04.23.09: Extreme Hardship Update
By David Walrath
The Small School Districts' Association (SSDA) has been asked to provide advice regarding the State Allocation Board (SAB) action to allocate extreme hardship deferred maintenance funding as installments over a five-year period. Each year school districts will receive 21% of its approved extreme hardship project funding. This applies only to those projects approved for funding at the April 22, 2009 SAB meeting. Any new extreme hardship projects will not be funded because there will not be resources to fund any new extreme hardship projects.
SSDA believes the state is in an exceptionally good bid climate for school capital projects. If a school district has an extreme hardship project and has the resources to complete that project without jeopardizing their budget, this is an excellent time to go forward with the project.
However, for most small school districts the district does not have sufficient resources to complete an extreme hardship project without either borrowing money or putting pressure on other parts of the school district budget.
SSDA recommends that school districts wait to enter into contracts regarding extreme hardship until the May Revision and the June budget adjustments are complete. The state’s revenues are continuing to deteriorate and it is possible that the state will make further reductions to categorical funding including funding for deferred maintenance extreme hardship. Because this is a possibility, SSDA believes school districts should consider holding off on making financial commitments until the May Revision and June budget process is complete. If deferred maintenance extreme hardship has not been reduced in that process, then school districts will have the option of considering internal or external borrowing to complete the project or trying to save up the extreme hardship money over a period of years then complete the project with the saved money.
While the saving money option is a legal option within extreme hardship -- and the SAB anticipated that school districts would save up their 21% allocations until they had sufficient funds to complete their projects -- SSDA cautions that the current bid climate could change, project costs could escalate and the saved deferred maintenance might not be adequate to complete the project.
SSDA encourages school districts to consider the project cost escalation, the current variable bid climate, and their district budgets and use those factors in making the decision on whether they want to borrow in order to complete an extreme hardship project.
Because extreme hardship projects are typically health and safety projects, SSDA anticipates that most school districts will move forward with their projects. However, SSDA also recognizes that the current fiscal uncertainties could result in school districts delaying their projects until next summer.
SSDA will continue to work to find new revenue sources to fund new extreme hardship projects. Until a new revenue source is approved, SSDA recommends school districts review facility hardship provisions in the state’s School Facility Program to determine whether a facility hardship application would meet the school districts health and safety project needs.
