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School Districts Put Off Construction Borrowing

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By SUSAN HAIGH, Associated Press

HARTFORD, Conn. (AP) _ Connecticut school districts appear to be cutting back or postponing borrowing money for their school construction and renovation projects, just at a time when municipal bond rates are attractively low and construction costs have dropped.

The Associated Press reviewed payments made by the state of Connecticut to local school boards and municipalities to help pay for school construction costs. The AP found there has been a steady decline since 2008. These payments are made to local entities during the construction period of a project to cover contractor costs.

In fiscal year 2007, the state made nearly $649 million in so-called “progress payments” for local school projects. As of fiscal year 2011, which ended June 30, the figure had dropped to $318.8 million, according to data provided by the state Department of Education. The National Bureau of Economic Research has said that the U.S. recession began in December 2007.

“The trend-line turned in school construction at the same time that the economy turned,” said state Rep. Andrew Fleischmann, D-West Hartford, who is co-chairman of the General Assembly’s education committee and sits on the panel that authorizes progress payments. He said a school building boom about 10 years ago may explain part of the decline, but he believes the economy is the greater reason.

“Because of the tough fiscal circumstances that virtually every city and town in Connecticut has been facing, many of them have chosen to cut back on the amount of local school construction that they’re undertaking,” Fleischmann said. “I believe a lot of local officials are understandably concerned about putting bonding referendums in front of voters right now because there is such a widespread feeling that there needs to be budget-cutting going on.”

Fleischmann acknowledged, however, that it might not make sense for some schools to borrow given declining enrollments.

Nationally, municipal bond issuances fell 44 percent through the first six months of 2011, compared to the same period last year. These bonds typically finance infrastructure projects, such as roads, sewers and schools. The sizeable drop in municipal bond offerings has had a negative ripple effect throughout the economy.

“There are some public officials who believe that it’s the wrong time to undertake new projects,” Fleischmann said.

“My view is, this is actually one of the best times to undertake needed public construction projects because borrowing costs are at an all-time low and Connecticut’s economy needs more jobs and building a new school or renovating an old school or constructing a new library or bridge, all of those projects create jobs.”
James Finley, executive director and CEO of the Connecticut Conference of Municipalities, said it is politically difficult for local officials right now to propose an expensive school construction project.

“We have an unemployment rate of over nine percent in Connecticut. And so, to justify new construction during these tough economic times can be a difficult sell to taxpayers _ to feel that they’re really getting hit at the local level and, on top of it, new state tax increases,” he said.

Even though the borrowing costs are low, Finley said school boards and municipal leaders are still receiving level-funded aid for education and roads from the state, given Connecticut’s budget deficit problems. Couple that with increasing energy costs and pension expenses, Finley said local leaders need to balance numerous fiscal pressures.

“There’s still going to be an impact on the taxpayer and it’s a long-term impact on taxpayers because those bonds are 20-to-30 years long,” he said. “I think it’s just tough in this environment.”

    (Copyright 2011 by The Associated Press.  All Rights Reserved.)

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