Senate proposes pay-as-you-go school construction plan instead of bonds
Published January 31, 2019
by Dan Way, Carolina Journal, January 31, 2019.
A Senate plan to pump $2.03 billion of tax revenue into K-12 public school construction would both outspend a competing House plan and do so with cash rather than debt, Senate Majority Leader Harry Brown, R-Onslow, said Wednesday.
Brown, chairman of the Senate Appropriations Committee, said Senate Bill 5, Building North Carolina’s Future, is a pay-as-you-go approach. Over nine years it would generate more than $6 billion equally divided three ways — for K-12 schools; community colleges and UNC System campuses; and state agency buildings.
The Senate bill would make money available to schools two years faster than would be possible through a $1.9 billion school construction bond, which House Speaker Tim Moore and Gov. Roy Cooper advocate. The bond would require $1.2 billion in interest payments over 30 years. The Senate plan wouldn’t have that expense.
The Senate plan also places the two Republican-led chambers of the General Assembly at odds. Moore has made two stops on what he’s said will be a statewide tour to promote the bond proposal.
Attempts to get a response from Cooper and Moore were unsuccessful. State Superintendent of Schools Mark Johnson was noncommittal.
“I know the urgency and need for this state funding for school construction, especially for rural North Carolina, from my firsthand experience visiting our schools across the state,” Johnson said in an email.
“I am pleased to see agreement in the legislature on this point, and I look forward to working with our partners in the General Assembly as we continue to discuss the details of that funding,” Johnson said.
Brown said the money would come through the State Capital and Infrastructure Fund, created in 2017. S.B. 5 raises annual SCIF spending from 4 percent of General Fund revenue to 4.5 percent. The SCIF account originally was intended mostly for UNC System schools and state agencies. The proposed legislation adds K-12 schools and community colleges.
“A lot of thought has gone into this proposal,” said Brown, calling it fiscally responsible and superior to the bond package. “I don’t know how you could argue against this.”
S.B. 5 would address concerns counties have raised about insufficient spending on school construction and maintenance, said Sen. Kathy Harrington, R-Gaston, a primary sponsor. Sen. Joyce Krawiec, R-Forsyth, is the third primary sponsor.
“Just about all the data shows that smaller class sizes help kids to learn better,” Brown said, and the General Assembly has been taking steps to reduce K-3 class sizes. Some schools have said they can’t meet the classroom reduction requirements because they lack available space. Brown said money from S.B. 5 would help those districts comply with the mandate.
Brown said S.B. 5 doesn’t require voter approval. A capital construction bond would require voters to approve taking on public debt through a referendum.
“I think as legislators we’re responsible to try to address some of the concerns in our state,” Brown said of not having the public vote. “We think this is the most prudent way to address it.”
He said funding would remain stable even during a downturn in the economy.
“We’ve been able to build up a pretty good rainy day fund,” Brown said. The state would have to meet the same funding obligations with either S.B. 5 or a bond package.
Joe Coletti, senior fellow at the John Locke Foundation who researches tax and fiscal policy, says it’s better to fund programs with existing tax revenue rather than debt when possible. “The debt savings, the interest savings, is an important point. You actually use the money for your stuff instead of paying bankers.”
But the pay-as-you-go method depends on having the cash flow to do that. Raising the capital debt payments from 4 percent to 4.5 percent of the General Fund budget causes Coletti some concerns.
Now, $700 million of the 4 percent funding pays off existing debts. About $155 million is being spent this fiscal year on capital projects. Another $150 million to $200 million would be added annually under S.B. 5.
“You can pay for all of this,” Coletti said. But it’s impossible to know where the money will come from over time. If there’s not enough money to pay for the new capital projects, cuts might need to be made elsewhere, he said.
Long-term, this is a good deal, he said, as state-owned debt is paid off. The total eventually would drop to about $300 million in yearly payments, freeing up money to be used elsewhere. The question is whether the full $6 billion actually will appear in state coffers.
Using a fixed percentage of the budget instead of a fixed dollar amount would ease the budget impact if state revenues flag, Coletti said. Legislators don’t have to change the law to make less money available. “You can authorize debt, and just never issue it.”