The School Facilities Construction Commission was established in 1985 as the successor agency of the Kentucky School Building Authority. The purpose of the SFCC is to distribute funding for the construction and renovation of school facilities equitably among districts according to their unmet facility needs.
Regular Construction Offers of Assistance
Although the SFCC is empowered to issue bonds in its own name, the SFCC typically enters into participation agreements to provide debt service support on bonds issued by local school districts through their associated finance corporations.
SFCC debt service payments are made from the state’s general fund and are subject to appropriation every two years in the state budget. From the state’s perspective, SFCC offers of assistance are considered general fund-supported debt. The participation agreements require the SFCC to seek sufficient legislative appropriations to pay its share of the debt service on the bonds in each fiscal biennium. The Commonwealth of Kentucky has never defaulted on its debt.
The SFCC requests funding from the General Assembly for new construction offers of assistance as part of the state’s budget process. The General Assembly provides the SFCC with a specific amount of bonding capacity. This amount varies depending on the state’s existing debt burden and policymakers’ other priorities.
Pursuant to KRS 157.620, in order to be eligible to receive an offer of assistance from the SFCC, school districts must meet the following criteria:
- The school district must commit at least a 5-cent equivalent tax rate to debt service, new facilities, or major renovations to existing facilities;
- On July 1 of odd-numbered years, the district must restrict all available local revenue for facility construction or major renovation;
- The district must have a facility plan that was approved by the Kentucky Board of Education on file with the Kentucky Department of Education; and
- The school district must have an unmet facility need.
A district’s facility plan (DFP) identifies and prioritizes the district’s capital construction needs. The facility plan must be developed once every four years. It ranks projects using five categories:
- Priority One projects are new construction projects or major renovations that are expected to be undertaken during the first two years after the DFP is developed;
- Priority Two projects are new construction projects or major renovations that are expected to be undertaken after the first two years following DFP development;
- Priority Three projects are non-educational additions and expansions (e.g., kitchens, cafeterias, administrative areas, auditoriums and gymnasiums);
- Priority Four projects are expansions of management support areas (e.g., central offices, bus terminals, or central stores); and
- Discretionary projects. These include renovations and additions that do not meet the criteria set forth in 702 KAR 1:001; functional centers; and extracurricular facilities (field houses; stadiums; sports field facilities, or any facility with an estimated cost exceeding $20,000).
SFCC offers of assistance may only be applied to bond issues that are financing the construction of Priority One projects, or Priority Two projects if all Priority One projects have been addressed. If a district opts not to participate in SFCC funding, the district may request to have all priority projects listed under discretionary projects.
Calculating a District’s Unmet Facility Need
The district’s unmet facility need is determined by taking the district’s total facility need (excluding discretionary projects) and subtracting the district’s local available revenues.
The district’s local available revenues are the sum of:
- Cash in the district’s capital outlay account;
- Cash in the district’s building fund account (FSPK);
- 80% of the bonding potential of the nickel local levy, growth nickel, additional nickels, and state equalization; and
- Any escrowed SFCC offers of assistance and cash. SFCC offers of assistance may be escrowed for up to 8 years.
The district’s unmet facility need is the gap between what it would cost for the district to complete necessary projects and the funds the district has available to pay for capital projects.
How SFCC Offers of Assistance are Determined
The SFCC provides offers of assistance to districts based on a formula set forth in KRS 157.622.
The SFCC allocates a proportionate amount of the bonding capacity that the General Assembly has provided to the SFCC during the fiscal biennium to districts based on their unmet facility need. To do this, the SFCC takes the district’s unmet facility need and divides it by the total unmet facility need for the state (i.e., the sum of the unmet facility needs of all of the districts) to arrive at the percentage of the state’s total facility need that district represents. This figure is then multiplied by the SFCC’s authorized bonding capacity. The SFCC estimates the amount of debt service that would be required to support that level of debt and makes an offer to pay that amount of debt service for twenty years.
Districts may issue bonds that are backed entirely by SFCC support or – to the extent that they have local bonding capacity – use the SFCC offer of assistance in conjunction with local funds.