State Taxpayer Funded School Construction Grants

Massachusetts School Building Authority

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Like many other states, Massachusetts has struggled with out-of-control spending on school construction, often putting money into many unnecessary projects at the expense of more deserving projects. State Treasurer Tim Cahill, a long-time entrepreneur who took office in 2003, linked the wasteful spending to an antiquated system of reimbursements and a lack of oversight, and responded by spearheading the effort to create the Massachusetts School Building Authority (MSBA) in 2004.

Since 1948, Massachusetts taxpayers have subsidized local school construction through a reimbursement program that initially reimbursed 20 percent to 60 percent of local school construction costs, but today reimburses at rates between 50 percent and 90 percent. Without an oversight entity like the MSBA, the reimbursement system operated without a budget, had no system to verify the necessity of projects, allowed local communities to build what could not be paid for, and resulted in a backlog of reimbursement requests. By fiscal year 2004, the liability for what the Commonwealth had promised to communities grew to approximately $11 billion for projects at over 1,100 schools, while the wait for funding grew to 13 years before a community would receive their first payment.

Since 2004, the MSBA has initiated a total reform of the way the state pays for school construction. The MSBA is funded by a 1 percent state sales tax, drawn from an existing five percent sales tax. The MSBA cannot overspend its annual allocation of sales tax revenues and is prohibited by trust agreements from borrowing more than it can repay. The MSBA requires districts to articulate why a project is “necessary,” versus “desirable,” and to support their request with evidence. The MSBA responds to the request with due diligence, such as double-checking student enrollment projections and site visits to verify problems and review proposed solutions. The sales tax dedication, coupled with the accountability measures, has forced local school boards and the MSBA to align expectations with fiscal reality.

The results are telling. In the past three years, the MSBA has completed more than 700 of 800 outstanding audits inherited from the former program, and generated over $700 million in savings for taxpayers. The MSBA’s “pay-as-you-build” payment system for school construction projects audits and pays a community monthly, based on invoices submitted through a website the community can access. This provides communities with much needed cash flow during construction while avoiding the need to issue bond anticipation notes or other debt financing, which saves on interest and other finance-related costs. Reimbursement rates have been reduced to a range of between 40 percent and 80 percent, based upon a community’s relative wealth or poverty.

As work continues, the MSBA is expected to grow to a staff of roughly 50 employees who will eventually manage and oversee the competitive selection process for a project’s introduction into our capital pipeline, and manage and oversee the design and construction of approved projects. This will accelerate the reform process, whose goal is to provide students with stimulating and safe learning environments while getting the taxpayers the most out of their money.

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