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Ehlers & Associates, Inc. — Leaders in Public Finance Since 1955 Ehlers 2008 School Finance Seminar Mark Your Calendars! — Page 2 Transportation Infrastructure Project Matches How do Municipalities Fund them? — Page 3 GFOA Recommended Practices for Selecting and Managing the Method of Sale for Local Government Bonds — Page 4 What's All the Fuss About Bond Insurance? — Page 5 Ehlers Ranks in TOP TEN as Financial Advisor of Competitive Sales — Page 6 MARKET UPDATE Ensuring the Health of the Insurers — Page 6 By Joel Sutter and Tom Berge, Financial Advisors, Ehlers Education Team The I-35 bridge collapse on August 1, 2007, reinforced the need for all levels of government to develop financial plans to adequately maintain public facilities and infrastructure. While public education may not be faced with a dramatic consequence such as a bridge collapse, access to adequate funding for maintenance of school facilities is a major problem for Minnesota school districts. Minnesota taxpayers have a huge investment in their school facilities. According to the Minnesota Department of Education, public school districts operate over 164 million square feet of building space. With an average tl♦ replacement cost estimated at $180 per square foot, the total $600 million a year on facility maintenance. The Minnesota Department of Education, in a study completed in the late 1990s, projected that $2.4 billion in district facility repair and replacement work was needed by the year 2009. Given that state capital funding formulas have changed little since the time of the study and that maintenance costs have increased substantially, that number has undoubtedly grown. What Funds are Available? Unlike cities and counties, school districts do not generally have authority to raise taxes to fund capital improvements without voter approval. Most districts rely primarily on categorical funding (state aid and tax IN levies) that is aim In NM determined by state -set 1111.15.11....i formulas. NIP 1111.1 in No MUM 1111/1111•INNININ /EMI/ INS! M - -- Elmil /MIMI MEM/ aintaiffirrarise= Hit am in I♦ ENI Ili OM' Mr MI 1111.0I♦. �w�! ■N MN�i it ii . = IN in replacement cost for those facilities is at nearly $30 billion. When school districts are able to keep up with routine maintenance on their facilities, it protects the public's investment. It also can help to maintain a healthier and more habitable learning environment, and improve the quality of education. Yet most school districts struggle to find resources to keep up with the significant costs of facility maintenance. What Should it Cost? The Narional Research Council, a private, nonprofit institution that provides science, technology and health policy advice under a congressional charter, states: An appropriate budget allocation for routine Maintenance and Repair (M&R) for a substan- tial inventory of facilities will typically be in the range of 2 to 4 percent of the aggregate current replacement value of those facilities." If we apply even the low estimate of 2 percent to the estimated replacement value mentioned above, it would suggest that Minnesota school districts should be spending nearly The primary ongoing source of funding for school maintenance for many years has • been operating capital revenue. Each district's revenue is determined primarily by enrolment, with a weighted facility component based on average building age. Statewide, this formula provides $194 million in revenue for the current fiscal year. This obviously falls far short of the funding needed for adequate facility maintenance. Furthermore, this is also the primary source of funding for all forms of equipment - including technology, furniture, instructional equipment, and maintenance equipment - and even for textbooks. Unfortunately, the revenue formula has remained essentially unchanged since 1992. Since then, the costs for most routine maintenance projects have at least doubled. For example, from 1992 to today the cost to replace a roof has grown from under $4 to over $10 per square foot; the cost to replace a single classroom unit ventilation system has grown from $12,000 to $25,000. At the same time, needs and expectations for computers and other technology have increased dramatically, as has the cost of textbooks. {FACILITY MAINTENANCE FUNDING (continued on page 2)