Stimulus & Schools

ARRA provides some zero-interest financing for school construction

In addition to other ARRA funds, Colorado will compete for some of the competitive Race to the Top funds for efficient school performance.

By Dan DeCristoforo

Colorado has committed $500 million for capital improvements to schools during the next five years. The state hopes to raise that to approximately $1 billion, using matching funds from school districts, says Ted Hughes of the Colorado Dept. of Education and director of the Building Excellent Schools Today program.

Schools are currently being evaluated for condition, educational suitability, code issues, energy usage and demographics to determine who gets the money.

Meanwhile, the nine-member Public School Capital Construction Assistance Board appointed by the State Board of Education, General Assembly and the governor has authority over two American Recovery & Reinvestment Act programs that allow districts to tap into federal interest-free loans: Qualified School Construction Bonds and Qualified Zone Academy Bonds.

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“QZABs have been available for years but never really caught on” because they were saddled with qualifying restrictions and provided just $15 million, limited to renovations,” says Todd Snidow, Senior VP at George K. Baum & Co., Denver, who structures financing for school bonds. QSCB interest-free bonds are being used to help subsidize interest on some BEST projects. “ARRA increased the state’s allocation significantly above levels of previous years and loosened rules to make the program more appealing,” Hughes says. QSCB’s allocation is $87 million for both 2009 and 2010.

Schools are funded in two ways: cash grants or lease-purchase agreements. QSCBs are authorizations for interest-free funding for new construction or renovation using lease-purchase. In lieu of interest, lenders receive tax credits.

“The ARRA allocations help subsidize interest payments on bonds for projects already approved by voters,” says Michael Gifford, AGC of Colorado executive director. “There are no direct dollar amounts available for school construction.”

Hughes says the first three BEST projects being financed under ARRA will save the State Treasurer’s Office $45 million in interest payments in the first year alone, and that can be used to fund additional projects. Three projects (four new buildings) have been approved for 2009: a new high school and elementary school for Sargent School District and two elementaries in the Alamosa School District.

“We intended to fund these projects using conventional lease-purchase financing.” Hughes says. “But ARRA and the QSCBs came along at just the right time.” For 2010, QSCB allocations will help fund a new elementary school and remedial work on middle schools in Monte Vista.

Meanwhile, 91 funding applications were reviewed this summer by the assistance board. The CDE was expected to review the board’s selections and issue approvals in August. The QSCB allocation for 2010 will help fund some of these projects.

In addition, the 100 largest school districts in the country received QSCB allocations; in Colorado, only Denver Public School qualified and will receive $24 million in 2009 and 2010.

“The stimulus is not an infrastructure bill as is commonly perceived,” Gifford says. “Of the $20 billion originally destined for school construction, 18.2% was set aside for the states.”

The governor’s office controls Colorado’s share—approximately $134 million—unlikely to go for capital construction.

Race to the Top, the competitive portion of the stimulus package, involves $4.35 billion nationwide that will reward eight to 10 states making breakthrough achievements in education related to improving teacher effectiveness and achievement in low-performance schools.

Colorado hopes to receive a portion of theoe funds.