Construction Industry Roundtable: Solutions to the Classroom Shortage

By the Construction Industry Roundtable

As the Twentieth Century draws to a close, California's K-12 student population is in the latter stages of a 20-year period of rapid growth similar in many respects to the legendary "baby boom" period of 1950-1970. The California Department of Finance estimates that between 1980 and the year 2000, California's K-12 population will balloon from around four million to nearly six million students. 

Along with this dramatic increase in school age population comes the need to construct classrooms. Meeting the demand is critical not only because California has a fundamental obligation to adequately educate and train its young citizens, but also a thriving K-12 education system helps prepare individuals for jobs and developing the economies of our communities. Despite the acknowledged need for new facilities, California has a serious classroom shortage which, if not addressed, will have serious education and economic consequences. 

Estimates of the need to provide schools for the so-called "baby boom echo" are staggering. In 1992, the superintendent of public instruction reported that to meet the current classroom needs of California, a new 600-student school would have to be built every day until the year 2000. The California Department of Finance has projected that the price tag to fund the existing backlog of proposed school projects ranges from $4 billion to $6 billion. Longer-term estimates (10 years) run to $17 billion. 

The Department of Finance in 1996 estimated that school facilities needs total $16 billion, not including ensuing class-size reduction programs, and have had a significant impact on classroom shortages. 

Yet, California's system of financing school construction has become dysfunctional.(Editor's note: This was not the first time school construction financing methods have been criticized. A Little Hoover Commission report, issued in June 1992, described school construction programs as cumbersome and micro-managed, with delays that drive up costs. A streamlined approval process was recommended.) Although the school financing system was originally intended to equitably distribute the obligation to pay for new schools among state and local government and the private sector, it has instead relied on developer fees from new residential and commercial structures as a significant source. 

The 1976 statewide program to oversee school construction has turned increasingly bureaucratic and complex, becoming more a custodian of the status quo than an innovator of new methods to deliver schools in a more reliable and cost-effective manner.  

This report's purpose is to identify reforms to the current system to ensure adequate, cost-effective schools for current and future generations and affordable housing for more Californians. 

Here are the recommendations: 

State Funding. The state Legislature should adopt a five-year school facilities bonding strategic plan that puts more resources into determining overall need, identifies the state's proportionate fiscal commitment, and assures that state revenues will be available -- recognizing that the California electorate has to ultimately approve future state bond proposals. 

Clearly, districts face significant barriers to winning local support for school construction projects. The most obvious barrier is the two-thirds vote standard that must be met. (Editor's Note: in recent years, more than half of the local school bond elections have succeeded, but the approval rate would have been above 90 percent if only a majority vote of approval were allowed. The two-thirds majority requirement has been law in California for all but eight of the past 120 years - and during those eight years local general obligation bonds were prohibited under Proposition 13 of 1978. Changing the requirement would require a constitutional amendment approved by a majority of statewide voters.) 

Development Fees. The preemptive school facility financing policy established by the Legislature in 1986 needs to be reaffirmed and a firm school fee cap restored. The court cases of Mira, Hart and Murrieta need to be legislatively repealed. 

In 1986, legislation established the current development impact fee of $1.50 per square foot of residential space and 25 cents per square foot of commercial space. The funding system had five primary sources: statewide general obligation bonds; local general obligation bonds; development impact fees; use of year-round schools to increase capacity, and tideland oil revenues. 

The system was plagued with problems from the start, unable to approve enough statewide bonds to keep up with demands, and local districts resisted going to local voters. When they did, they had difficulty gaining two-thirds approval. Development fees were looked on to close the revenue gap, but they were capped to strike an important public policy balance between the need for additional schools and the need for housing at affordable prices.  

As a result, local governments turned to fees. Through court-made loopholes in the 1986 law - specifically a trilogy of cases named above - school districts have succeeded in collecting fees far in excess of the square foot limit set by the Legislature. Some local governments impose fees as high as four times the statutory limit. Home builders have seen costs jump as high as 15 percent. Ultimately, this approach has caused an unnecessarily adversarial relationship between the building industry and school districts while pricing thousands of families out of home ownership opportunities. 

Construction Cost Control & Cost Reduction. Changes need to be made in the State Lease Purchase Program, with emphasis on containing costs. Money can be saved by greater use of standardized construction methods and by giving local districts more control over school construction decisions. 

The Leroy F. Greene State School Building Lease-Purchase Law of 1976 established the program, which in many respects has succeeded in the allocation of more than $11 billion for school facilities statewide. However, it has unfortunately become onerous and complex, incorporating multiple levels of governmental bureaucracy. The process requires 64 separate steps an applicant must walk through and four separate governmental entities are involved.

This "ceremony of process" embodied by the state program has been acknowledged by many as costly, bureaucratic and time consuming. It discourages creativity or flexibility in achieving innovative cost-reduction solutions. 

Cost Savings Elements for School Construction Reform. To encourage innovation of new methods to build schools in a more reliable, cost-efficient manner, the process must be streamlined, with functions merged to avoid duplication. 

The pool of standardized plans should be increased, with incentives provided to use them. Allowable building materials should be reviewed and revised to allow alternative materials that are of comparable quality but lower cost. Criteria for modular construction and portable classrooms should be revised. 

Unnecessary construction change orders should be reviewed and criteria revised to discourage them. 

Construction methods should be more flexible to encourage cost-saving innovation, such as design-build, joint-use, builder turn-key schools with developer in-kind contributions rather than monetary fees. (Editor's Note: A builder-developer has reported at a recent roundtable discussion on school construction financing that significant savings in school construction costs were achieved by merely building the school and handing over the keys to the district rather than paying development fees.) 

Standardized costs were a central reform to the 1976 law, and should be implemented for both square foot and classroom cost controls, which would simplify calculations of costs and eliminate cumbersome bureaucratic processing. 

Project management and inspection should be delegated to certified local agencies to streamline and expedite the construction process.

At the heart of any successful system, whether in the private or public sector, are incentives which drive cost-effective decisions. School construction lacks those types of incentives and instead relied on state-level controls that are intended to ratchet down costs but instead actually add more delay and cost without significant benefit. By redirecting control to the school district and permitting greater latitude in the project budget administration, the climate for cost-effective decisions will evolve, and over time, greater savings will accrue to taxpayers. 

Finally, outdated building codes and school construction standards should be reviewed and modified. 

In conclusion, because the existing system is inadequate, inequitable and overly complex in the application and approval process, the suggested reforms should be implemented immediately.