President’s Jobs Proposal May Include Money for School Construction, Teacher Salaries

Yesterday, several news outlets published articles about President Obama’s forthcoming new jobs proposal. Some sources suggest that, in addition to including tax breaks for companies that hire new employees, the plan will include money for school renovations and possibly more money to keep teachers in their jobs. While it’s impossible to know the details of the president’s proposal, past efforts to achieve similar ends may give some insight.

This isn’t the first time the President has pushed for such education-specific economic stimulus. Of course, the American Recovery and Reinvestment Act of 2009 included nearly $40 billion in the State Fiscal Stabilization Fund specifically to help states maintain their education funding in fiscal years 2009, 2010, and 2011. This money will expire on September 30th of 2011 and most states have used up the vast majority of their funds.

The American Recovery and Reinvestment Act also included funding for school construction and renovation. However, the final version of the bill did not provide outright grants. Instead, it provided $22 billion in federally subsidized bonds, called Qualified School Construction Bonds (QSCBs), for school repair, renovation, and construction over two years. Entities that purchase the bonds receive federal income tax credits in lieu of interest payments on the bonds, ideally making them interest-free loans for the schools or school districts that issue the bonds. The bond issuers must repay the principal of the bond but the interest payments are made by the federal government in the form of tax credits to the bond holder.

Unfortunately, it is difficult to know the status of these bonds because every state distributed and managed them differently. Early reports suggested that many districts were having trouble finding bond purchasers because the federal government set the effective interest rate on the bonds too low. In fact, some newspaper reports suggested that investors were asking schools and districts to provide additional funds to make the bonds more attractive. Additionally, the QSCBs were targeted at “shovel ready” projects. Unfortunately, most of these projects ended up requiring significant additional planning even after the QSCB terms were met, resulting in substantial delays and therefore less-immediate stimulus.

From the minimal information available, it seems that the president’s proposal for school construction may involve actual grants, to the tune of “tens of billions of dollars” for school renovation and modernization. While these grants would not get tied up in the lengthy bond purchasing process experienced with the QSCBs, districts would still have to go through the local approval, planning, and contractor search process involved in any school construction projects. These steps could potentially delay the start date of the projects. While renovating the country’s schools is a noble and necessary goal, it may not be the fastest way to infuse the economy with new jobs.

The Education Jobs Fund of 2010 also provided an additional $10 billion specifically for salaries and benefits for K-12 employees available in fiscal years 2010 and 2011. Though those funds are available through September 30th, 2012, according to Department of Education spreadsheets, only $3.9 billion is still available as of August 12, 2011. Despite the fact that many states have stabilized or even increased tax revenues, these federal funds are still in high demand to help make ends meet at the local level.

Based on the new reports available, it sounds like the president’s proposal may be similar to the Education Jobs Fund – additional funds available only for K-12 salary and benefits expenditures. Though the Education Jobs Fund does require states to maintain spending levels for higher education, it does not provide any funds to support those budgets. While the Education Jobs Fund may keep more teachers in their jobs in the short term, it is likely delaying reform to the way districts hire, retain, and compensate their teachers, something the Obama Administration has also supported.

The details on the president’s plan, which will be announced after Labor Day, are still vague. Hopefully the president will use past experience with the State Fiscal Stabilization Fund, the Qualified School Construction Bonds, and the Education Jobs Fund to inform his plan. Check back with Ed Money Watch for more details as they arise.