News: CJ Exclusives

School District Building Lease Plan Headed For Senate Vote

Treasurer no longer opposes revised S.B. 554, but concerns remain about debt implications for low-income counties

A bill to help rural, low-wealth counties replace aging school buildings would change state law and allow school districts to lease buildings from developers. Critics say the bill is flawed, and counties could suffer economic harm if they can’t meet lease payments.

A rewritten version of Senate Bill 554 passed the Senate Education/Higher Education and Finance committees on Friday. It is on today’s calendar for a vote on the Senate floor.

Bill sponsor Sen. Wesley Meredith, R-Cumberland, told Carolina Journal that a school district unable to get a county bond or other traditional funding to build new schools would benefit from the legislation. Closing and consolidating run-down facilities, eliminating duplicative staff, and drastically lowering maintenance and electricity costs would enable the districts to make lease payments.

Robeson County Schools has been held up as the poster child for the school leasing bill. It has proposed closing or consolidating 30 schools, building 13 new schools, and renovating five others.

Leases would have to be approved by the county commissioners, the school board, and the Local Government Commission in the state treasurer’s office, Meredith said. If the county or LGC objected to the lease details, the plan would be scrapped.

“So there’s a lot of checks and balances,” Meredith said.

“Despite improvements to the bill approved by the Senate committees, Robeson County school board members would be wise to consider a more measured approach to using operating leases to build and renovate schools,” said Terry Stoops, director of research and education studies at the John Locke Foundation.

“A complete overhaul of the district’s school facilities would impose unnecessary financial risks on the county and its beleaguered taxpayers,” Stoops said. Falling enrollment is the major concern.

“Over the last 10 years there were 500 fewer students attending Robeson County Schools,” the trend appears to continue the next 30 years, and the school district isn’t taking that into account in planning to build the same number of seats, Stoops said.

“They may be paying for buildings that they don’t need, or at half capacity, or maybe even vacant well into the future” under the 30- to 40-year leases, he said. More charter schools are likely to open in Cumberland County, continuing to lure Robeson students and the state funding that follows them.

According to data from the state Department of Public Instruction, Robeson County Schools projects 23,029 students in 2016-17, falling to 20,397 by 2025-26.

Meredith told CJ his intention always has been to pass a bill that would apply statewide but be most helpful to poorer, rural counties. Columbus and Jones counties also are considering this approach.

A group of Robeson County school officials and others approached him about his plan, “but it was not tailored for them specifically,” Meredith said.

Among those proponents is Rob Ferris, a Raleigh developer who developed the plan, and Aaron Thomas, a Robeson County construction company owner who has given campaign contributions to numerous state lawmakers on both sides of the political aisle.

Sen. Jerry Tillman, R-Randolph, co-chairman of both Senate committees that heard the bill Friday, and Meredith introduced a substitute bill to the original measure to strengthen oversight of the process and address objections.

“You can’t finance a school in Robeson County. The tax base is not there to do it with a bond issue,” Tillman said during Friday’s Finance Committee meeting. “If you don’t use some type of outside-the-box thinking you’ll never finance the schools.”

But Todd McGee, spokesman at the North Carolina Association of County Commissioners, told CJ that organization has concerns.

In recent years the state has cut the counties’ share of lottery revenue, reducing the public school capital assistance it provides to counties, and eliminating corporate income tax proceeds dedicated to school capital needs, he said. Schools now are seeking different methods of paying capital needs.

“The association has concerns that the lease-purchase model might not be the best solution for all counties, and that it may result in an increase in taxes when the lease expires,” McGee said.

Leanne Winner, spokeswoman for the North Carolina School Boards Association, told CJ that group has not taken a position on the bill.

“We are not opposed to this bill because it does not pledge the full faith and credit of the state” to pay for operating lease costs, Edgar Starnes, spokesman for the Treasurer’s Office, told Finance Committee members. The Treasurer’s Office adamantly opposed the original bill.

“But I do want to clear up one misconception. An operating lease does not increase a county’s debt affordability, so whether you use traditional bonds or leases, a lease doesn’t mean that you can afford more debt,” Starnes said. Robeson County would have to do its own debt affordability study, determine how much it can afford, and how to finance it.

State law prohibits public schools from leasing buildings from third-parties. S.B. 554 exempts school districts from that law. It also appears to release school districts from a public bidding process on the lease contracts, though that is uncertain. Meredith said a closed bidding with public bid openings would be used.

“They might need a little clarification and cleanup,” Erika Churchill, a General Assembly attorney, said of the bidding language. Drupti Chauhan, principal attorney at the General Assembly, agreed.

Sen. Floyd McKissick, D-Durham, asked during the Finance Committee meeting why a limited test bill wasn’t being used instead of immediately opening the process statewide.

Tillman and Meredith said Hoke County Schools has had success with a similar plan already. Tillman said Robeson County Schools would have more success because it would be closing more schools than Hoke did.

It worked to the advantage of Hoke County and the private developer of one school, Stoops said. But, he warned, “That’s a far cry from the massive scale that’s being proposed by Ferris to build all these schools” using an untested financing manner.