amounts to recognize “changing local economic conditions or fluctuating data values from a single year,” or use the most favorable of the latest or multi-year data.
The panel also advised requiring localities a minimum local effort for capital maintenance programs and for school boards to include in any capital improvement plans a minimum 1.5% capital asset replacement value commitment target to avoid major replacement costs in the future.
Bristol City Schools Superintendent Keith Perrigan, a former commission member who also serves as president of Virginia’s Coalition of Small and Rural Schools, said he hopes that the legislature will make what he called “slight adjustments” to the school construction assistance program criteria to ensure that as many divisions as possible can take advantage.
“Unfortunately, Bristol has reached their legal debt capacity and is struggling financially because of bad decisions by former city leaders,” Perrigan said. “However, because of the hope that this budget language provided, and along with creative financing that was provided through our Industrial Development Authority, we were finally able to get a project approved that would shutter and consolidate three of the oldest school buildings in the commonwealth.”
But this decision will force Bristol City Schools to sacrifice in other areas in the future because of the city’s continued financial stress, Perrigan said. “If the recommendations are approved by the attorney general and make it through Bristol’s project, we will be eligible for the school construction assistance program.”
The commission also advised lawmakers to include additional funding of $2.5 billion in the appropriation act for the School Construction Grant and Assistance Program – $500 million for entitlement spending and $2 billion for competitive grants.
McClellan, the state senator and commission chair, said that the body will continue to push for more funding for school construction and modernization.
“I think we knew on the day we voted on the budget that we are probably going to seek more funding,” McClellan said. “I suspect that one of the recommendations from this commission might be to go for more money.”