As North Carolinians anxiously await the final results of the governor’s race, Durham County residents have successfully passed four different bond referendums totaling $170 million to fund public education, library, and museum projects. Nearly $91 million will be put towards improving school buildings and security systems in Durham Public Schools, which comes after a slew of recent budget cuts to the district. Durham County’s approach to financing these education projects mirrors the national trend of cities and counties turning to local bonds in the 2016 election as a main revenue source for education and infrastructure projects. Bonds are essentially promises that the government makes to repay over a period of time, often through increased taxes, to finance public improvements like school building projects.
Over $70.3 billion worth of local and state bonds were on ballots on Election Day 2016 across the country. And like Durham, education-related bond referendums passed in local elections in places like Tucson, AZ, Kern County in California, and Columbus, OH. So why were bonds in the 2016 election, most notably for education, the highest in the past decade?
The uptick is primarily due to two factors: (1) a recent decline in national support for education renovation and construction financing, and (2) the current fiscal climate.
Recent Federal Support of School Repair Financing Federal efforts to encourage local financing increased during the Great Recession but have since declined. Part of the American Recovery and Reinvestment Act of 2009 (ARRA) was $53.6 billion distributed to states to then allocate to school districts for building modernization. North Carolina, for example, received approximately $1 billion of that one-time funding.
Additionally, ARRA allocated $11 billion in 2009 and 2010 for qualified school construction bonds (QSCB). These bonds were specifically intended to support renovations or construction projects at local school districts by providing interest-free financing. School districts were still responsible for paying the initial principal, but the federal government picked up the interest. Although only available for a short time, these bonds were strongly championed by Arne Duncan, Secretary of Education, as a way to “help local educational authorities and make their repair, renovation, or construction dollars go further.”
Since the Great Recession ended, we have seen a decline in the same amount of available federal funds for school construction and repair grants and bonds. However, the crumbling infrastructure of our schools didn’t go away. That’s where the increased reliance on local bonds comes in.
Current Fiscal Climate Today, local governments are able to take advantage of low interest rates and a stable economy to take on general obligation bonds. To successfully finance through a bond, local governments have to be able to secure the support of the people—through a referendum—and secure a loan based on their credit rating. Durham County currently has an AAA credit rating—making it one of 36 cities across the country to meet the highest standard—which furthers its ability to successfully borrow from investors and repay the bond amount.
Public-Private Partnerships: A Way Forward? Schools will always have costs associated with maintenance, renovation, and construction. The question is, will the public always support such measures through alternative budget means like bonds? Although the recently passed Durham bonds are estimated to increase taxes by only $25 per $100,000 property value annually, dependency on taxpayers to fund these education costs may be an unsustainable solution.
Instead, local governments should explore public-private partnerships as an alternative option to finance education construction and maintenance costs. An example of this type of partnership is in New Zealand where the Ministry of Education contracts with a consortium of private companies to build or perform maintenance on schools. The partnership is effective because the private companies are responsible for continued maintenance on the buildings for the duration of the 25-year contract, and local education authorities are able to focus their attention and immediate funding concerns elsewhere. Such an agreement in Durham could greatly alleviate recurring maintenance and renovation costs.
North Carolina already has existing legislation that supports the use of public-private partnerships in transportation and public building construction. Using this legislation as a framework, North Carolina could easily encourage and facilitate more partnerships between private companies, public education systems, and local governments to implement effective solutions for education financing issues.
These public-private partnerships will not eliminate the need for local funding, but will rather enhance the financing options that education-related bonds provide. Local policymakers can and should leverage public funds and private expertise and efficiency to effectively address education needs of North Carolina students.
Emily Johnson is a first year Master’s of Public Policy candidate studying social policy.