REPORT OF THE EXECUTIVE OFFICER State Allocation Board Meeting, December 12, 2007

CLASS B CONSTRUCTION COST INDEX EIGHT CALIFORNIA CITIES

PURPOSE OF REPORT

To review the current suitability of the Marshall and Swift (M&S) Eight California Cities Class B Index in order to determine the appropriate index to use for the annual adjustment to the School Facility Program (SFP) grants.

DESCRIPTION

In January of each year, the SFP grant amounts are adjusted to reflect a particular Class B Construction Cost Index (CCI). Prior to January 1, 2005, base grant amount adjustments were based on the M&S Ten Western States Index. At the March 2005 meeting of the State Allocation Board (SAB), Staff recommended that the Board adopt the M&S Eight California Cities Class B CCI for the 2005 Grant Amount Adjustment. This recommendation was based on Staff research that demonstrated that this index more appropriately aligned the base grant amount adjustments with the California bidding climate and escalating construction industry costs.

In response to Staff recommendations, the SAB approved the index of 1.3 for the M&S Eight California Cities Class B CCI, which represented a 12.07 percent increase for use on SFP applications approved on or after January 1, 2005. The Board also recommended that the Class B CCI for the Eight California Cities be utilized for a period of two years (through January 2007), after which Staff will review the M&S Eight California Cities CCI inorder to determine that it is still the most appropriate index to utilize for the January 2008 CCI grant adjustment.

AUTHORITY

Pursuant to Education Code Section 17072.10(b), The board shall annually adjust the per-unhoused-pupil apportionment to reflect construction cost changes, as set forth in the statewide cost index for class B construction as determined by the board.

As defined in Regulation Section 1859.2, the Class B CCI is a construction factor index for structures made of reinforced concrete or steel frames, concrete floors, and roofs, and accepted and used by the Board.

STAFF COMMENTS

The SFP regulations require that the annual grant adjustments reflect construction costs set forth in only Class B indexes, and only M&S provides Class B construction cost indexes. Staff contacted M&S regarding the possibility of purchasing data for additional cities in California, and determined that there is no historical data for California citiesother than those included in the Eight California Cities Class B Index, which measures 12 building material types and six trade labors of the eight following cities: Bakersfield, Eureka, Fresno, Los Angeles, Riverside, Sacramento, San Diego and San Francisco.

It is important to note that all other Class B Indexes include cites from other states (or other countries). Including additional data from any of those cities could only serve to dilute the California-specific data included in the Eight California Cities Index. As the M&S Eight California Cities Index most closely corresponds to the school constructioncosts in California, Staff concluded that this index sufficiently addresses the unique building environment in California.

(Continued on Page Two)

(Rev. 1) SAB 12-12-07

Page Two

STAFF COMMENTS (cont.)

Attachment A shows the projected approximate CCI increase/decrease for each of the above mentioned Class B indexes. Attachment B is a graph illustration of the cumulative inflation percentages of the M&S Eight California Cities Class B Index compared to the Ten Western States Class B Index. Attachment C is a bar chart of the yearly inflation rates of the M&S Eight California Cities Class B Index compared to the Ten Western States Class B Index. The data shown on the attachments are calculated using actual data for both indices. If the SAB adoptsthe M&S Eight California Cities Class B CCI, the 2008 grant increase would be 2.07 percent, which is less thanthe projected grant increase using the M&S Ten Western States Index which is 3.19 percent.

RECOMMENDATION

Adopt the M&S Eight California Cities Class B CCI for to be used for annual grant adjustments until the SAB directs otherwise.

BOARD ACTION

In considering this item, the Board approved Staffs recommendation as modified to adopt the Marshall & Swift Ten Western State Class B Construction Cost Index for the 2008 adjustment. The Board requested that the issue be revisited in one year. In addition, the question was raised as to whether an appropriate index existed that measures the cost of school constructionversus other types of construction.

ATTACHMENT A

State Allocation Board Meeting, December 12, 2007

PROJECTED 8 CALIFORNIA CITIES GRANT INCREASE VS. 10 WESTERN STATES GRANT INCREASE

Regulation Section

Current [2007] Grants - 8

California Cities

2008 Grants - 8 California Cities

Grant Increase - 8 California Cities

Projected 2008 Grants - 10 Western

States

Projected Grant Increase - 10

Western States oon

stru

cti Elementary 1859.71 $8,081 $8,248 $167 $8,339 $258

Middle 1859.71 $8,546 $8,723 $177 $8,819 $273 High 1859.71 $10,873 $11,098 $225 $11,220 $347

N

ewC

Special Day Class Severe 1859.71. 1 $24,066 $24,564 $498 $24,834 $768 Special Day Class Non-Severe

1859.71. 1 $16,095 $16,428 $333 $16,608 $513

izat

ion

Elementary 1859.78 $3,262 $3,330 $68 $3,366 $104 Middle 1859.78 $3,450 $3,521 $71 $3,560 $110 High 1859.78 $4,516 $4,609 $93 $4,660 $144 nr Special Day Class - Severe 1859.78. 3 $10,391 $10,606 $215 $10,722 $331

Mod

e

Special Day Class Non-Severe

1859.78. 3 $6,953 $7,097 $144 $7,175 $222 State Special School

Severe 1859.78 $17,325 $17,684 $359 $17,878 $553

ATTACHMENT B

State Allocation Board Meeting, December 12, 2007

CUMULATIVE CONSTRUCTION COST INDEXES COMPARISON

10 Western States 8 California Cities

2002 2003 2004 2005 2006 2007 2008

15.3%

28.2%

32.8%

43.5%

48.1%

7.7% 10.1%

30.2%

35.5%

11.5% 9.2%

47.9%

44.7%

15.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Attachment C State Allocation Board Meeting, December 12, 2007

ANNUAL CONSTRUCTION COST INDEXES

-1.0%

13.0%

11.0%

AG

E 9.0%

NT

RC

EE 7.0% P

TIO

N

FLA

5.0%

Ann

ual I

N

3.0%

1.0%

12.07%

11.26%

8.05%

6.62% 5.45%

5.00% 4.58% 4.62%

3.42% 3.57% 3.19%

2.92% 2.10%

1.89% 1.85% 2.07% 1.42%

0.77% 0.95% 0.63%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

M&S CCI % 10 W. STATES CLASS B 0.0% 0.77% 4.58% 2.92% 1.42% 2.10% 3.42% 11.26% 3.57% 8.05% 3.19%

M&S CCI % 8 CAL. CITIES CLASS B 0.00% 0.63% 5.00% 0.95% 1.89% 1.85% 5.45% 12.07% 4.62% 6.62% 2.07%

REPORT OF THE EXECUTIVE OFFICER State Allocation Board Meeting, December 12, 2007

DEFERRED MAINTENANCE PROGRAM FUNDING

PURPOSE OF REPORT

To apportion funds for the Deferred Maintenance Program (DMP).

DESCRIPTION

The State Allocation Board (SAB) apportions funds annually for the DMP. The funding for the program is made available by the following funding sources: the Budget Act, any excess repayments from the former State School Building Aid Program (SSBAP), State School Site Utilization funds, and unallocated DMP funds from the previous year. The chart on the following page will provide more detail regarding these funding sources.

BACKGROUND The DMP provides State matching funds on a dollar-for-dollar basis and on a prorated basis when funding is insufficient. These funds provide assistance to school districts for major repair or replacement of existing school building components. An annual apportionment is provided to districts for work on their deferred maintenance five-year plan, which is a projection of deferred maintenance work to be performed on a district wide basis over the next five years. The SAB may also reserve up to ten percent of the funds available in the Deferred Maintenance Fund (DMF) to fund extreme hardship projects. An extreme hardship apportionment is provided if the district has a critical project on the five-year plan that must be completed within one year due to health and safety reasons. The DMP receives its funding annually and in recent years the program funding has mainly relied on the funds provided through the Budget Act. In addition, funds made available as a result of close outs or unmatched DMP basic apportionments are included in the annual apportionment. The amount of funding each district receives is based on a calculation detailed in Education Code (EC) Section 17584(a). Districts that are approved for an extreme hardship project will receive 100 percent of their maximum basic apportionment.

AUTHORITY

EC Section 17584(c) requires the SAB to apportion specified funds for the DMP after December 1 of each fiscal year. EC Section 17080 provides that the SAB shall direct the State Controller to transfer the excess repayments from SSBAP to either the DMF or the Lease-Purchase Fund. EC Section 17584(a) specifies the calculation which is used by the California Department of Education (CDE) to determine the amount of funding for each school district. EC Section 17587 provides the SAB an option to reserve up to ten percent of the total DMP funds for extreme hards