New NC School Construction Fund to grow $2.1 billion over next 10 years

Needs-based school capital fund focuses lottery revenue on high-need counties

A needs-based capital grant program created in the 2017-18 state budget passed by Republican lawmakers will provide an additional $2.1 billion for school construction in high-need North Carolina counties over the next 10 years.

The new appropriations from the Education Lottery Fund are administered by the Department of Public Instruction and prioritize counties that have limited ability to generate tax revenue, carry high debt-to-tax ratios, and have critical school construction needs.

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The state's new Needs-Based Public School Capital Fund is in addition to the annual $100 million in capital lottery appropriations provided to schools statewide through the Public School Building Capital Fund, doubling the state’s total commitment to school capital to more than $3 billion by 2028.

"Republicans' needs-based approach to school capital is far superior to the Democrats' bond debt proposal, which would cost state taxpayers over $1 billion in financing fees," said Rep. Dean Arp (R-Union), a legislative leader in capital fund planning and co-chair of the House Appropriations Committee.

The needs-based grant funds may only be used for new capital projects and are appropriated from net revenues remaining after annual transfers to the Education Lottery Fund and the Education Lottery Reserve.

The Needs-Based School Capital Fund grew from $30 million in the 2017-18 Fiscal Year to $141.5 million in 2018-19 due to prior year revenues exceeding amounts appropriated from the Education Lottery Fund.

The annual appropriation for new school construction in high-need counties is expected to grow to $307 million per year by 2028.   

State House Speaker Tim Moore (R-Cleveland) said the new school construction fund is another example of North Carolina’s commitment to public education combined with a fiscally responsible approach to long-term budget planning.

“Rural counties will benefit tremendously from the Needs-Based School Capital Fund in the coming years, adding to the North Carolina House’s historic investments in education this decade that include five consecutive teacher pay raises and billions of dollars in additional annual spending,” Moore said.

Republican lawmakers in North Carolina also doubled the share of state budget growth spent on K-12 public schools since 2011 compared to the eight-years prior of Democrat control of the legislature.  

Education’s increased share of state spending this decade was driven by five consecutive teacher salary increases that produced the third fastest rising teacher pay in the United States and provided nearly half of North Carolina teachers at least a $10,000 raise since 2014.

The Needs-Based Public School Capital Fund’s $2 billion commitment over the next ten years will raise the percentage of lottery dollars spent to assist counties with school construction over 40 percent by 2026.

 

The goal of the new program is to target the neediest counties in North Carolina with direct assistance for new school construction by prioritizing the state’s resources for predominantly rural regions that are economically distressed with limited ability to finance long-term capital planning needs. 

The lottery will continue to provide hundreds of millions of dollars in annual support for noninstructional personnel, Pre-K programs, need-based aid to UNC system schools, school transportation, and education scholarships.

Details of the Needs-Based Public School Capital Fund

Counties that receive a grant award from the Needs-Based Public School Capital Fund are ineligible to receive allocations from the Public School Building Capital Fund for five years from the date the grants were awarded.

Needs-based grant funds will not be awarded to counties that received over $8,750,000 from the Public School Building Capital Fund between 2012 and 2017.

Grant awards from the Needs-Based Public School Capital Fund for Tier 1 counties – those with the lowest economic designation in North Carolina – require a minimum local match of $1 for every $3 in state funding and a maximum award of $15 million.

For Tier 2 counties, the program requires a minimum $1-to-$1 local match for needs-based grant awards from the state and caps the maximum grant at $10 million.

Tier 3 counties – the most economically successful local governments – are ineligible to receive awards from the Needs-Based Public School Capital Fund and instead receive allocations from the Public School Building Capital Fund.

North Carolina’s Long-Term Financial Planning & Tax Changes

Rep. Arp was also a lead sponsor of North Carolina's new Pay-As-You-Go Capital & Infrastructure Fund and Debt Reduction Plan (Session Law 2017-57, Section 36.12).

The plan takes effect in 2019 and is expected to reduce state debt 60% by 2026 while increasing capital cash flow for government facilities $3.2 billion over the next eight years.  The fund is created by diverting remaining and unreserved budget balances and state tax revenue into the fund at the end of each fiscal year.

The nonpartisan Fiscal Research Division reported in August the state collected a $400 million surplus by June 30, 2018, the end of the 2017-18 Fiscal Year.

Since 2011, Republican lawmakers have enacted long-term fiscally responsible policies to ensure the state can maintain its rapid growth in education spending and prevent drastic cuts in an economic emergency.  North Carolina levies a lower sales tax rate, income tax rate, and corporate tax rate since Republicans gained control of the state legislature in 2011, saving taxpayers over $5 billion.

By contrast, Democrat lawmakers imposed four sales tax increases on North Carolina families last decade, hiking taxes by $729 million in 2003, $879 million in 2005, $543 million in 2007, and $1.8 billion in 2009.

The state took on $2.8 billion in debt from federal unemployment benefits between 2008 and 2012, generating massive interest payments worth hundreds of millions of dollars.

Legislative Republicans repaid that debt ahead of schedule by 2015.

Today. North Carolina has a record $2 billion rainy day fund, the largest in state history in both whole dollars and the percentage of the state budget.

The Fiscal Research Division announced Aug. 13 a $400 million surplus in the 2017-18 fiscal year, which ended June 30.

The state also passed H.B. 7 Savings Reserve Requirement to ensure lawmakers continue to prepare for the future.

The state's new Unfunded Liability Solvency Reserve also became law in 2018 to proactively address over $50 billion in unfunded pension and healthcare liabilities.

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