A new high school won't be built in Alleghany County because of a lack of funding -- another issue that could intensify the discussion of a potential consolidation of the Highlands' governments.

And the nonprofit Alleghany Foundation continues to play a major role in the situation. It paid for an extensive consultant's study released this spring that revived the consolidation talks, while at the same time it turned down a request from the county school system for a $29 million grant over a 16-year period to provide funding for the new high school.

Charles Kahle, outgoing president of the foundation, said it's the organization's policy to not comment publicly on the grant applications that it denies.

"We respond directly to the people making the grant applications, or the institutions or organizations. But it's a policy not to comment on those," he said.

While the county's school board will proceed with purchasing land suitable for a new school as an investment, the board acknowledged last week that the rejection of a grant request from the foundation will shelve plans to build the new facility.

That's because the county doesn't have the financial ability to borrow enough money on its own to pay for the school, estimated to cost at least $43 million, according to county officials.

Instead, the school board will consider proposals for needed renovations to Alleghany High School, a facility built in 1963 in a flood plain. It lacks air conditioning, and has an inadequate library and lab space.

The decision comes as the Alleghany County Board of Supervisors voted last week to form a committee composed of what it hopes will be two members from each of the four area local governments to discuss government consolidation.

Last month, the new study paid for by the Alleghany Foundation indicated that the region's struggling economy could save more than $7 million annually if Alleghany County, its two towns, Clifton Forge and Iron Gate, and the independent city of Covington -- with a total population of less than 25,000 -- consolidated into one government.

Since then, an array of local government officials has expressed concerns that the report's projected savings may be overstated, or take years to realize.

Alleghany County supervisors Chairman Steve Bennett said it's important that the local governments get together and talk further about the matter and determine if the cost savings are accurate.

"We want to try it in a friendly manner and see what would come out of it," he said. "The average person on the street thinks that it should be looked at. So let's sit down and study it."

A group of residents favoring consolidation already has circulated a petition in an effort to force a voter referendum on the matter.

In 1987, a similar referendum to combine Clifton Forge, then an independent city, with Covington and Alleghany County into a single city -- which would have been called the city of Alleghany Highlands -- was defeated by Covington voters.

According to the foundation's recent report, prepared by the consulting agency K.W. Poore & Associates, consolidation would save about $2.4 million in government expenditures. Another $4.1 million could be saved by combining the school systems. The ensuing larger school district would then be able to reap an extra $600,000 annually in state school funding for the next 15 years.

But as Alleghany County and Covington have independently looked at upgrading their aging high schools, it's unclear if consolidating the governments would free up enough funding to build a new high school that would serve a unified locality with about 1,300 students.

Alleghany County Schools Superintendent Bob Grimesey said it would take more research to determine more accurately the cost savings for combining the school systems, and what funds would be available for new construction.

"With any process, you have to be careful that you don't over-promise and under-deliver. And make sure everything is fact-driven," he said.

Two years ago, the county school board rejected a proposed 16-year, $7.8 million repair and upgrade of Alleghany High School, voting instead to move forward with plans to build a new high school.

But the school system concluded late last year that the county lacked the debt capacity to pay for a new school costing more than $30 million without a significant double-digit property tax increase for residents.

The school system then approached the Alleghany Foundation for the $29 million grant.

The foundation was established in 1995 with $35 million in proceeds from the sale of Alleghany Regional Hospital. Since then, it has awarded $26 million in grants to area organizations, and currently has $68 million in assets.

Grimesey said the foundation denied the school system's request without providing an explanation for its refusal.

"That was our last opportunity for the foreseeable future to discern if any kind of major project was within our reach," he said.