Legislative Analysts’ Office Releases its Analysis of the 2019-20 State Budget:

Supports Governor’s Proposal to Sell $1.5 Billion in Proposition 51 Bonds

The Legislative Analysts’ Office (LAO) released its analysis of the 2019-20 State Budget, which includes its recommendations on the Governor’s proposal on school facilities. The LAO recommends support for the Governor’s proposal to sell $1.5 billion in Proposition 51 school facilities bonds in 2019-20, but recommends rejecting the Governor’s proposal to increase staffing at the Office of Public School Construction (OPSC) by ten positions (argues that OPSC can manage additional workload within its existing resources).  The following is the LAO’s analysis and recommendations on the Governor’s school facility proposal, which provides more details.

The LAO stated that, “By the end of 2018, the backlog of facility applications was $4.7 billion, compared to $3.3 billion 12 months earlier (a 44 percent increase). Releasing Proposition 51 funding faster would allow the state to clear more of the backlog and fund projects sooner. Assuming the proposed pace of bond sales were to continue moving forward, the state would exhaust Proposition 51 funding by 2021‑22 (within six years of the measure’s passage).”  CASH is working to apportion more funding and faster because 2021-22 is too late and the backlog continues to grow.  With regard to the Governor’s OPSC staffing proposal, CASH supports the proposed staffing increase.

~ CASH Staff

School Facilities

In this section, we begin by providing background on the School Facilities Program (SFP) and the Office of Public School Construction (OPSC), which plays an integral role in reviewing facility projects. We then discuss the Governor’s proposals to accelerate the sale of school bonds and increase staffing at OPSC. We conclude with our assessment and recommendation.

Background on School Facilities Funding

School Facility Costs Generally Are Shared Between the State and Schools

Chapter 407 of 1998 (SB 50, Greene) created the SFP. The underlying tenet of the program is that the state and school districts share the cost of building new school facilities and modernizing old ones. The state generally covers 50 percent of the cost of new construction, including the purchase of land, working drawings, and construction of new facilities. The state typically covers 60 percent of the cost of renovating facilities that are at least 25 years old. For both types of projects, the state can contribute up to 100 percent of project costs if districts face challenges in raising their local shares. The state covers its share of the cost using state general obligation bonds whereas school districts typically cover their share using local general obligation bonds.

Voters Approved New State Bond in 2016

Between 1998 and 2006, voters approved four state general obligation bonds generating a total of $35 billion for the SFP. After ten years without a new state school bond, voters approved Proposition 51 in November 2016. The measure authorizes the state to sell $7 billion in general obligation bonds for school facilities. Of the $7 billion, the measure dedicates $3 billion to new construction projects, $3 billion for renovation projects, $500 million for charter school facilities, and $500 million for career technical education (CTE) facilities. In contrast to state infrastructure projects, the state does not list all approved school facility projects in the annual budget act.

Under Brown Administration, State Was on 12‑Year Track to Expend All Proposition 51 Funding

The state sells school bonds incrementally as it approves specific SFP projects. The Department of Finance, in consultation with the State Treasurer, determines the exact timing of these bond sales. The state sold a total of $565 million in Proposition 51 bonds for 2017‑18 and intends to sell $594 million in 2018‑19. At this pace, the state would have taken 12 years to finish selling Proposition 51 bonds. This slow pace of sales was despite a growing backlog of school facility applications.

Considerable Local Bond Funding Is Available

School districts typically raise their share of facility funding through the sale of local general obligation bonds, which require local voter approval and are repaid through local property taxes. From November 2002 through January 2018, voters approved $134 billion in local general obligation bonds for schools, of which $53 billion remains unspent. In addition to generating funding through local bonds, schools have raised more than $11 billion from fees charged on residential and commercial development since 1998. Schools also can raise facility funding from various other sources, including parcel taxes, but they raise relatively small amounts from these other sources.

Background on the Office of Public School Construction

OPSC Is One of Several State Agencies Involved in Project Approval Process

To qualify for SFP funding, schools must receive approval from at least three state agencies—(1) the California Department of Education (CDE), which ensures school plans meet state educational standards; (2) the Division of the State Architect (DSA), which ensures that buildings meet state safety standards; and (3) OPSC, which determines eligibility and funding for each project. To ensure that projects comply with an agency’s requirements, agency staff conduct desk reviews of submitted documents and, in some cases, visit facility sites. The SFP requires CDE and DSA to approve a project before OPSC may make a final funding determination.

OPSC Undertakes Several Activities When Reviewing Project Proposals

OPSC staff first review facility applications to ensure that all required components are included. If materials are missing, OPSC staff will send letters to a district requesting the additional documents within a certain timeframe. Once an application is considered complete, OPSC staff: analyze whether the project qualifies for funding (per state regulations), ensure that the scope of the project is aligned with the funding request, evaluate whether the project qualifies for special SFP grants (such as land acquisition or multi‑story building grants), and check that the project plans submitted to OPSC are the same as those submitted to CDE and DSA. In addition to processing applications, OPSC staff conduct outreach activities, process district appeals of facility determinations, and prepare materials for OPSC’s governing board.

2017‑18 Budget Package Shifted Responsibility for Audits From OPSC to Local Auditors

Historically, OPSC staff also conducted audits of school projects. Two years ago the state devolved the responsibility for these audits from OPSC to local independent auditors contracted by districts. (OPSC is still responsible for auditing projects funded prior to April 2017.) Although the state shifted this responsibility away from OPSC, it did not make a corresponding reduction in OPSC’s staffing level.

Governor’s Proposal

Proposes to Sell $1.5 Billion in Proposition 51 School Bonds in 2019‑20

Most of the funding would be allocated for new construction and modernization projects, with $125 million likely designated for CTE projects. (By the end of 2017‑18, the state had committed nearly all of the $500 million designated for charter schools under Proposition 51.)

Provides $1.2 Million for OPSC to Hire Additional Staff

The Governor proposes to provide OPSC an ongoing augmentation of $1.2 million (Proposition 51 funds) to hire ten additional staff to process SFP funding applications. Of these new positions, eight would be analysts and two would be managers. Currently, OPSC has ten full‑time equivalent (FTE) employees processing applications, not including several managers who spend a portion of their time supervising those employees.

Assessment

Proposal to Accelerate Proposition 51 School Bond Sales Is Reasonable

Given a growing facility application backlog and the historically slow pace of Proposition 51 bond sales, we believe the Governor’s proposal to accelerate sales is reasonable. By the end of 2018, the backlog of facility applications was $4.7 billion, compared to $3.3 billion 12 months earlier (a 44 percent increase). Releasing Proposition 51 funding faster would allow the state to clear more of the backlog and fund projects sooner. Assuming the proposed pace of bond sales were to continue moving forward, the state would exhaust Proposition 51 funding by 2021‑22 (within six years of the measure’s passage).

OPSC Dedicates Small Share of Staff to Application Processing

The 10 FTE employees OPSC currently dedicates to processing SFP applications account for 19 percent of its 52 authorized positions. OPSC claims that if it were to transition additional staff to processing facility applications, it would divert them from other important activities, such as processing application appeals or conducting outreach on how to apply for SFP funding. We are concerned, however, with OPSC dedicating such a small share of its staff to its core function of processing applications.

Proposed Staffing Augmentation Seems High

To allocate $1.5 billion in SFP funding, OPSC would need to process approximately 380 funding applications per year. Using OPSC’s assumptions for hours spent per application, we estimate the workload associated with processing that many applications could be accomplished by 12 FTE staff. This represents an increase of two positions relative to the positions currently dedicated to application processing. In response to our questions, OPSC indicated that its request for ten additional positions was also based on an anticipated increase in other activities, such as updating eligibility for SFP, handling appeals, and answering applicant questions. We are concerned that these additional tasks were not itemized in the Governor’s proposal and seem high relative to the time spent processing applications.

Staffing Proposal Assumes No Workload Reduction From Shifting Audit Responsibilities

 The OPSC currently has 24 positions (46 percent of all positions) associated with its audit division. Two of these positions currently are vacant. Despite shifting core auditing responsibilities to local auditors two years ago, the Governor’s proposal does not assume any reduction in staffing for the audit division. In 2016‑17 (the year prior to the shift of responsibilities), OPSC indicates it completed 265 audits. The OPSC expects to complete less than half as many audits in 2019‑20, with additional declines moving forward as projects funded prior to April 2017 are closed out. We understand OPSC has assumed some new workload with the transition of its audit responsibilities, such as providing technical support for local auditors and assisting in the development of local audit procedures. Nevertheless, we are concerned that the Governor’s proposal assumes no associated staffing reduction when auditing is no longer a core function and a need for additional application processing exists.

Recommendation

Recommend Rejecting Proposal to Increase OPSC Staffing

Although we have no concerns with the Governor’s proposal to accelerate Proposition 51 bond sales, we believe OPSC can manage the workload associated with processing additional SFP applications using existing resources. The OPSC currently dedicates a relatively small share of its FTE employees to processing applications, and the reduction in its audit responsibilities should free up additional staff time. As a first step in aligning its staffing with the proposed bond sales, OPSC could shift the two currently vacant positions in its audit division to application processing.

Click here to view the view write-up on the LAO website.