Paul Goldman remembers the first time he spoke to Tim Kaine about a way to rehabilitate Virginia’s old school buildings with private money by expanding the use of federal and state historic tax credits.
It was 2005, after Kaine, then lieutenant governor, had been elected governor.
“He said, ‘If you need any help, let me know,’” said Goldman, a longtime Democratic political operative – and briefly a lieutenant governor hopeful – who has made public education his core mission in the past two decades.
Now a U.S. senator, Kaine is delivering on the promise by reintroducing legislation with Sen. Mark Warner, a fellow Virginia Democrat, that would allow use of historic tax credits to renovate public school buildings. It would be part of a spending package of up to $3.5 trillion that President Joe Biden and congressional Democrats are pushing to adopt under the budget reconciliation process over Republican opposition.
“This will be really, really important for localities like Richmond,” Kaine said in a news briefing with reporters on Wednesday.
The provision already is part of the budget proposal adopted by the House Ways and Means Committee, which includes Rep. Dwight Evans, D-Pa., who is an old acquaintance of Goldman’s and sees great opportunity and value in allowing the use of historic tax credits to help pay for renovation of old school buildings in Philadelphia.
Evans and Kaine pitched the idea last week to House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Chuck Schumer, D-N.Y., to include the provision in the “Build Back Better” bill that Democrats hope will be passed in tandem with a $1 trillion bipartisan bill to invest in other kinds of public infrastructure, such as highways, passenger rail and public transit, and broadband telecommunications.
“This essential provision would allow public schools to better use the federal rehabilitation tax credit by excepting their buildings from rules requiring reuse in a way that is different from its previous use,” they said in a letter to the leadership on Sept. 23.
“Currently, public schools cannot use the historic tax credit to finance critical infrastructure updates to crumbling, dilapidated educational facilities,” Kaine and Evans added. “The COVID-19 pandemic has emphasized the importance of education and the consequences of lacking safe, modern spaces for learning – particularly for low-income and minority children.”
Kaine recalled that state and federal historic tax credits enabled the renovation of the Maggie Walker and Petersburg high school buildings, which now house the Maggie L. Walker Governor’s School in Richmond and the Appomattox Regional Governor’s School in Petersburg, respectively.
But the federal tax code generally prohibits nonprofit entities from using federal tax credits to benefit themselves and private investors through complicated sale lease-back deals. The rules are intended to prevent “trafficking in tax benefits.”
Dan Gecker, a Richmond-area lawyer and developer who represented both projects, devised a legal way around the prohibition through the creation of pass-through entities to encourage private investment in projects that would be used by regional partners, not the cities that formerly owned the high school buildings.
Gecker, now president of the Virginia Board of Education, serves on the Commission on School Construction and Modernization, which met Wednesday in Richmond to learn more about the scope of the challenges facing local school districts in renovating or replacing out-of-date buildings.
“The bottom line is that it’s a good idea to allow federal and state tax credits to be used,” he said . “The renovation of these buildings is a civic good.”
The buildings are important fixtures of communities, he said, and renovating them is far more efficient and less costly than replacing them entirely.
However, Gecker added, “It’s not going to solve everybody’s problem.”
More than half of the public school buildings in Virginia are over 50 years old and replacing them would cost up to $25 billion, the Virginia Department of Education estimated earlier this year. State Superintendent James Lane told the commission on Monday that the top three priorities for school divisions across the state are repair and replacement of heating, ventilation and air conditioning systems; renovations; and roof repair and replacement.
However, the commission heard Wednesday from architectural experts that many school buildings that might qualify for historic tax credits should be replaced rather than renovated because of their construction and design. This is especially true of buildings erected in the 1950s and 1960s, they said.
“You can’t have a one-size-fits-all approach,” concluded state Sen. Jennifer McClellan, D-Richmond, who chairs the commission created under legislation she sponsored last year.
In addition to broadening the use of federal and state historic tax credits, Kaine proposes to include $130 billion in the evolving Build Back Better bill, which he hopes Congress will pass by late October. The House version of the bill also includes both approaches.
“We are looking at money for school construction,” Kaine said Wednesday, “but if we’re going to do school construction, we shouldn’t forget the needs of communities that have existing school buildings, [so] that we don’t need new construction but we just need significant renovation.”
The American Rescue Plan Act, a $1.9 trillion spending plan Biden signed in March, provided money to state and local governments that could be used to pay for renovations related to public health, such as replacement of HVAC systems.
Gov. Ralph Northam and the General Assembly devoted $250 million of the $4.3 billion in federal aid the state received to eligible school renovation projects, and local governments also received money they could use for that work.
But the law prohibited governments from using the money to replace school buildings. The pending infrastructure bill – which Kaine hopes the House will pass and the president will sign by mid-October – does not include money for school modernization.
The historic tax credit change could attract private investment in school renovations, saving local school divisions about one-third of the cost by shifting it to the governments that provide the credits.
And that would allow local school divisions to invest their money in instruction rather than construction, Goldman said.
“The schools in Richmond will be fixed up with private money,” he said.