North Carolina political leaders on both sides of the aisle have been talking for months about the need to spend $2 billion on school construction, building and renovating K-12 public schools across the state.
Most of the time, they’ve said the best way to achieve this is by passing a massive new bond. Both Gov. Roy Cooper and House Speaker Tim Moore have expressed their support for taking on new debt to build new schools.
But in a taxpayer-friendly twist, a group of state senators have figured out how to spend $2 billion on public school construction in roughly the same time frame without going to the bond markets.
A new bill — called the Building North Carolina’s Future Act — taps money the state saves up and directs it to school construction. This potentially achieves the same goal while saving more than a billion dollars in taxpayer dollars.
Here’s how it works.
How the State Capital and Infrastructure Fund works
The new school construction bill relies on a pot of money the General Assembly set up in the 2017 budget bill.
The legislature created the State Capital and Infrastructure Fund to set aside leftover and extra money for use in capital projects starting in July 2019. It’s essentially a savings account for major building projects.
The money comes from four areas:
- 25% of the unreserved fund balance at the end of the year
- 4% of state tax revenues
- Interest and earnings on money in the fund is re-deposited
- Any other money the General Assembly wants to put in here
With North Carolina currently running revenue surpluses while overall tax revenue increases, this has the potential to be a significant amount of money.
There is $237 million expected to be in the fund by the end of 2019. But by 2028, this is expected to hit $1 billion annually.
The 2017 bill designated the money to make payments on construction debt, new projects at state facilities or the UNC system, and renovation projects on state property. It didn’t say, however, how much of the fund should be used each year.
How the Building North Carolina’s Future Act uses the money
The Building North Carolina’s Future Act bill designates that more of the money in this capital fund should go to K-12 school construction.
- First, it ups the percentage of overall state tax revenue put into the fund from 4% to 4.5%.
- Then it requires the state to spend one-third of the money in the fund each year.
- Finally, it expands the scope of what can get this money to include community colleges and K-12 public schools.
State Senators Joyce Krawiec (R-Forsyth), Harry Brown (R-Onslow), and Kathy Harrington (R-Gaston) said the bill is intended to spend one-third of the expenditures on K-12 public schools.
How does this save money on school construction?
The idea behind this plan is to eliminate the need to pay interest on debt used to finance school construction.
The senators estimated that with a $1.9 billion school construction bond, North Carolina would end up paying about $1 billion in interest over the next decade.
By using this capital fund, North Carolina earns interest on the money it saves and doesn’t need to spend money on debt payments.
In short: North Carolina saves the extra billion dollars in interest taxpayers would be on the hook for by issuing bonds.
Does this replace the bond proposal?
Yes, at least from the state Senate’s perspective.
This proposal is intended as an alternative to the bond put forward by the N.C. Senate, said Pat Ryan, spokesman for Senate President Pro Tem Phil Berger.
Will this bill pass?
It’s unclear. This is essentially the opening salvo in budget negotiations that could be contentious over the 2019 long session.
This plan could face resistance from House Speaker Tim Moore, who was trying to become the face of a school construction bond.
It also could draw a veto from Gov. Roy Cooper, a Democrat who wants to take credit for school construction funding. Keep in mind, this session Republicans do not have a veto-proof majority in either chamber of the General Assembly.
On its face, though, this bill appears to be a more frugal, taxpayer-friendly plan to pay for school construction.
Cover image shows construction on Olympic High School in Charlotte. Photo by Charlotte-Mecklenburg Schools.