1. Virginia School Construction/Renovation Funding
Fiscal Analytics, Ltd.
July 2018

2. School Construction/Renovation Financing Options
There are three principal financing approaches available:
Cash - Use current local revenues (cash) to fund all or a portion of the capital projects;
Bonds - Borrow funds directly in the debt market or with a Literary Fund direct loan, through the VPSA or through an IDA; or
Bank Loan - Borrow funds via a direct bank loan.
Financing options
Direct Local Government Borrowing
- Issue and sell GO bonds directly in either the public or private markets (may require voter approval to secure GO pledge).
- Issue appropriation bonds secured by the annual appropriations of the borrowing entity instead of a pledge of taxing power. Typically issued through local industrial development authorities (IDA) or economic development authorities (EDA). The IDA/EDA borrows the funds to construct the school and leases it to the school division.
Literary Fund Direct Loan: For qualified projects borrow at below market interest rates from the fund, administered by the Department of Education.
Projects up to $5.0 million; $20 million cap by locality.
Interest rates as low as 2% are derived from the local composite index of ability to pay, and subject to availability of funds (Currently suspended).
Virginia Public School Authority (VPSA): Borrow indirectly through the pooled bond or subsidy programs of the VPSA.
- VPSA can finance all types of real and personal property for public schools including land, buildings and equipment.
- Currently suspended interest rate subsidy program developed in 1997 as a way to leverage amounts available in the Literary Fund to address backlog of school construction projects for localities with projects on the List for direct Literary Fund Loans.

3. New Elementary Schools 22 $450,158,034 $20,461,729 2,094,665 $215
Virginia Public School Construction and Renovation Costs From
Number
Cost
Avg. Cost/School
Sq. Feet
Cost/Sq Ft.
New Elementary Schools 22
$450,158,034
$20,461,729
2,094,665
$215
New Middle Schools 8
$273,672,113
$34,209,014
1,192,914
$229
New High Schools
$473,784,482
$59,223,060
1,515,484
$313
New Combined or Other 6
$235,566,159
$39,261,027
992,977
$237
Additions/Renovations
219
$1,197,693,347
$5,468,919
8,494,960
$141
Total
263
$2,630,874,135
$10,003,324
14,291,000
$184
Source:

4. Previous State Grants for School Construction Costs
From fiscal years , $55.0 million per year was allocated for the for financial assistance for public school facilities. Funding reduced to $27.5 million per year from fiscal years
Distributed based on “floor” funding of $100,000 for each school division, with remainder of funds based on the division's proportion of enrollment weighted by the composite index.
Funds only for nonrecurring expenditures: school construction, additions and renovations, infrastructure, site acquisition, technology, and other expenditures related to modernizing classroom equipment, payments to escrow accounts, school safety equipment or renovations, and debt service payments on school projects completed during the last ten years.
School construction funding ended in FY 2010.

5. Previous Lottery Proceeds Funding for “Non-Recurring” Costs
From 1999 to 2010, Lottery proceeds were allocated for state incentive payments for “at least 50 percent non-recurring” costs.
Non-recurring costs included: “school construction, additions, infrastructure, site acquisition, renovations, technology, and other expenditures related to modernizing classroom equipment and debt service payments on school projects complete in the last 10 years.”
In fiscal years 2009 and 2010 textbooks were added to the list of allowable non-recurring expenses.
1999
$123,471,899
2000
$125,515,999
2001
$122,285,226
2002
$144,559,123
2003
$158,201,971
2004
$156,103,371
2005
$153,506,280
2006
$163,507,784
2007
$155,311,910
2008
$148,948,484
2009
$132,707,424
2010
$73,004,680

6. Current Lottery Proceeds Flexible Funding
Beginning in FY 2017, the state began allocating lottery funds through a ‘flexible’ funding program.
- School divisions are permitted to spend such funds on both recurring and nonrecurring expenses in a manner that best supports the needs of the schools divisions. No local match is required.
In the biennium, forty percent of Lottery proceeds are provided to school divisions estimated $234,670,780 in FY 2019 and $239,357,235 in FY 2020 to support the state share of an estimated $ per pupil the first year and $ the second year.

7. Literary Fund Loan/Grant Programs
The Literary Fund is a permanent and perpetual school fund established in the Constitution of Virginia. 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. The Literary Fund provides low-interest loans for school construction, grants under the interest rate subsidy program, debt service for technology and school security funding, and support for the state’s share of teacher retirement required by the Standards of Quality.
The maximum loan amount available for any single project through the Literary Fund is $5 million.
State Board of Education approved projects are placed on a waiting list. First priority waiting list projects have been deferred since No additional placements have been made since 2012.
Priority 1: Applications placed on the Waiting List by the Board of Education from school divisions having a composite index less than .6000, and an outstanding indebtedness to the Literary Fund less than $20 million.
Priority 2: Applications placed on the Waiting List by the Board of Education from school divisions having a composite index of or above, or an outstanding indebtedness (including the application considered for release of funds by the Board of Education) to the Literary Fund greater than $20 million.
The interest rate for a loan generally shall be determined on the basis of a composite index of the applying school division as follows:
LCI between .2 and .2999: 2.0%; between .3 and %; between .4 and %; between .5 and %; between .6 and %.

8. Literary Funds for Technology, Interest Rate Subsidies and School Construction Loans
Sources & Uses of Literary Fund
FY 07
FY 08
FY 09
FY 10
FY 11
FY 12
Revenue Sources:
Loan Payments to Literary Fund and Interest
$42,802,249
$39,954,522
$38,677,297
$38,603,743
$43,002,853
$33,150,279
All Other
$177,630,524
$190,026,300
$199,538,996
$202,105,090
$158,137,878
$160,316,728
TOTAL Revenue
$220,432,774
$229,980,822
$238,216,293
$240,708,833
$201,140,731
$193,467,007
Spending Allocations:
Teacher Retirement
$116,003,959
$124,934,530
$228,691,828
$195,000,000
$139,575,000
$130,086,428
Technology Equipment Debt Service
$62,611,094
$63,637,703
$64,469,470
$62,441,535
$63,510,236
$62,694,848
School Security Grants Debt Service
Interest Rate Subsidy
$7,645,764
$16,411,729
$11,075,204
$3,064,434
$77,389
$2,140,574
School Construction Loans*
$7,080,353
$19,909,605
$32,592,925
$15,000,000
$321,742
$278,954
$103,126
TOTAL Allocations
$193,662,911
$225,172,521
$336,829,427
$275,505,969
$203,162,625
$195,024,976

9. Literary Funds for Technology, Security Grants, Interest Rate Subsidies and School Construction Loans
Sources & Uses of Literary Fund
FY 13
FY 14
FY 15
FY 16
FY 17
Revenue Sources:
Loan Payments to Literary Fund and Interest
$48,511,582
$40,595,070
$35,366,874
$25,474,323
$21,367,180
All Other
$161,536,654
$156,207,905
$393,856,595
$324,112,658
$222,735,561
TOTAL Revenue
$210,048,236
$196,802,974
$429,223,469
$349,586,980
$244,102,741
Spending Allocations:
Teacher Retirement
$140,086,428
$144,438,573
$375,739,378
$165,223,825
$199,347,523
Technology Equipment Debt Service
$60,698,480
$56,945,721
$62,891,725
$65,542,504
$63,772,571
School Security Grants Debt Service
$1,288,145
$2,439,878
$3,683,430
$4,924,392
Interest Rate Subsidy
$44,457
$709,151
$131,678
$23,169
$155,146
School Construction Loans
$31,632,173 $0
$109,132
TOTAL Allocations
$200,829,365
$202,202,578
$438,762,783
$262,421,675
$268,199,632
Source: VDOE

10. Direct Literary Construction Fund Loans Released by Fiscal Year
Since fiscal year 1983, a total of $1.0 billion has been provided in direct Literary Fund loans to local school divisions. The chart reflects the release of these loans by FY.
Fiscal Year
Projects Funded
1983
$41,917,922
2000
53,298,625
1984
13,090,500
2001
91,046,730
1985
40,425,600
2002
51,201,884
1986
32,768,391
2003
33,569,734
1987
64,951,999
2004
1,611,470
1988
36,212,656
2005
256,739
1989
68,865,889
2006
106,742
1990
22,158,479
2007
7,080,353
1991
16,374,400
2008
19,909,605
1992
-0-
2009
32,592,925
1993
2010
15,000,000
1994
2011
1995
23,186,074
2012
1996
48,888,628
2013
1997
67,163,679
2014
1998
78,254,001
2015
1999
111,271,391
2016
31,632,173
2017
Source: VDOE 10

11. Technology Equipment Program
Since FY 2001, the goal of the educational technology grant program is to improve the instructional, remedial, and testing capabilities of the SOL in local school divisions and to increase the number of schools achieving full accreditation.  Proceeds are provided to:
- At the school division level to develop and maintain the capability to support the administration of online SOL testing for all students with the exception of students with a documented need for a paper SOL test.
- Establish a computer-based instructional and testing system for the SOL;
Develop an Internet ready local area network (LAN) capability and high speed Internet connectivity at high schools, followed by middle schools and then in elementary schools; and
Establish a 5-to-1 student computer ratio for high schools, followed by middle schools and then in elementary schools.
Currently $26,000 per school, plus $50,000 per school division central office needs. Eligible schools include those reporting fall membership as of September 30, 2017, as well as regional vocational, special education, and alternative education programs, academic year Governor’s Schools, and the Virginia School for the Deaf and the Blind. 
Supplemental grants for the e-Learning Backpack Initiative for schools not fully accredited for the second consecutive year based on school accreditation ratings in effect for fiscal year 2017 and fiscal year 2018.
VPSA debt used for program. Debt service funded by Literary Fund. $58.8 million in in FY 2019.
Localities are required to provide a match of funds equal to 20 percent of the total grant amount.

12. School Security Grants
The School Security Equipment Grants program was established by the 2013 General Assembly in the aftermath of the December 14, 2012, mass shooting at Sandy Hook Elementary in Newtown, Connecticut.
Since FY 2014, annual $6 mil. competitive state application grant program for video monitoring systems, metal detectors, classroom locks, electronic-access controls, visitor-identification systems, direct communications links between schools and law enforcement agencies, and other security upgrades.
545 schools and other instructional facilities provided grants for FY 2018.
This was fifth round of awards bringing the total number of school security projects receiving state funding through the program to 2,327.
Applications due Aug. 1 for FY 2019 awards.
- Maximum $100,000 per school division.
Priority given to schools most in need of modern security equipment, schools with relatively high numbers of offenses, schools with equipment needs identified by a school security audit, and schools in divisions least able to afford security upgrades.
Localities are required to provide a 25% match. The Superintendent of Public Instruction is authorized to reduce the required local match for school divisions with a composite index below
Latest press release on program grants:

13. Summary
Direct state grants or Lottery funding for school construction, additions, and renovations have not been available since FY 2010.
40% of Lottery funding is now “flexible” and can be used for nonrecurring expenses.
Direct Literary fund loans to school divisions have been minimal since the recession.
School technology and security grants have been funded through the Literary Fund.

14. Options for Additional State School Construction/Renovation Funds
Use general funds for lottery funded programs and increase “flexible” Lottery funding distribution.
Substitute GF for Literary Funds for teacher retirement costs and increase Literary Fund loans for school construction or interest rate subsidy programs.
Create a less restrictive Literary Fund loan construction subsidy program with additional general funds.