SBA Proposal January 20, 2004

2 Current interest rates provide a window of opportunity Short-term Interest Rates Long-term Interest Rates

3 The School Building Assistance program is critical to the delivery of a quality education to our children…  Historically, a successful partnership between the Commonwealth and its local governments  Over 700 school projects are currently receiving at least half their project cost, including interest, from the state

4...unfortunately, the program’s popularity caused an explosive growth in its waitlist  Notwithstanding double-digit increases in state appropriations, the waitlist has grown to 420 projects worth more than $4 billion  Even assuming a modest growth in funding, 50% of waitlist projects will not receive a first payment for a decade  The current moratorium on the School Building Assistance program is neither sustainable nor desirable

5 Fully funding all projects under the current program would cost over $760M in FY05 Current Reimbursements Approved Waitlist Reform Commission Moratorium Overridden

6 Key SBA data Number of Projects: Total Project Costs: Commonwealth Share: *222 -= $5.7B$2.9B$2.8B -= School Projects on Waitlist with “Shovels in the Ground” School Projects on Waitlist School Projects on Waitlist Awaiting Construction $4.1B$2.1B$2.0B -= * Based on 12/03 DOE audit

7 Avoiding the problem is not a viable option. We need to step up and face reality  Local governments have a right to know that the state will honor its commitment to this program  Delay only costs more money for everyone -Extending the short-term borrowing period adds cost -Delaying construction adds costs  The Commonwealth needs on-going school renovation and new school construction

8 The Romney “Legacy of Learning” SBA Initiative  Honors existing reimbursement rates for both projects receiving reimbursement and on the waiting list  Clears 100% of the current waitlist by FY09  Switches to an up-front, cash payment and away from a multi-year reimbursement schedule  Allows necessary streamlining of building costs through construction reform  Establishes a commission to recommend rational project selection guidelines and other reforms for future school projects not currently on the waitlist

9 Projects currently receiving reimbursements (748 projects)  The Commonwealth will issue state debt to pay-off its full obligations to local governments  Cash Now: all funds raised will be deposited into an escrow account on behalf of the local government for the repayment of the state’s share of local school construction debt  Eliminates uncertainty of the annual appropriations process

10 Projects on the Waitlist (420 projects)  100% of the waitlist will receive up-front cash grants for construction by FY09  Reimbursement rates will remain the same  The state will publish a construction grant schedule based on the current order of the waiting list  Eliminates uncertainty of the annual appropriations process  Local governments will only borrow for its share of the school project

11 How does this work?  Useful life of school assets is more like 40 years than 20 years  Commonwealth is moving from a 20 year term to a 40 year term  Extending the term lowers annual payments  Cash savings will be used to accelerate taking projects off of the waitlist  Lower project cost through construction reform

12 Construction reform is necessary  Allow flexible construction options  Eliminate filed sub-bid requirements Accelerates the clearing of the waitlist and saves money

13 Future school projects  Firmly believe that the entire school planning, designing and building process needs to be reconstituted  A commission will be established comprised of members from the executive and legislative branches and local officials  The commission will have six months to make recommendations for a reformed program  The reforms will allow us to end the moratorium for future projects

14 Key takeaways  Fulfilling full obligations of the Commonwealth -Projects currently receiving payments and waitlist projects  Eliminating uncertainty for cities and towns  Establishing a roadmap to clear 100% of waitlist by FY09  Redesigning the SBA approval process for new projects to ensure program sustainability  Ending the moratorium

15 What you need to know  SBA will move from the state’s operating budget to the capital budget  SBA will no longer appear on the cherry sheet or in the DOE budget  Refinancing will save the Commonwealth $150M in FY05  Savings allows us to increase local aid during tough times  Staff will be holding working sessions and briefings with local government officials in the coming weeks