“the 2% rule” -...

“The 2% Rule”Joint Legislative Committee on School Construction Funding

December 12, 2007

John MannixExecutive Director, Facilities and PlanningSpokane Public Schools

OSPI TAC 2% Rule Committee

Carter Bagg – ESD 112 (formerly with OSPI)

Bill Chaput – Hutteball & Oremus Architecture (CEFPI)

Kelly Gregg – North Franklin S.D. (WAMOA)

David Huffman – Richert and Assoc. (AIA, CSI)

Kas Kinkead – Cascade Design Collaborative (ASLA)

Fred Long – Kent S.D. (WASBO)

Forrest Miller – Lake Washington S.D. (IFMA)

Nancy Moffett – North Kitsap S.D. (WASA)

John MannixExecutive Director, Facilities and Planning

Spokane Public Schools

WAC 392-347-023 “The 2% Rule”

The State Board of Education (SBE) passed this regulation in 1991:

It applies only to school facilities accepted by the school district board of directors (I.E., new construction) after January 1, 1993.

These facilities shall not be eligible for state funds for modernization for thirty years (it had previously been twenty years for buildings prior to that time).

Also for these post 1992 buildings, for the fifteen years prior to seeking state modernization funding, the total (for the 15 years) annual expenditures for maintenance of plant and equipment must be at least two percent of the annual determined replacement value (OSPI’s Area Cost Allowance).

Since the first year these buildings would be eligible for modernization funding is 2023, the first year maintenance expenses would need to be documented is 2008.



WAC 392-347-023 “The 2% Rule”

If the total annual expenditures are at least one-and one-half percent, but not a full 2%, the allowable square foot cost of modernization will be reduced by 7-1/2%.

For total annual expenditures between 1% and 1-1/2%, the allowable cost will be reduced by 15%.

For total annual expenditures between 1/2% and 1%, the reduction would be 22-1/2%

For total annual expenditures of less than 1/2%, the building would be ineligible for state modernization funding.

For New-in-Lieu replacement of the existing building, the minimum expenditure is 2%.



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WAC 392-347-023 “The 2% Rule”“Committing to the Cost of Ownership”

1. “The appropriate level of M(aintenance) & R(epair) spending should be, on average in the range of 2 to 4 percent of current replacement value of the inventory.”

2. “Maintenance is the upkeep of property and equipment, work necessary to realize the originally anticipated useful life of afixed asset”

3. “Operations encompass those activities related to a building’s normal performance for which it is used. The costs of utilities,janitorial services, window cleaning, rodent and pest control, and waste management are generally included within the scope of operations and are not maintenance.”

WAC 392-347-023 “The 2% Rule”“Committing to the Cost of Ownership”



WAC 392-347-023 “The 2% Rule”New Language adopted by the State Board of Education in March, 2001



WAC 392-347-023 “The 2% Rule”New Language adopted by the State Board of Education in March, 2001

“(5) For the purpose of this section ‘maintenance of plant and equipment’ shall be general fund expenditures charged to maintenance and operations activities 61 (supervision) and 64 (maintenance) and capital projects fund expenditures charged to type code 22 (remodeling) and 42 (capital improvements) as defined in the Accounting Manual for Public School Districts.”



WAC 392-347-023 “The 2% Rule”North Kitsap S.D. Compliance Exercise – DISTRICT WIDE

Note: Expenditures = Square Foot Average of Total Budget allocated to each school.

As per WAC 392-346-023 (5), only 61 and 64 are applied to this amount.

$1,690,484$1,215,276$2,905,760$154.22 942,083District Wide

$95,948$55,434$151,382$154.22 49,080Gordon Elementary

$106,437$67,011$173,448$154.22 56,234Vinland Elementary

see notes

ShortfallExpenditures2%

Amount2007 ACA

Square Footage

Match Eligible Schools



WAC 392-347-023 “The 2% Rule”Spokane S.D. Compliance Exercise – PROTO ELEM CASE STUDY 1

Site: Grant ElementaryYear Built: 1979Sq Ft: 50,244

Fiscal Year Beginning

Area Cost Allowance

for that year $/sf

Replacement Cost (ACA)

2% of Replacement

Cost

Activity 61 Supervision

Activity 64 Maintenance

General Fund

Subtotal

Activity 22 Renovation

Activity 42 Capital Improv

Capital Fund Subtotal Annual Total

% of Replacement

Cost

1996 94.17 $4,731,477 $94,630 $14,608 $12,292 $26,900 $28,110 $0 $28,110 $55,010 1.16%1997 97.09 $4,878,190 $97,564 $11,054 $12,939 $23,993 $29,589 $0 $29,589 $53,582 1.10%1998 99.61 $5,004,805 $100,096 $12,561 $14,624 $27,185 $37,615 $0 $37,615 $64,800 1.29%1999 101.21 $5,085,195 $101,704 $12,059 $15,651 $27,710 $57,790 $0 $57,790 $85,500 1.68%2000 103.64 $5,207,288 $104,146 $13,063 $6,912 $19,975 $19,438 $0 $19,438 $39,413 0.76%2001 106.72 $5,362,040 $107,241 $14,068 $14,569 $28,637 $3,514 $0 $3,514 $32,151 0.60%2002 110.32 $5,542,918 $110,858 $13,063 $12,885 $25,948 $1,567 $0 $1,567 $27,515 0.50%2003 125.32 $6,296,578 $125,932 $10,049 $12,614 $22,663 $59,465 $0 $59,465 $82,128 1.30%2004 129.81 $6,522,174 $130,443 $11,566 $14,705 $26,271 $52,268 $2,117,110 $2,169,378 $2,195,649 33.66%2005 141.95 $7,132,136 $142,643 $11,566 $11,460 $23,026 $91,963 $489,143 $581,106 $604,132 8.47%2006 154.22 $7,748,630 $154,973 $8,841 $10,040 $18,881 $18,366 $1,609 $19,975 $38,856 0.50%

$1,270,229 $132,498 $138,691 $271,189 $399,685 $2,607,862 $3,007,547 $3,278,736 4.64%

Annual Expenditures for Maintenance WorksheetExample - for illustrative purposes only



WAC 392-347-023 “The 2% Rule”Spokane S.D. Compliance Exercise – PROTO ELEM CASE STUDY 2

Site: Whitman ElementaryYear Built: 1981Sq Ft: 54,468


Area Cost Allowance

for that year $/sf


2% of Replacement

Cost



General Fund

Subtotal




% of Replacement

Cost

1996 94.17 $5,129,252 $102,585 $15,087 $11,799 $26,887 $21,883 $1,721 $23,604 $50,491 0.98%1997 97.09 $5,288,298 $105,766 $12,198 $12,421 $24,619 $23,035 $1,812 $24,846 $49,465 0.94%1998 99.61 $5,425,557 $108,511 $13,450 $8,446 $21,896 $30,308 $944 $31,252 $53,148 0.98%1999 101.21 $5,512,706 $110,254 $13,046 $9,742 $22,788 $58,723 $6,302 $65,025 $87,813 1.59%2000 103.64 $5,645,064 $112,901 $14,426 $10,616 $25,042 $3,108 $0 $3,108 $28,150 0.50%2001 106.72 $5,812,825 $116,256 $15,346 $20,878 $36,224 $0 $0 $0 $36,224 0.62%2002 110.32 $6,008,910 $120,178 $14,060 $12,769 $26,829 $0 $14,118 $14,118 $40,947 0.68%2003 125.32 $6,825,930 $136,519 $10,835 $6,473 $17,308 $2 $0 $2 $17,310 0.25%2004 129.81 $7,070,491 $141,410 $12,319 $32,766 $45,085 -$90 $0 -$90 $44,995 0.64%2005 141.95 $7,731,733 $154,635 $12,570 $13,776 $26,346 $29,139 $1,160 $30,299 $56,645 0.73%2006 154.22 $8,400,055 $168,001 $9,584 $10,032 $19,616 $81,599 $0 $81,599 $101,215 1.20%

$1,377,016 $142,921 $149,718 $292,639 $247,707 $26,056 $273,763 $566,402 0.83%




WAC 392-347-023 “The 2% Rule”Spokane S.D. Compliance Exercise – OLDER ELEM CASE STUDY

Site: Jefferson ElementaryYear Built: 1908Sq Ft: 41,285


Area Cost Allowance

for that year $/sf


2% of Replacement

Cost



General Fund

Subtotal




% of Replacement

Cost

1996 94.17 $3,887,808 $77,756 $11,585 $27,623 $39,208 $41,698 $14,545 $56,243 $95,451 2.46%1997 97.09 $4,008,361 $80,167 $9,367 $29,077 $38,444 $43,893 $15,310 $59,203 $97,646 2.44%1998 99.61 $4,112,399 $82,248 $10,328 $20,824 $31,152 $89,464 $0 $89,464 $120,616 2.93%1999 101.21 $4,178,455 $83,569 $10,017 $50,993 $61,010 $47,434 $43,500 $90,934 $151,944 3.64%2000 103.64 $4,278,777 $85,576 $11,078 $22,438 $33,516 $35,214 $17,740 $52,954 $86,470 2.02%2001 106.72 $4,405,935 $88,119 $11,784 $22,053 $33,837 $3,459 $0 $3,459 $37,296 0.85%2002 110.32 $4,554,561 $91,091 $10,797 $12,721 $23,518 $422 $6,259 $6,681 $30,199 0.66%2003 125.32 $5,173,836 $103,477 $8,320 $19,486 $27,806 $357 $0 $357 $28,163 0.54%2004 129.81 $5,359,206 $107,184 $9,460 $10,479 $19,939 -$90 $0 -$90 $19,849 0.37%2005 141.95 $5,860,406 $117,208 $9,652 $15,907 $25,559 $132,244 $0 $132,244 $157,803 2.69%2006 154.22 $6,366,973 $127,339 $7,264 $22,514 $29,778 $1,571 $0 $1,571 $31,349 0.49%

$1,043,734 $109,651 $254,115 $363,766 $395,666 $97,354 $493,019 $856,786 1.74%




WAC 392-347-023 “The 2% Rule”Spokane S.D. Compliance Exercise – MIDDLE SCHOOL CASE STUDY

Site: Glover Middle SchoolYear Built: 1958Sq Ft: 108,040


Area Cost Allowance

for that year $/sf


2% of Replacement

Cost



General Fund Subtotal




% of Replacement

Cost

1996 94.17 $10,174,127 $203,483 $29,926 $41,607 $71,533 $80,934 $1,326 $82,260 $153,793 1.51%1997 97.09 $10,489,604 $209,792 $24,196 $43,797 $67,993 $85,193 $1,396 $86,589 $154,582 1.47%1998 99.61 $10,761,864 $215,237 $26,680 $52,743 $79,423 $4,053 $2,367 $6,420 $85,843 0.80%1999 101.21 $10,934,728 $218,695 $25,876 $50,661 $76,537 $132,921 $3,217 $136,138 $212,675 1.94%2000 103.64 $11,197,266 $223,945 $28,615 $42,192 $70,807 $109,049 $0 $109,049 $179,856 1.61%2001 106.72 $11,530,029 $230,601 $30,439 $29,593 $60,032 $94,750 $0 $94,750 $154,782 1.34%2002 110.32 $11,918,973 $238,379 $27,889 $104,023 $131,912 $13,969 $0 $13,969 $145,881 1.22%2003 125.32 $13,539,573 $270,791 $21,492 $41,513 $63,005 $58,200 $0 $58,200 $121,205 0.90%2004 129.81 $14,024,672 $280,493 $24,436 $20,298 $44,734 $271,475 $131,982 $403,457 $448,191 3.20%2005 141.95 $15,336,278 $306,726 $24,932 $73,458 $98,390 $463,804 $18,936 $482,740 $581,130 3.79%2006 154.22 $16,661,929 $333,239 $19,010 $86,489 $105,499 $3,143 $0 $3,143 $108,642 0.65%

$2,731,381 $283,491 $586,375 $869,865 $1,317,491 $159,224 $1,476,715 $2,346,580 1.68%




WAC 392-347-023 “The 2% Rule”Spokane S.D. Compliance Exercise – HIGH SCHOOL CASE STUDY 1

Site: North Central High SchoolYear Built: 1981Sq Ft: 206,415


Area Cost Allowance

for that year $/sf


2% of Replacement

Cost







% of Replacement

Cost

1996 94.17 $19,438,101 $388,762 $57,175 $79,518 $136,693 $124,463 $28,969 $153,431 $290,124 1.49%1997 97.09 $20,040,832 $400,817 $46,227 $83,703 $129,930 $131,013 $30,493 $161,507 $291,436 1.45%1998 99.61 $20,560,998 $411,220 $50,972 $43,050 $94,022 $207,621 $0 $207,621 $301,643 1.47%1999 101.21 $20,891,262 $417,825 $49,438 $81,101 $130,539 $52,912 $0 $52,912 $183,451 0.88%2000 103.64 $21,392,851 $427,857 $54,671 $54,018 $108,689 $247,420 $73,864 $321,284 $429,973 2.01%2001 106.72 $22,028,609 $440,572 $58,155 $156,642 $214,797 $16,100 $48,109 $64,209 $279,006 1.27%2002 110.32 $22,771,703 $455,434 $53,283 $82,283 $135,566 $0 $0 $0 $135,566 0.60%2003 125.32 $25,867,928 $517,359 $41,061 $63,087 $104,148 $89,508 $0 $89,508 $193,656 0.75%2004 129.81 $26,794,731 $535,895 $46,685 $70,362 $117,047 -$90 $274,779 $274,689 $391,736 1.46%2005 141.95 $29,300,609 $586,012 $47,634 $55,651 $103,285 $615,885 $3,288,802 $3,904,687 $4,007,972 13.68%2006 154.22 $31,833,321 $636,666 $36,319 $53,386 $89,705 $487,927 $3,465,437 $3,953,364 $4,043,069 12.70%

$5,218,419 $541,620 $822,800 $1,364,421 $1,972,759 $7,210,453 $9,183,212 $10,547,633 3.43%




WAC 392-347-023 “The 2% Rule”Spokane S.D. Compliance Exercise – HIGH SCHOOL CASE STUDY 2

Site: Shadle Park High SchoolYear Built: 1957Sq Ft: 274,975


Area Cost Allowance

for that year $/sf


2% of Replacement

Cost







% of Replacement

Cost

1996 94.17 $25,894,396 $517,888 $76,166 $57,124 $133,290 $20,718 $0 $20,718 $154,008 0.59%1997 97.09 $26,697,323 $533,946 $61,581 $60,131 $121,712 $21,809 $0 $21,809 $143,521 0.54%1998 99.61 $27,390,260 $547,805 $67,903 $37,229 $105,132 $539,961 $0 $539,961 $645,093 2.36%1999 101.21 $27,830,220 $556,604 $65,859 $55,725 $121,584 $294,824 $0 $294,824 $416,408 1.50%2000 103.64 $28,498,409 $569,968 $72,830 $94,446 $167,276 $10,425 $22,692 $33,117 $200,393 0.70%2001 106.72 $29,345,332 $586,907 $77,471 $53,124 $130,595 $33,195 $0 $33,195 $163,790 0.56%2002 110.32 $30,335,242 $606,705 $70,981 $116,931 $187,912 $8,722 $0 $8,722 $196,634 0.65%2003 125.32 $34,459,867 $689,197 $54,699 $54,879 $109,578 $34,893 $0 $34,893 $144,471 0.42%2004 129.81 $35,694,505 $713,890 $62,191 $59,117 $121,308 $252,111 $0 $252,111 $373,419 1.05%2005 141.95 $39,032,701 $780,654 $63,456 $53,024 $116,480 $920,834 $0 $920,834 $1,037,314 2.66%2006 154.22 $42,406,645 $848,133 $48,383 $48,234 $96,617 $5,812,291 $0 $5,812,291 $5,908,908 13.93%

$6,951,698 $721,518 $689,964 $1,411,483 $7,949,783 $22,692 $7,972,475 $9,383,958 2.27%




WAC 392-347-023 “The 2% Rule”What activities should be allowed?

There are a number of maintenance activities that are routinely undertaken by school district custodial and/or grounds staff, which currently will not be included in the allowable total.

Painting, water repellants, and anti-graffiti coatingsSanding, screening, and sealing of wood flooring systemsAdjusting or tightening hardware and fixturesSanitary sewer and grease trap maintenanceCleaning gutters, roof drains, and overflows Replacement of lamp ballastsRepair of irrigations systems and controls



WAC 392-347-023 “The 2% Rule”What activities should be allowed? (cont.)

There are a number of custodial activities that although not currently classified as maintenance, do extend the life of the building systems or finishes. These activities directly contribute to a well-kept, safe, and healthy environment, and show good stewardship of the public tax dollar.

Application of concrete sealer and floor finishExtraction or bonnet cleaning of carpetSanding and re-finishing of wood floorsFlushing, filling, and treatment of hydronic systems



There are Risk Management activities that we believe should be included in the cost of maintaining school buildings.

Security alarm systemsClosed circuit television (CCTV)Keyless entry systems

There are Grounds activities that are included in the original cost of the building (ACA).

Storm water mitigation controlsFencingPlay equipmentSidewalks, driveways, and parking lots

WAC 392-347-023 “The 2% Rule”What activities should be allowed? (cont.)



WAC 392-347-023 “The 2% Rule”Kent S.D. Compliance Exercise – ELEMENTARY CASE STUDY



WAC 392-347-023 “The 2% Rule”Kent S.D. Compliance Exercise – MIDDLE SCHOOL CASE STUDY



WAC 392-347-023 “The 2% Rule”Kent S.D. Compliance Exercise – SENIOR HIGH CASE STUDY



WAC 392-347-023 “The 2% Rule”TAC 2% Rule Committee “Ah Hah”

The 2% Rule as it is currently envisioned will not work!

If the 2% Rule is implemented without modification it will be a disaster for the vast majority of school districts across the state.

Difficulties and use of resources to track allowable expenditures.

Numerous districts will be penalized when they are unable to achieve the required 2% threshold.

An even greater burden will be placed upon local communities to fund necessary school construction, expansion, and modernization.



WAC 392-347-023 “The 2% Rule”Kent, North Kitsap, and Spokane S.D. Observations:

Cost tracking necessary to determine compliance is relatively complex. Without CMMS, reasonably accurate data would be extremely difficult to obtain. Mid-sized districts may be the most difficult.

Database architecture and accounting parameters of OSPI’s data system will need to be well thought out in advance to produce valid results.

Eligible maintenance activities undertaken by custodial staff are most often not included in allowable activities, but should be.

Practices, procedures, and systems need to be developed to accommodate capture of essential data; particularly for eligible Custodial activities. Staff awareness and training must also be included.

Other applicable expenditures such as grounds and security should also be considered for inclusion in allowable expenditures.



WAC 392-347-023 “The 2% Rule”TAC 2% Rule Committee Discussion Questions:

What was the original intent of the 2% Rule?

Is that original intent still viable and desirable?

Since the 2% Rule is not believed to be effective in providing the desired outcome, what changed or modifications could/should be made?

Maintain – to provide for the upkeep and support of; to keep in the appropriate condition or operation. (Websters Dictionary)



WAC 392-347-023 “The 2% Rule”TAC 2% Rule Committee Discussion Questions (Cont.):

Is the last 15 years before modernization or replacement the appropriate time to track maintenance expenditures?

Should there be a “modifier” if a district extends the useful life of a facility beyond the required 30 years?

Will adding appropriate portions of custodial, grounds, and security activities enable districts to generally meet the 2% Requirement?

Is 2% the right number?

2% of what? Area Cost Allowance times square footage, State match (which would be ACA times area times Match Ratio), full replacement value, etc.?



WAC 392-347-023 “The 2% Rule”TAC 2% Rule Committee Discussion Questions (Cont.):

Should design enhancements incorporated during construction, and which could potentially reduce maintenance costs over the life of the facility, be included in the 2% calculation. If not, they would tend to work against achieving compliance.

Example: Ground or water coupled hydronic systems eliminate boiler or reduce their capacity, and typically also eliminate chillers or cooling towers, as well as the related maintenance liability from this equipment – however, they add significantly to the to the initial cost.

Is there a better way to meet the original intent?



Proving accountability of school facility maintenance –demonstrate that school districts are properly maintaining the public’s investment in school facilities to OSPI and the Legislature.

Ensuring that appropriate and realistic expenditures that maintain the school district’s and state’s investment in the facility are allowed as part of the two percent requirement.

Determine the requirements of accounting for the allowable expenditures, or otherwise tracking and determining what an appropriate level of maintenance would entail.

Providing a recommended implementation time line and procedures.

WAC 392-347-023 “The 2% Rule”Ultimate Goals of TAC 2% Rule Committee:



Tweak the 2% Rule: Modify various parameters of the current rule to enable district’s to meet the requirement, without watering it down to the point where it becomes meaningless and will not be seen by the Legislature as the safeguard it was intended to be.

Add appropriate expenditures to allowable categoriesAllow Activity 63 to count toward attaining 2% thresholdUtilize Actual Replacement Value and a reduced percentageUtilize a district average maintenance expenditure, instead of a building specific expenditureCombination(s) of the above

Expenditures Tied to Funding: Control and ensure maintenance expenditures through dedicated funding.

WAC 392-347-023 “The 2% Rule”Alternatives:



WAC 392-347-023 “The 2% Rule”Alternatives (cont.):

Maintenance Plans: Develop a program of Maintenance Plans that would stipulate the resources available to a particular district, track historic maintenance expenditures and levels of deferred maintenance, provide data on expected replacement cycles for major building systems, and give projections of future resource needs. Such plans would be used to monitor the district’s long-term ability and commitment to maintaining their structures. Possiblyusing the existing Building Condition Evaluation process and reporting protocol.

Audit / Accountability Review: Utilize the State Auditor’s new performance audit process, or a similar review process, to determine whether district’s are adequately managing the public’s investment in their facilities.

Incentive Program: Reward districts that attain greater than 30 years life from their school building.



We do not yet know the answers… yet!

We know that the 2% Rule as currently envisioned will not be attainable, and therefore will not work…

The TAC has recommended that OSPI delay implementation of the 2% Rule until January of 2008.

We plan to have a final recommendation to OSPI in the first half of the coming year.

WAC 392-347-023 “The 2% Rule”In Closing:



“The 2% Rule”OSPI School Facility Technical Advisory Committee

Bill Chaput – Hutteball and Oremus Architecture, Inc.Kelly Gregg – North Franklin School DistrictDavid Huffman – Richert and AssociatesKas Kinkead – Cascade Design CollaborativeFred Long – Kent School DistrictForrest Miller – Lake Washington School DistrictNancy Moffatt – North Kitsap School District

For Information included in this Presentation, contact:

John MannixExecutive Director, Facilities and PlanningSpokane Public Schools(509) 354-7171 [email protected]



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