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Pandemic Stimulus and its Impact on School Construction

By March 2, 2021March 9th, 2021No Comments
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Trillions of dollars have poured into the domestic economy since the outset of the COVID-19 Pandemic*.  These programs reflect an unprecedented reaction to an unprecedented public-health emergency.  As these dollars continue to flow into the hands of public owners, the California construction industry will need to respond to an increasing need for skilled labor, regular and uninterrupted material deliveries, supply-chain management, competent project management/supervision/inspection and highly skilled and trained “back of the house” staff to process and complete these critical projects.

In response to the Pandemic, both the Trump Administration and the Biden Administration have pursued significant stimulus recovery programs.  It is important to understand these programs, particularly their impact on the California schools construction market.  A synopsis of the major programs follows.

 

Coronavirus Aid, Relief and Economic Security Act “CARES ACT” (March 2020)

 The first significant stimulus package implemented by the federal government was the CARES Act.  Totaling nearly $2 trillion, it was crafted by the Trump administration shortly after the outbreak of COVID and passed by Congress in March 2020.  As it pertains to school construction, CARES allocated $30.7 billion to education, with $13.2 billion going to K-12 education and $14 billion going to higher education. The remaining $3 billion was allocated to the State’s Governors for discretionary educational disbursement.  Of the initial $30.7 billion, California schools received nearly $2 billion.

The majority of CARES funds were directed towards addressing the immediate impacts of the Pandemic, including purchasing Personal Protective Equipment (PPE), school sanitation and response programs and aid for public schools as they transitioned to an online learning format.  Under previous Education Secretary, Betsy DeVos, CARES Funds were to be distributed “equitably” with funds also being made available to private and parochial K-12 schools.  However, subsequent legal challenges invalidated this directive and federal CARES money was not required to be shared with private schools.

Under the CARES Act, school districts were obligated to direct federal dollars to the immediate impacts of the Pandemic, and little of the directed funds were used for physical construction of school facilities.  The initial deadline to expend these funds was December 30, 2020.

 

Coronavirus Response and Relief Supplemental Appropriations Act “CRRSAA” (December 2020)

 In December 2020, then President Donald Trump signed the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) into law.  A $900 billion spending bill similar to the CARES Act, CRRSAA provided a sizable portion of federal funds to public education ($82 billion), with $54 billion going to K-12 education and $22 billion going to higher education.  The remaining $4 billion again went to the States’ Governors for discretionary educational disbursement.  Of this amount, nearly $7 billion is expected for California schools.

Unlike the CARES Act, CRRSAA allows more flexibility in use of the federal funds.  As long as the educational procurement has some form of COVID nexus, the government will presume that the dollars are being spent properly.  This includes some ambitious district plans to fund new facilities, learning spaces and event venues that will de-densify the classroom space and limit the spread of COVID-19.  Specifically, the Act includes:

School facility repairs and improvements to enable operation of schools to reduce risk of virus transmission and exposure to environmental health hazards, and to support student health needs.

Some local school districts are currently looking at using these dollars to more creatively to redefine the learning experience.  The most obvious candidates for immediate use of these dollars include mechanical, heating, ventilation and air conditioning upgrades and physical projects which improve ambient air quality and air circulation.  These projects improve the overall health of the students. As mentioned above, districts are under no obligation to share any of these funds with private schools.  These funds must be spent by September 2023 (use it or lose it).

 

America Rescue Plan (January 2021)

 In January, President Joseph Biden announced one of the most ambitious federal government stimulus programs in United States history. The overall $1.9 trillion “America Rescue Plan” just passed the House of Representatives and now moves to the U.S. Senate.

As currently written, (as it pertains to education spending) the America Rescue Plan will allocate a whopping $170 billion to schools nationwide, with $130 billion going to K-12 education and $35 billion going to higher education. The remaining $5 billion will again go to the Governors for discretionary educational disbursement.  California’s total take on these funds is estimated to exceed $8 billion.

This time, the Governor’s discretionary spending disbursement is to be used directly for remedial programs in both private and public schools to help students catch-up on educational losses due to distance learning (extended school hours, summer school programs, etc.)  As with prior Acts, funding is allocated utilizing a Title 1 approach (districts with a larger proportion of students in poverty will receive larger amounts).

As with CRRSAA, there are few limitations on what these funds can be used for.  We anticipate that many school districts will utilize at least a portion of funds received to renovate, modernize and update aging school facilities and infrastructure to support students as they return to the in-person learning environment.  There are also opportunities for school district to leverage these funds through existing State programs to increase the available funding in order to implement more ambitious school construction plans, including new physical construction.

 

California State Bond Measures

 In addition to the federal stimulus funding programs outlined above, the California Legislature is currently entertaining two competing school bond measures that may appear on the June 2022 California primary election ballot.

A.B. 75- Kindergarten-Community College Public Education Facilities Bond Act (O’Donnell)

Assembly Bill 75 applies to K-14 (no Cal State or U.C.).  The current legislation does not yet contain a dollar amount.  It would include funding for new construction, modernization, career technical education, Charter Schools, disaster assistance, lead in water remediation, direct assistance to small school districts, and priority funding for replacement of school buildings that are seventy-five years or older.

 

S.B. 22- The Public Preschool, K-12 and College Health and Safety Bond Act (Glazer)

Senate Bill 22 would allocate $15 billion in bonds to K-12 and California’s public colleges and universities for facility upgrades, including earthquake retrofit, mold, asbestos and other hazardous materials in classrooms, and to repair aging facilities.

It is highly unlikely that both of these measures would appear on the June ballot.  The Legislature will eventually choose which measure will reach the voters.  Recall, the last California school bond measure (Proposition 13) failed to pass in the March 2020 primary election. Will a new school bond fare better in a post-Pandemic environment?

 

Other Pending Stimulus Programs Which Will Impact the Construction Industry

H.R. 865- Reopen and Rebuild America Schools Act (Scott, D-VA)

The Reopen and Rebuild America Schools Act is pending legislation by Congressman Scott that would provide $130 billion for direct infrastructure improvements targeting high-poverty schools throughout the United States.  The goal of this pending legislation is to improve the safety of the learning environment, while at the same time, putting American construction workers back to work.  This legislation has certain environmental and green priorities currently attached to it.

 

President Biden’s Infrastructure Proposal

 The While House is in the process of rolling out a sizable infrastructure plan to get the American economy back on track through investment in infrastructure projects.  According to President Biden, his forthcoming plan will “make historic investments in infrastructure, along with manufacturing, research, development and clean energy.”  The Proposal, expected to be formally announced in March, will most certainly contain requirements for the use of union labor and will include an emphasis on building green.  The President has gone on record as saying his priorities include shoring-up the nation’s roads and bridges.  We anticipate that those items will receive a priority in any immediate funding.

Given that both houses of Congress are controlled by the Democratic Party, it is likely that most of the President’s stimulus and recovery plans will be passed into law in the next year.

 

What Does this All Mean for the California Construction Industry?

Trillions of dollars have poured into the domestic economy since the outset of COVID-19.  These programs reflect an unprecedented reaction to an unprecedented Pandemic.  As these dollars continue to flow into the hands of public owners, the California construction industry will need to respond to an increasing need for skilled labor, regular and uninterrupted material deliveries, supply-chain management, competent project management/supervision/inspection and highly skilled and trained “back of the house” staff to process and complete these critical projects.  Contractors must also ensure they have the available capital and necessary cash-flow to complete these projects in a continuing Pandemic environment.

Likewise, the public owner will need assistance procuring these projects and seeing them through completion. It will be equally important that schools, cities, counties and special districts have adequate personnel to meet this incoming wave of construction work and ensure that these dollars are being spent properly.

 

*The COVID-19 Pandemic is unprecedented in recent history.  COVID-19 is killing as many Americans every 100 days as were killed in combat over the four years of World War II.  The toll on the domestic and international economy will be felt for years.

The information contained in this Newsletter has been prepared by Lanak & Hanna, P.C. for educational and informational purposes only. It does not constitute legal advice, nor does it substitute for legal advice.

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