State-Funding Options

Several state aid mechanisms exist for funding facilities. Most states offer at least one of the mechanisms described below, and some offer more than one.

Direct Aid. Direct dollars for construction and renovation of facilities are distributed as part of the state's foundation formula; every school gets some money for facilities as part of its basic aid or as a grant. Districts may allocate grants for specific purposes, such as in Florida, where grants are used as an incentive for schools to be built frugally, or in California, where facilities funds are provided to reduce class size.

Direct aid systems typically provide more funding to schools in districts with lower tax bases and less to those in wealthier communities. Equalized funding method provides capital outlay funds to schools based on their wealth. The higher a district’s wealth the lower the percentage of cost the state will pay for a facilities project. Twenty-two states have this program (Alabama, Connecticut, Delaware, Georgia, Illinois, Kansas, Kentucky, Maine, Maryland, Massachusetts, Montana, New Mexico, New York, Ohio, Pennsylvania, Rhode Island, Texas, Utah, Virginia, Washington, Wisconsin and Wyoming).

Matching Grants. Some states require districts to match the direct funding they receive from the state. One strength of matching grants is that the state does not have to bear the entire cost of building school facilities. This approach, however, may not result in an equitable distribution of resources since richer communities are able to come up with matching dollars more easily than poorer communities. In the 1997 legislative session, Illinois — a state which had not previously provided aid for facilities — allocated $1.5 billion for future school construction matching grants.

Grants Based on Need These programs provide state grants to poor school districts that do not have the financial ability to finance their needed capital outlay projects. Twelve states have a form of this program (Alaska, Arizona, California, Florida, Georgia, Minnesota, Mississippi, New Hampshire, New Jersey, New Mexico, Vermont and West Virginia).

Flat Grants Some states allocate a certain amount annually to help local school districts with capital expenses, based on a variety of formulas – per square foot, effort, need and others.

This program provides school districts a certain amount of financing for capital costs. The funds can be distributed on a per-student basis (Indiana, for example, provides $40 per student) or as a grant to a school district (Virginia). Currently, five states (Alabama, Indiana, Kentucky, South Carolina and Virginia) have some form of flat grant.

Aid for Debt Service. Providing aid for debt service involves helping school districts repay construction and renovation loans. Some states, such as New Hampshire, base their aid for debt service on a consistent state proportion. Others, such as New Jersey, equalize the funding for debt service based on school district wealth. The key difference between aid for debt service and direct aid for construction and renovation is that when a state provides funding for debt service, it helps the district pay off its debt over time, contributing resources toward both the interest and principal on the loan rather than providing a one-time contribution.

State Loans. Some states provide loans directly to school districts and schools. These loans typically are for a modest amount of money and/or are limited to targeted districts, such as low-income or those experiencing rapid increases in enrollment. New Jersey has $70 million which it distributes as loans to finance the construction/renovation of public schools. Some states maintain a permanent loan fund – usually rather modest – with the state setting some kind of control over the amount or the number of districts which can benefit from the fund.

State School Building Authorities. Most states make key decisions about school facilities funding through their regular decision-making channels, including the legislature, state board and state department of education. In selected states, however, legislatures have established special state-level entities to make decisions about and distribute school facilities funding. West Virginia's School Building Authority was established in 1988 to issue state bonds whose proceeds are used to make statewide grants for capital projects. During the 1997 session, the Nevada legislature created the state planning commission, which is responsible for assessing the state's school facility needs, exploring how districts fund their facility needs, assessing whether the current funding system is sufficient to meet identified facility needs, and making recommendations to the legislature.