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    The Next 10 Years of Ed Finance: Reimagining K-12 Real Estate

    This article is the sixth in a series that reviews “10 Predictions for the Next 10 Years of Education Finance.” Read on for learnings and predictions around the dominant themes and challenges facing education finance over the next decade!

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    99% of school districts own buildings for which there was a collective maintenance backlog of $197 billion as of 10 years ago. Students, teachers, and administrators have noticed the deficiencies: according to a recent school facilities survey, 45% of teachers, principals, and district leaders gave their buildings a “C” grade or lower in the survey, roughly equivalent to the 42% who assigned a “B” grade to their building or buildings. Only 14 percent gave their building the highest marks.


    Matthew Lentz, Chief Financial Officer of Upper Moreland Township School District in Pennsylvania, shared with me that the district community was lobbying him to implement traffic calming measures around a local school. The ongoing debt payments to finance this project would have cost $500,000  per year for several years— about 1% of the 3,500-student district’s annual operating budget. 


    Do we expect school district finance leaders to moonlight as urban planners?


    The difference between capital and operating funds


    Capital projects and facilities are an insidiously inequitable component of school district finance. You do not need to be an education economist to observe that wealthy suburbs offer gleaming school facilities while economically disadvantaged school districts regularly have students shivering or sweating in +50 year old buildings with aging HVAC systems, roofs in need of repairs, windows that don’t open, and no potable water due to lead pipes. The differences are so visually stark that the disparity looks like mismanagement to the casual observer.


    First, we must understand that Capital funds are distinct from annual operating funds. As of fiscal year 2019, NCES reports that school districts spent $1,499 per pupil (adjusted for 20-21 dollars) on Capital Outlay (which includes expenditures for property and for buildings and alterations completed by school district staff or contractors) and $420 per pupil on Interest on School Debt. Here's what this tells us:

    • $15,621 is the reported total per-pupil spending
    • 12% of that goes towards debt and capital
    • This leaves only $13,701 for current expenditures
    • ... of which another 9% of that is dedicated to operations and maintenance. This category includes custodians and cleaning supplies, landscaping, utilities, plumbing issues, roof, window, and HVAC repairs, rodent management, toilet paper, painting, drinking water (remember the lead pipes?), and other various standard facility issues.


    Figure 1. Across recent years, expenditures on operations, maintenance, capital outlay, and school debt are a small fraction of total per-pupil expenditures. (NCES)


    Methods for funding capital projects


    How do capital projects get funded? The answer can vary depending on state and local policies and taxing mechanisms, but there are a few different ways districts can access funds for capital projects:

    • State Bond measures: the state legislature passes a Bond for a series of development projects which typically includes new construction
    • Local Bond measures: a local community votes for a specific tax to fund a Bond for local school construction projects
    • State Capital Funds: the state reimburses districts for approved capital projects from a general capital projects fund


    In these three scenarios, the Local Bond measures and state capital projects funds are ripe for deepening inequities. In the local Bond scenario, districts with a wealthy tax base have a much higher capacity to raise funds through local taxes for capital projects, even though their overall tax effort may still be lower than less wealthy districts. How is this possible? Let’s say one property tax base is $500 million and the neighboring district’s tax base is $1.25 billion. If the tax rate is 2.5% in the $500-million-district, it will yield $12.5 million; if the tax rate is 1.5% in the $1.25-billion-district, it will yield $18.75 million. These districts may serve a similar number of students, but if the property values are substantially higher, one community can easily raise more money even with lower tax rates. Property values do not track with student enrollments or need, especially when some districts see a significant portion of their property wealth in commercial or industrial properties. 


    The State Capital Funds system should be more equitable. Theoretically, the motivation behind having state funding for capital projects to begin with is to ensure that districts don’t have vastly unequal purchasing power for capital projects. In many states, their state capital dollars only reimburse districts once the money has been spent. This requires first having the capacity to locally raise capital dollars for the full project cost, and then recover and pay back short-term debt after the state reimburses the district. Applications for reimbursing capital funds typically require highly detailed project plans, including budgets and timelines, as well as meeting strict building regulations. The long process of project planning, submission, approval, and reimbursement can generate large hidden costs. Economic fluctuations can dramatically change the cost of materials and labor even from one year to the next (supply chain issues, anyone?) Therefore, each district is at risk if they cannot weather changes in costs for the full project while waiting for reimbursement dollars—and because districts must complete projects within certain timelines and budgets to get reimbursed, a district may have to return funds to the state if projects deviate too far from the plan.


    I am often asked the question, “School spending keeps increasing— when will it be enough?” to which I always reply, “Enough for what?” Enough for them to successfully finance, develop, operate, upgrade, and maintain 100,000  buildings as a side project? 


    Opportunities to repurpose parts of school buildings  


    Looking towards the next decade of education finance, I feel compelled to ask: should school districts be real-estate property managers? With over 13,000 districts, it strikes me as an unnecessary burden and an inefficient use of resources for every single district to spin up their own special operations team of building engineers, construction teams, and Bond agencies—not to mention the resources spent lobbying their community to raise taxes or write capital projects plans. Further, with the shifting sands of populations, the capacity needs at the start of construction may differ wildly from the capacity needs (greater or fewer students) than at the completion of a project—let alone the payoff of a Capital Bond 30 years later. School construction is not cheap, and we are all placing a lot of faith in demographic projections over decades that have, traditionally, not had results of an exact science.


    What if states hired expert building engineering and management teams to manage school real-estate facilities across the state? These efforts could include more comprehensive regional capacity planning versus a single township and consider how to merge and enhance the use of these spaces amidst population shifts. Imagine taking a school building at 40% capacity and repurposing part of the building with a public library, Internet cafe, recreation center, workforce development program, or health clinic. What else could we accomplish? 

    • We have a critical teacher shortage: let’s spin up teaching apprentice programs in surplus classrooms—recruit people from within the neighborhood who are looking for new career opportunities and invested in the community. We could provide alternative pathways to teaching certifications right inside the walls of the schools who desperately need a fresh labor supply.
    • We could assess neighborhoods in food deserts and spin-up a local grocery store or farmers’ market in an underused gymnasium or cafeteria.
    • We could expand facilities for training and apprenticeship programs in much-needed and well-paid skilled labor like construction, plumbing, electrical work: CTE programs by day and workforce development in the evenings or weekends.
    • We could modify segments of the building as co-working spaces and incentivize local businesses to set-up offices and community-school partnerships. Our Chief Product Officer, Jason Becker, has a degree in Chemistry—I would have gladly shared his time with the Science Department down the hall for a few hours a week to help with lesson planning, co-teaching, and grading in exchange for free or reduced rent. I could dust off my trusty red-pen on my lunch break and grade some essays. Our brilliant design team could lend their skills for flyers and school-family communications. So many people would be willing to share a few hours of their time per week with schools if it were only so easy as a mid-day trip to the other side of a building.


    Considerable effort would need to be invested in ensuring equitable investments in capital projects and supplemental resources, as well as safety and security mechanisms in scenarios where non-employee adults are entering school buildings, but these are solvable problems in a world where America’s schools have security protocols that rival domestic airports. 


    Relieving (some of) the burden on school districts


    If we expect schools to be catch-alls for community support, why not coordinate community resources in the very hubs of community that already exist? Why not make underutilized public spaces one-stop-shops for public services and engagement? Undoubtedly, bringing in supplemental services and community members would also stimulate local neighborhood economies as people start looking for new places to grab lunch or coffee or run a quick errand, providing a ripple effect of economic development in long-neglected and under-invested neighborhoods. Siloing these services across tens of thousands of agencies is limiting our capacity to think collectively about resources, space, and talent while schools are being crushed by the growing list of expectations placed upon them.


    Centralizing the development and maintenance of school buildings at the state-level would help to concentrate specialized expertise, reimagine school buildings as multi-purpose community centers, and increase access to public services and economic opportunities for the communities who need them the most. Simultaneously, this would free schools and districts to focus more time, talent, and financial resources on instructional programs.



    This article is the sixth in a series that reviews “10 Predictions for the Next 10 Years of Education Finance.” Read other topics in the series now:

    Jess Gartner

    Jess Gartner is the founder and CEO of Allovue, where edtech meets fintech - #edfintech! Allovue was founded by educators, for educators. We combine powerful financial technology with education data, giving administrators the power to connect spending to student achievement. Jess has been featured as one of Forbes Magazine’s 30 Under 30 in Education (2015, 2016 All-Star), The Baltimore Sun’s Women to Watch (2013), and Baltimore Magazine’s 40 Under 40 (2013). In 2014, she was recognized as the Maryland Smart CEO Innovator of the Year in the Emerging Business category. Before founding Allovue, Jess studied education policy at the University of Pennsylvania and taught in schools around the world, including Thailand, South Africa, Philadelphia, and Baltimore. She taught middle school humanities in Baltimore City and received her M.A. in teaching from Johns Hopkins University.