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HomeMy WebLinkAboutAgenda - 01-21-2025 ; 6-a - Approval of School Capital Funding Policies 1 ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: January 21, 2025 Action Agenda Item No. 6-a SUBJECT: Approval of School Capital Funding Policies DEPARTMENT: County Manager ATTACHMENT(S): INFORMATION CONTACT: 1) School Capital Funding Policy Kirk Vaughn, (919) 245-2153 2) School Major Project Planning Addendum PURPOSE: To adopt new School Capital Funding Policies. BACKGROUND: At its October 8, 2024 work session, the Board of County Commissioners reviewed a draft version of the School Capital Funding Policy, which establishes new definitions and guidelines for school capital funding, uses, and allocation methods. The Board made a series of clarifications and corrections to the draft policy. At a second work session on November 12, 2024, the Board reviewed updates to the policy, and reviewed a secondary Major Project Planning Addendum. The Board made some changes to both documents. The documents have also been reviewed by the School Capital Needs Workgroup and have been provided to staff in both districts. Once adopted, the policies will be implemented starting with the FY 2026 Manager's Recommended Capital Investment Plan, which will be presented in April 2025. FINANCIAL IMPACT: There is no immediate financial impact of this item. ALIGNMENT WITH STRATEGIC PLAN: This item supports: • GOAL 5: PUBLIC EDUCATION/LEARNING COMMUNITY OBJECTIVE 4. Improve learning environments by investing in facilities over a 10-year period that address repair, renovation, and educational adequacy needs. OBJECTIVE 5. Invest in and implement a plan that supports schools operational and facility funding needs. RECOMMENDATION(S): The Manager recommends that the Board adopt the School Capital Funding Policy and the School Major Project Planning Addendum. 2 Attachment 1 Orange County Board of Commissioners School Capital Funding Policy Preamble Since 2022, the Board of County Commissioners has engaged in reviewing its capital funding for the two Orange County school districts. This began with the creation of the School Capital Needs Workgroup, which included staff and elected officials from all three bodies. They recommended the county engage with a consultant to review and make recommendations about school capital investments. The Board engaged with Woolpert Inc. which presented four School Optimization Plan options based on different funding commitments. During the January 17, 2024 Board Retreat, the Board discussed the four strategies and settled on its preferred investment level. The Board proposed a $300 million dollar bond which was subsequently approved by the voters in November 2024, as well as a significant increase in county annual capital funding in the form of Pay-Go cash. This significant investment, as well as its tax impact on county residents, has necessitated that the Board review its capital funding policies and expenditure controls for school construction. This funding framework was adopted by the Board on June 4, 2024 and codified into this funding policy below. Capital Spending Categories Major Projects At the June 4th, 2024 Board meeting, the Board adopted the framework for new capital spending and asked that both districts submit bond plans based on their approved funding levels. These plans are to be based on the framework of the Woolpert Optimization Plan. This framework prioritizes replacing old facilities with new facilities and improving the educational adequacy of school buildings. The Bond and Supplemental Pay-Go funds would be used to fund these major projects as described below. High Priority Needs At the same June 4th, 2024 meeting, the Board adopted a framework for identifying and prioritizing High Priority Needs. Woolpert identified a priority list of all major component replacements for each campus for both districts. While Woolpert provided a specific replacement schedule, both districts may identify alternative replacement schedules. Specific high priority needs will be formally determined on an annual basis and be consistent with the Woolpert high priority definitions: i. Level 1 — Critical — Failure of components impact the facility's ability to remain open ii. Level 2 — Essential — Failure of components impact the health of major systems (i.e. leaking roofs) iii. Level 3 — Necessary— Failure of components could impact the facility's efficiency and usefulness iv. Life cycle replacements with one to three (1-3)years of remaining useful life at the time the study was completed. High Priority Needs will be funded using Annual County Debt Financing, Lottery Proceeds, as well as any remaining Bond or Supplemental Pay-Go funds as described below. 3 Other Capital Uses The county recognizes that there are expenses that may not be consistent with the Woolpert definitions of priority, nor can be covered in the Current Expense budget. These could include athletic upgrades, component replacements, capital leases, technology purchases. Other Capital Uses will be funded by Recurring Capital and Article 46 Sales Tax Proceeds as described below. Sources of Funds The categories below describe the set sources of funding that the county uses to fund School Capital Improvements. The county supports these investments using Article 40 and Article 42 Sales Tax Proceeds as defined in State Statute § 105-502 (a). Any additional county funding above these required revenues shall come from Property Tax as needed and approved by the Board. Bond Funds and Supplemental Pay-Go In order to meet the funding requirements for the school optimization plan, the County Commissioners voted to seek a $300 M Bond Referendum and to supplement this bond with an additional $100 M of tax supported Pay-Go (or cash) funding. The intent of the bond funds is to fund Maior Projects such as facility replacements and significant renovations as identified by the school districts. The Bond funds are to be allocated between the districts at $174.7 million to Chapel Hill-Carrboro City Schools and $125.3 million to Orange County Schools. The supplemental Pay-Go funds are intended to cover all professional services, project management and design costs related to construction. After the Major Projects are completed, the supplemental pay-go will provide additional annual funding for High Priority Needs and increase the county's annual maintenance funding for the school district portfolio. Annual County Debt Financing The county currently borrows funds on an annual basis to fund both district's annual capital projects, in the amount of$4,429,718 in FY 2025. These funds are currently estimated to increase by 2% annually. These funds will be used to support both district's High Priority Needs. Lottery Proceeds Lottery proceeds represent the state of North Carolina's contribution towards funding school construction. The state currently manages three lottery programs for school capital: Public School Building Capital Fund, Public School Repair and Renovation Fund, and Needs-Based Public School Capital Fund. These funds are allocated by the state to specific school districts, but the county is responsible for applying for and drawing down the state funds. The County shall aggressively apply for and drawn down all funds available to both districts in coordination with school district staff. In cases where the county draws down lottery proceeds to offset debt service costs on prior school debt issuances; the county shall do so. The county will then provide the districts the same amount of funding as Pay-Go, to provide additional flexibility to the districts. These funds will be used to support the districts' High Priority Needs. 4 Article 46 Proceeds In FY 2012, the County authorized the use of Article 46 proceeds and set a policy of allocating 50% to school capital and 50% to economic development initiatives. The Article 46 funds dedicated to school capital funding are commonly used to fund both districts' technology needs. However, these funds are not restricted for that purpose and can be used for any Other Capital Uses as needed by both districts. Recurring Capital The county also provides a recurring stream of funding for all minor capital expenses, such as equipment purchases, component replacement, athletic and field repairs. The county provided $3,060,000 to the districts in FY 2025. This funding is currently estimated to increase by 2% annually and will be used to support both districts Other Capital Uses. Allocation For the 10-year period from FY 2025-26 through FY 2034-35, the county will aim to allocate all funds towards the combined Major Project and High Priority Needs categories on the basis of approximately 59.86% to Chapel Hill Carrboro City Schools and 40.14% to Orange County Schools. This allocation is based on the Woolpert Inc. School Optimization Report. After the expiration of this ten-year period, future Boards can choose either to commission a new school optimization report to determine future allocation, revert to budgeted Average Daily Membership or use another allocation method as desired. For Other Capital Uses, Article 46 proceeds will be allocated annually based on the budgeted Average Daily Membership for each district, excluding charter students. Recurring Capital will be allocated annually based on budgeted Average Daily Membership. Capital Project Ordinances — Project, Function and Purpose All funds allocated to capital projects are to be accounted for in the School Capital Fund as authorized by a Board of County Commissioner approved Capital Project Ordinance. Capital Ordinances can be authorized and amended by the board either annually through the Capital Investment Plan (CIP) or through budget amendments at any Board Business Meeting during the year. Each category of expense shall use different rules of authorization for Capital Project Ordinances to best balance the county's requirement for fiscal oversight against the need for the districts to manage capital projects quickly and efficiently. Major Projects will be authorized on a project basis, restricting funds to the specific purpose identified by the Board. Funds for major projects will be allocated in two tranches, design and construction. First, the county will authorize the funds to begin designing the major project through the annual Capital Investment Plan. The county will anticipate authorizing the construction funds in the following fiscal year for debt management purposes. However, the Board could choose to delay construction funding in the second year if project timing or other circumstances dictate. High Priority Needs will be authorized on a project basis, restricting funds to the specific purpose identified by the Board. These projects will be identified by the school districts each year through the ten-year annual Capital Investment Plan. School staff will work with County staff to present projects for the CIP that comply with the Woolpert definitions and are within county funding parameters. 5 Other Capital Uses will be authorized by function or purpose, which group similar expenses into broad categories like "technology" or "athletic improvements". These will be allocated by school district staff each year through the Capital Investment Plan. Oversight and Amendments Per Statute § 115C-433 (b) districts may increase or decrease specific project budgets by a specified percentage as adopted by the BoCC. This policy specifies that the districts must seek prior approval to amend the county allocations for any allocations approved by purpose, function or project by a cumulative amount of 15% or more. The districts are still expected to submit budget amendments to county staff to rectify all changes throughout the year and reconcile both district's general ledgers to meet the statutory preaudit requirements. In addition, for all Major Projects and High Priority Needs, a working group of school and county staff should meet monthly to review progress on these major construction projects and their cost projections. This working group will include county budget staff and management, as well as school district operations and construction personnel. This working group will ensure that the county staff can advise the board on any change orders, delays or cost overruns. The construction allocation for Major Projects should be understood to be inclusive of all costs required to complete the construction of the facility, including owner's contingency, furniture, fixtures, and equipment. If any major projects require additional budget, above what can be resolved within the initial construction budget, the project budget will need to be amended by the Board of County Commissioners. Each district is required to identify funds within their share of bond and CIP funds to offset the increase. This will be presented in a BoCC business meeting, and school staff should provide adequate notice based on the County's agenda process. School staff will need to identify the cause of the budget overage and detail the potential impact on the reallocation of their funding on other major projects and high priority needs. Emergencies This policy recognizes that adopting a project-based allocation method for High Priority Needs could restrict the districts' ability to react to sudden failures or emergency situations. Therefore, when emergencies or sudden failures occur, school staff are to provide a written request for immediate reallocation to the County Manager and the Budget Director. The county will then reallocate funds at the next available board meeting. Enrollment and Capacity The county will annually review student growth and enrollment as it relates to school capacity. The county is committed to provide adequate educational space for all levels of education in both districts. However, due to the significant investment already allocated towards school construction during the FY 25-35 period, the County will likely not be able to finance another significant expansion. District Staff should propose funding any expansion 6 in capacity by redirecting Major Project or High Priority Needs funds prior to requesting additional funding. Rescission This policy supersedes any school capital funding policy in place prior to this date. 7 Attachment 2 Orange County Board of Commissioners Major Project Planning Policy Addendum Background The County's ten-year capital plan is a planning document that is updated annually. During the budget process, the County appropriates the first year of funding, and accepts the ten- year plan. The County pursued a Bond Referendum in November 2024 as an effort to replace or renovate older facilities in each district and improve the educational adequacy of school facilities. Due to the importance of these Major Projects to the districts and the county at large, the Board has specified additional considerations for design, planning, and location of Major Projects. These are established in the following policy document. Design and Planning The responsibility for design and construction of school facilities lies directly with the two districts. However, the County has the responsibility for the funding of these facilities. Therefore, the Districts are responsible to demonstrate how their designed Major Projects would meet the following County priorities. • Educationally Adequate - New facilities should at a minimum meet all current Department of Public Instruction (DPI) space types and space size standards. These include adequate spaces for Exceptional Children and for Career and Technical Education. • Flexibly designed for Future Standards - Because schools are expected to be in use for long periods of time, and DPI standards will change in that period, new construction should prioritize flexible space in design. • Equitably between School Districts - As the County is responsible for funding educational opportunities for residents regardless of public school district, it expects districts to maintain equitability in scope and construction standards between them. The County can use various techniques to regulate this equitability, including joint project management, joint bidding of design and construction, prototype designs, etc. • Sustainability & Life Cycle Costing - As part of the County's Climate Action Plan, the County establishes that new County funded construction should include climate mitigation and sustainability measures. To properly prioritize these investments, project designs should utilize life cycle costing techniques, for instance including the long-term savings of solar installation. However, consideration should be given to the training and qualifications required for school district operations staff. • Safety - New school facilities will meet all modern best practices around creating a safe school campus, and recommendations from the School Safety Taskforce. • Community Usage - School districts should coordinate with municipalities and County recreation staff to identify and pursue joint community use opportunities. • Capacity - District staff will identify how Major Projects would impact the student capacity of the district. To support a "Newer & Fewer" replacement strategy, school districts 8 may replace smaller older schools with larger higher capacity schools. The County expects the districts to create a long-term plan to use that additional capacity to consolidate other aging schools. Site Selection Per State Statute, a local board of education cannot execute a contract nor expend funds to purchase a facility site without the consent of the local board of county commissioners. As each district plans for future school-related facilities, districts must be able to account for the following County criteria. • Acreage Standards - Districts should ensure that the land acquired for a new school site meets all DPI acreage requirements for the intended school. • Environmental Factors - Due to the long usage of school facilities, and the increasing impact of climate change, districts should strictly avoid all future flood hazards. Facilities should not be in close proximity to wetlands, stream buffers or in a flood plain. The facility should also be sited to avoid any unfavorable environmental impacts. • Availability of Utilities - The district should account for the utility construction requirements in building new school facilities. This may require preliminary meetings with County, utility provider and school staff to determine these costs. • Total Project Costing - The districts should provide a reasonable accounting of all additional costs related to building at the proposed site that would exceed the standard budgets for school construction. These would include the total costs of all utility installations, stormwater management and site grading. Districts should prioritize the lowest total cost in determining future sites, rather than the upfront purchase price. • Potential for Joint Park Site - Districts should alert the County of any joint opportunities to purchase land for park facilities adjacent to school sites. • Safe Routes to Schools - District staff should identify the alternative routes to school that would be possible using alternative modes of transportation for the planned location. If these routes are not available at the time of purchase, District staff should work with County and Town staff to identify and overcome barriers to these safe routes over time. Board of County Commissioner approval for any potential school site acquisition will be discussed during open session of regular BoCC business meetings. School staff will need to provide adequate notice to county staff based on the County's agenda process and will need to provide the following details: cost of the proposed site, location of the site, including tax map numbers, as well as a memorandum detailing how the proposed locations adheres to County criteria. Rescission This policy supersedes any school planning policy in place prior to this date.