Pennsylvania’s construction industry could take as much as a 10-figure hit annually if a state reimbursement program aimed at helping school districts with building projects is eliminated, according to a trade association projection.
Beginning Oct. 1, a moratorium will take effect on new school construction projects that enter Pennsylvania’s so-called PlanCon program, or “Planning and Construction Workbook.”
State officials will decide whether the extensive review process needs to be revamped or removed from the budget.
The state Department of Education receives about $300 million per year for the PlanCon reimbursement program. Those funds help leverage about $1.5 billion annually in school projects, said Chad Harvey, board secretary for Mid Atlantic BX, an association that tracks commercial construction.
“There is not a lot of upside,” said Harvey, who has concerns that the review alone could have a major short-term impact on construction. “This (reimbursement) allows owners to leverage funds and create projects that otherwise would not exist.”
Districts are reimbursed for a portion of projects up to a certain limit — based on the type of project and makeup of the school — and cannot receive reimbursement for multiple projects on the same building within 20 years.
Percentages vary, and larger shares go to the less-wealthy school districts, which are often smaller and in more rural areas. More than half of Pennsylvania’s 500 school districts are considered rural, according to the Center for Rural Pennsylvania.
“It’s early in the process. We have new projects that will be coming down the pike,” said Jay Pagni, an Office of the Budget spokesman. “We will be taking a look at those, looking at the process and looking for opportunities to streamline. It’s too early to tell what the process will look like in the future.”
The uncertainty about PlanCon’s future should heighten concerns for school officials before pulling the trigger on projects. With growing pension obligations and other state funding cuts seemingly on the horizon every year, many might not be able to take on construction projects on their own, state association officials and construction professionals said.
“Probably what will happen is that because districts are not in a position to raise taxes, they will defer work on their buildings,” said Mark Barnhardt, senior vice president at Harrisburg-based EI Associates, which focuses about 80 percent of its design workload in public education.
During last year’s budget approval process, the governor signed a school code bill requiring voter approval if districts intend to seek property-tax increases above the rate of inflation.
The biggest concern is that buildings can show signs of needing replacement or repair at any time, said Dave Davare, research director for the Pennsylvania School Boards Association. Evaluating the structural issues of facilities is an ongoing process.
“There is no clear indication as to how long the review (of PlanCon) will take,” he said. “We’ve got some districts, in spite of the economy, seeing some growth. With growth comes the need for space, whether new construction or an addition to an existing building.”
For districts that are losing students and may want to reconfigure buildings to reflect current enrollment, the expense to maintain those facilities is going to keep adding up, said Joseph Bard, executive director of the Pennsylvania Association of Rural and Small Schools.
“This (moratorium) will probably prevent work that needs to be done to save districts money,” he said.
Bard’s association represents about 40 percent of Pennsylvania’s school districts, according to its membership directory.
The original proposal from Gov. Tom Corbett in February was to apply the moratorium to all projects not at a certain level in the PlanCon pipeline, which would have affected more than 230, said Jennifer Hoover-Vogel, legislative and research coordinator for the Pennsylvania Association of School Board Officials.
The moratorium was scaled back as part of the 2012-13 budget adoption to include only new projects not already in the pipeline by Oct. 1.
“Our real concern is for the future,” Bard said. “I believe this was the first step in the process of eliminating state participation in school construction. That we simply do not want to see happen.”
On the flip side, a rebounding economy — where some contractors are hungry for work and interest rates are very low — could offset the reimbursement loss, Davare said.
“That plays to the district’s advantage,” he said. “(But) the unknown is always the big factor.”
It doesn’t matter how hungry contractors are if the jobs are not available, Harvey and Bard said.
“You don’t attract the kind of employers to a state if they know you’re on a path to underfund major parts of the public education system,” Bard said.
The anticipated decline in education construction could force design and construction firms to diversify or focus more on other sectors. Many firms also might have to expand their current footprints.
“We would do a little bit of both,” said David Angle, CEO of Harrisburg-based Reynolds Construction Management.
Reynolds does a lot in the K-12 space — about 40 percent of its portfolio — in a territory that stretches from Pittsburgh to Philadelphia. The firm has worked in Maryland and might look for more work there, Angle said.
“I don’t think they can cut out funding for school projects,” he said. “There are still a lot of (needed) infrastructure upgrades. The money has to come from somewhere.”
Angle and others are hopeful the projected nine-month moratorium will simply bring about a new state reimbursement process. At that point, there would likely be a new surge of school projects.
“I think it will have an impact on children in the long run,” Barnhardt said.
Green building ‘could be the first to go’
The moratorium and potential elimination of the state reimbursement could put green building in serious jeopardy, local design and construction firms said.
“A lot of schools did LEED projects mainly because they got this additional (funding),” said Mark Barnhardt, senior vice president at Harrisburg-based EI Associates. “That paid for fees and requirements to go through the LEED process. By doing that, the school districts created a healthier and more energy-efficient building.”
Without the additional LEED reimbursement, that changes things, he said.
“If monies are tighter, green building could be the first to go,” said David Angle, CEO of Harrisburg-based Reynolds Construction Management.