More than 370 schools are on the 2004 state priority list for school construction projects, including Witchcraft Heights Elementary in Salem, which has been waiting for funding for a renovation project completed last year since 1999.

Part One of a Three-Part Series

[Editor’s note: This is the first of a three-part series examining the funding and construction of public schools in Massachusetts.]

Between 1999 and 2003, the state of Massachusetts authorized between $350 million and $400 million annually for school construction costs – this year, the payout reached an all-time high at more than $400 million. However, an estimated $4 billion worth of projects are still awaiting funding.

Gov. Mitt Romney, concerned about the mounting costs of a seemingly endless list of funding requests and faced with state budget shortfalls, placed a moratorium on new applications for project funding last summer and has said that the state’s School Building Assistance Program requires reform. But some state and local officials question whether the overhaul will be adequate – and efficient – not only in satisfying the current needs but preventing a balloon of pent-up demand in the future.

“If the School Building Assistance Program grew at the state average, 3.5 percent, approximately 50 percent of the schools on the waiting list would not have received their first reimbursement 10 years from today,” said Tim Murphy, director of capital planning and operations for the state. “That indicates that the system is broken.”

More than 370 schools fill the 2004 priority list for school construction projects. One school, Witchcraft Heights Elementary in Salem, has been waiting for funding for a renovation project since 1999. Others, which jumped on the list in the months before the July 2003 moratorium on new projects, are stuck in limbo, surrounded by unanswered questions about construction, financing and, most importantly, a start date.

“The biggest problem is the uncertainty of what’s going to happen,” said Michael Manning, a selectman and member of the school building committee for Nahant. “[W]e all feel that it’s a problem we need to fix but it will be some time before there’s a meeting of the minds to figure it out.”

In the meantime, Nahant is having a hard time convincing its residents to vote on an overall school construction plan until there’s a clearer financing plan available at the state level.

Romney introduced legislation this month that will clear the state’s priority waiting list by 2009, a plan that the Massachusetts Municipal Association says is crucial to the fiscal health of the state’s cities and towns.

Before the moratorium, municipalities obtained local financing and submitted architectural plans to the state Department of Education, which then in turn decided whether the community would be placed on the waiting list. If the administration gave the green light, construction could begin.

But that doesn’t mean that the town is getting all of its money. Municipalities most pressed for space often begin construction before state funding is secured, borrowing just enough for annual costs. For seven years, that municipality must pay interest only, however, after that deadline, the town must also begin principal payments. Local officials often choose start a project with the hope that the state begins reimbursements before the cutoff, but if it doesn’t, the town becomes responsible for the state’s share as well, a chunk that averages 70 percent of costs.

“If the state doesn’t meet its obligation, the community drives off the edge of a cliff,” said John Robertson, deputy legislative director for the Massachusetts Municipal Association in Boston.

The School Building Assistance Program began in 1948. Murphy said that reforms adopted in 2000, including an emphasis on rehabilitation in lieu of new construction, along with talk of a financial restructuring, possibly contributed to the spike in demand. Municipalities, sensing an impending overhaul or moratorium, wanted their project on the list before any major changes.

“That’s difficult for us to prove but there’s some level of unintended consequence,” Murphy said.

The governor’s plan not only aims at clearing the waiting list by 2009, it also reinforces the state’s commitment to reimburse at its previously promised rate. The formula, which relies on a community’s wealth, ranges from 50 percent to 90 percent of costs.

The major component of reform proposed by Romney consists of financial restructuring. For cities and towns currently in line for reimbursements, the state would borrow the present value of future payments owed to municipalities, transfer those bond funds to escrow accounts on behalf of the municipalities and then invest it in securities. Reimbursements in future years would come from those escrow accounts, Murphy said.

Projects on the waiting list also would be moved to a construction grant program vs. the current reimbursement system. Municipalities that need a new school or renovation work would only borrow their portion of the costs, rather than also borrowing the state’s portion up front. The state would then borrow its portion and provide cash during construction.

Romney’s proposal also would increase the financing timeline from 20 years to 40 years, establishing a “pay as you use” capital program.

“We’re very comfortable incurring the liability that matches the life of the asset,” Murphy said. “If the average age of a school is 45 years, we should match and finance up to 40 years. Current taxpayers shouldn’t pay a disproportionate amount than future taxpayers.”

The legislation also requires construction reform, allowing cities and towns to save money by altering laws that exist for the construction of public projects. For example, the bill would allow a fixed-price contract – aimed at prohibiting hold-ups – and cost overruns – by contractors that disagree with an architect’s choice of design or materials. In an effort at streamlining the process, it also would eliminate the requirement that a community bid out a variety of jobs to sub-contractors.

While the Massachusetts Municipal Association formally supported the reforms earlier this month, not everyone’s convinced that the overhaul would be prudent for the state’s fiscal health.

State Treasurer Timothy Cahill is working on his own School Building Assistance Program reforms. While his office won’t discuss details until there’s an agreement between the House and Senate leadership, spokeswoman Karen Sharma said that Cahill believes that there’s a more fiscally prudent way to fix the problem.

Sharma said Cahill’s proposals will be discussed in more detail in the next couple of months, around the same time that the Legislature should begin talks about Romney’s reforms.