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School Construction 2004

August 12, 2004

Alternative school-funding models pay off

  • Schools built by public-private partnerships typically cost less and are constructed faster
    Evergreen Freedom Foundation


    ome of the world's most brilliant leaders, entrepreneurs and scientists have been educated in decrepit surroundings, places we modern Americans would scarcely be proud to call a school. It's a simple reminder that what goes on inside the walls of a school is far more important than the condition of those walls or who builds them to begin with.

    Yet we have burdened public school administrators with the task of putting up buildings, when we really need their focus to be solely on what's going on inside those buildings. If we look around the country, and especially at our neighbors to the north in Canada, we see that providing and maintaining proper educational facilities can be done better, faster and cheaper than we do in our state.

    A decade's worth of observation and data tell us, when properly planned, schools constructed using public-private partnership arrangements have amazing results. Typically the structures are built in less time for less money. They can serve as a multipurpose anchor for an entire community and can enhance the local economy. Some even involve parents directly and daily in their children's education.

    This is exactly the type of innovation we need in Washington state, where according to some education experts, more than 80 percent of our schools need to be renovated or rebuilt.

    In years past, many schools were built with timber revenue from state trust lands. This source of revenue has shrunk considerably, providing for less than 12 percent of school construction costs. New plans are on the table which will increase this percentage through increased timber harvests.

    Still, the traditional revenue sources of timber sales, taxes and borrowing won't be enough. We need to get more value for every dollar spent, and some common-sense ways exist to accomplish this.

    Municipal/capital lease

     Middle College Education Resource Center
    Photo courtesy of the Washington Policy Center
    The Middle College Education Resource Center, inside Northgate Mall, is a joint venture between Seattle Public Schools, North Seattle Community College and the nonprofit Simon Youth Foundation. The school is one of 15 nationwide housed inside a Simon Corp.-owned mall.

    With a municipal/capital lease, a private party constructs a facility that it will own for a typical period of 25 years. A school district leases the building and may purchase it from the leaseholder for a nominal price at the end of the contract agreement period. This method works well for facility renovation, too.

    In 1996, Texas changed its laws to allow then-Houston superintendent Rod Paige to negotiate with a private contractor to build two high schools. The company completed the job in less time than expected and saved the state and district $20 million.

    When the province of Nova Scotia faced a declining economy in the late 1990s, officials negotiated with private investors to pay 85 percent of the lease for a school building, and in exchange allowed the developer to retain ownership so it could be used for child-care services, night school, tutoring, and community and religious events.

    Nova Scotia's Ministry of Finance said, "The key objective is to enable Nova Scotia taxpayers to get better value for their tax dollars by shifting the responsibility for the operation and/or financing of non-core activities to the private sector."

    In the past seven years, 33 new schools have been opened in Nova Scotia using this type of leasing system.

    An operating lease is another option. It is similar to the model just described except the lease is classified as security for the developer. The school district may not have the option to purchase the property at a nominal price down the road, though the lease payments can accumulate toward the purchase.

    This option is estimated to save 10 to 15 percent for a district in the long run compared to the traditional tax and borrow plan.

    Service contract

    Another model for renovating school facilities is through a service contract with a private contractor. In this way, a school district loses ownership of the property only for a short period of time during renovation. The private contractor takes out a tax-exempt loan for capital costs, interest and services (allowed by the federal government), and the contractor operates and maintains the school during renovation.

    The best example of this model may be in Greenville County, S.C., where officials had planned to spend $1.8 billion constructing and renovating schools over a 24-year period. By using a service contract agreement, the developer completed all 72 projects within four years for a total of $780 million.

    Satellite schools

    A fourth model allows nonprofit charitable foundations to house schools in facilities such as malls, airports, corporations and other existing buildings. The American Bankers Insurance Group in Miami-Dade County agreed in 1987 to test this model. Parents who worked at that large facility were encouraged to enroll their children in a school housed in corporate headquarters. Parents loved the idea of having their children in proximity.

    Simon Corp. uses its nonprofit foundation to form cooperative efforts with public schools to use space in more than 15 shopping malls owned by the corporation. We have one in Seattle's Northgate Mall that specializes in older students who otherwise likely would leave school altogether.

    Status in Washington state

    In 1998, the Washington House Task Force on School Construction recommended school districts have the option to acquire facilities with lease/purchase agreements to "provide an option to the traditional construction process by enabling districts to quickly respond to explosive enrollment growth and changing student demographics with fewer up-front costs."

    Opposition to this change is fierce. Some believe it opens the door to private-sector schooling. Others are adamant that private contractors can only be allowed to build schools if they pay the employee wages established by the state, called prevailing wages.

    This is current state law, but it is problematic for several reasons, not the least of which is that contractors building a school in Pe Ell would have to pay the same wages they would if they built a school in Seattle. This is not practical, and it won't allow money to be stretched farther.

    State officials should not protect the status quo when it comes to putting up schools. The only concern is to build appropriate, safe facilities that maximize taxpayer dollars and student learning opportunities. Period!

    Lynn Harsh is a former teacher and the executive director of the Evergreen Freedom Foundation, an Olympia-based public policy organization.

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