Construction Bonding Delay to Save Education Dollars in Upcoming Budget

Response to national economy, state budget pressure, bond market

October 6, 2008

AUGUSTA – Department of Education officials informed superintendents last week of a move intended to save school districts and the state money on construction projects in the next two years, as a way to preserve the funding for educational programming in the face of a tightening budget outlook.

The Department is moving by six to 12 months the date local school systems will issue bonds for 12 major school construction projects in 11 school districts. At a meeting today, Jim Rier, director of finance and operations for the Department, told members of the State Board of Education’s construction committee that the move could delay the opening date for some of the schools by several months. All of the projects will continue to move forward.

“At a time when we are facing the real prospect of flat-funding or even reductions to state subsidies for education, we’re working to reduce expenditures while still preserving programming for local school districts,” said Jim Rier, director of finances for the Department. “Delaying the bond dates allows us to preserve the projects while freeing up money for educational programming.”

The change will result in moving about $9 million of bond payments from the 2010-11 two-year state budget to the following biennial budget. That will free up almost $5 million of state aid for general educational programming, and save money in local districts statewide, which share in the financial support of all building projects, almost $4 million.

“We are in a very tough revenue environment,” Rier said. “We are looking at the potential for severe cutbacks across state government. We have a situation here where we can still honor our commitment to these projects while freeing up some funding to deal with the short-term situation.”

The move comes at a time when municipalities and states nationwide are having difficulty selling bonds at all because of the national financial crisis. The New York Times reported last week that “cities, states and other local governments have been effectively shut out of the bond markets for the last two weeks.”

Issuing construction bonds typically occurs at about the halfway point in construction of a project. Before then, school systems pay money up front for some costs and may issue short-term “bond anticipation notes” until the construction bond is issued. Issuing the bonds too early requires the state and local units to pay significant interest costs. Issuing them too late requires additional short-term bonds and the added interest incurred. Bond dates are routinely moved to respond to construction project timelines which are adjusted frequently as a result of unexpected delays, changing conditions in the market and other factors.

As an example, Westbrook’s new middle school is a project that was originally scheduled for bond issuance in spring 2008. To limit its impact on the state’s school construction debt, the Department moved the issuance date to Fall 2008 and then worked with Westbrook administrators to get the project completed as quickly as possible. According to Westbrook Superintendent Stan Sawyer, the move had no impact on his project’s timeline.

Rier said he and Commissioner Susan A. Gendron began to re-examine the upcoming bond dates over a month ago in response to the changing national and state financial situation, and again more carefully in the last two weeks as the extent of the impact on the state budget became more apparent. The Department is in the process of preparing a significantly-trimmed two-year budget. State agencies have been directed to prepare budgets that will close the projected $508 million gap in the next budget between projected increases in existing programs and available resources.

The Department’s budget, the overwhelming majority of which goes to school districts, accounts for nearly 40 percent of the state’s general fund budget. All state agencies have been directed to present reduced budgets.

“It is important to understand that these construction projects are moving forward,” Rier said. “Some won’t see any difference at all. Some will likely have to slow down some aspects. We will work with the schools to move all students into the new buildings as quickly as possible, as we always do. That will include exploring all the ways we can work creatively and responsibly to secure funding for construction projects.”

The school projects affected by the changes are:

Bond date moved from spring 2009 to fall 2009

Portland, new K-5
Brewer, new pre-K-8
Gorham, new pre-K-5
Durham, new K-8
Brunswick, new 3-5

Bond date moved from spring 2010 to fall 2010

SAD 9 (Farmington), new PreK-3

Bond date moved from spring 2010 to spring 2011

Jefferson, new K-8
Chelsea, new K-8
Woolwich, renovation/addition, K-8
SAD 22 (Hampden), new high school
SAD 9, renovation/addition, Mt. Blue High School
Falmouth, new preK-5

David Connerty-Marin, Director of Communications, 207-624-6880

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Construction Bonding Delay to Save Education Dollars in Upcoming Budget