Injecting Sense Into School Construction

On the important issue of school construction, Baltimore Mayor Stephanie Rawlings-Blake has displayed refreshing common sense by demonstrating skepticism about a vastly inflated — indeed bizarre — financing proposal.

Spurred on by an unusually hollow threat of another ACLU lawsuit, the mayor and Gov. Martin O’Malley were urged to pledge various future revenue streams to float the revenue bonds of a new city school construction authority. These were to include the city’s “normal” allocation of state school construction funds; its own “normal” appropriations for this purpose; a portion of its future slot machine winnings; and a higher bottle tax. This constriction of future state and city budget flexibility would supposedly have gained the benefit of current low interest rates and construction costs. City schools CEO Andrés Alonso, not one to refuse gifts of money, supported the plan, urging that the authority receive an annual lump sum, excusing it from the annual school construction “beg-athon” in the governor’s outer office, which replicates scenes once seen at the court of the Bey of Tunis.

Maryland was the first state to fund most of its school construction at the state level, an innovation of the Mandel administration that rapidly doubled the state’s general obligation debt. Allocations have always been discretionary; the program’s first director, over-exuberant in this respect, wound up in jail. Gov. Parris Glendening used the program as a “smart growth” tool (though the list of schools funded in his administration suggested that the only really “smart” jurisdictions were the reliably Democratic ones, Baltimore City and Montgomery and Prince George’s counties). He also saw to it that all schools more than 50 percent funded by the program were subject to the state’s prevailing wage law; so much for “historically low” construction costs. State-aided schools, as a recent Sun editorial noted, are also subject to minority and female set-asides, a Buy American Steel act, green energy mandates and other concessions to rent-seeking groups that have nothing to do with education.

Although Gov. Harry Hughes shrank the state program to $22 million a year, his successors, particularly Governor O’Malley, have ballooned it to more than $400 million annually. To do this, the state’s capital debt affordability guidelines have just been bent. The state bonds used to fund the program are still subject to state constitutional restraints requiring their amortization within 15 years. The O’Malley administration is impatient with both the debt affordability and constitutional restraints; the new state health laboratory and proposed state office complex, core functions of government, are funded with revenue bonds supported by extravagant lease payments. This device was legitimated in an early 1980s, 5 to 2 decision of the Court of Appeals, the court naively assuming that there would be market restraints on lease payments. State revenue bond debt is now roughly equal in amount to state general obligation debt.

The city, like the state, is constitutionally precluded from issuing long-term general obligation debt; it is subject to the added restriction that its bonds must be approved in an automatic referendum.

Mr. Alonso’s desire for a block allocation reflected a purpose to use authority bond proceeds for maintenance and deferred maintenance, not normally proper uses of capital funds. It also meant that the pledged future revenues would not be used for nefarious competing purposes, such as salary supplements for science teachers, repair of crumbling public works, youth employment programs, school drug testing and treatment or other programs not enjoying the favor of teachers unions or the handful of political contributors with unionized workforces that do public construction work.

A whole galaxy of future revenue sources would have been pledged to a cause that would have done little to improve educational outcomes, even though the school system, with half the enrollment of 50 years ago, has been slow to downsize its plant, and even though the anti-clericalism of the ACLU and the withholding of public aid have forced the closing of excellent parochial schools whose buildings are in good repair.

No amount of talk about “creative financing” can disguise the fact that the proposed revenue bonds, which would not have rested on third-party payments, would have been in reality revenue anticipation notes and tax anticipation notes. These fiscal devices are the usual last resort of insolvent municipalities, American and Latin American. By rejecting them, Baltimore’s mayor and taxpayers would be spared much grief. Understanding of what would be thus avoided is essential to ensure that such schemes are not tried again.

George W. Liebmann is the volunteer executive director of the Baltimore-based Calvert Institute for Policy Research. His email is george.liebmann2@verizon.net.