Partnerships in School Construction

1998 School Bond Elections

Only 44 out of 107 proposed Michigan bond issues worth over $2.2 billion were approved by voters.

One of the biggest headaches facing communities across Michigan and America is how to pay for the construction of new school buildings, and for improvements in existing facilities. It is costing school boards way too many headaches and weary taxpayers far too much money.

Fortunately, there is hope. School districts from Florida to Nova Scotia to Scotland are opening their fundraising process to the private sector in ways that save billions of dollars–and truckloads of aspirin.

In this way, the charter school saved between 22% and 34% on the cost of the building.

The Problem

In 1997, U. S. taxpayers generously forked over $27.1 billion for new public school buildings, additions and renovations. An additional $8.2 billion was spent for private schools.

According to Market Data Retrieval, an education data service, there are currently 1,238 school construction and renovation projects underway in Michigan. The cost of these projects is estimated at just over $2 billion.

But it isn’t enough. Aging schools and overcrowding are pushing districts in cities such as Dearborn, Rochester, Ecorse, Plymouth-Canton, Muskegon Heights, Detroit, and Van Buren Township to sell bonds in the hope of winning new school construction money. Southgate passed–by a mere 173 votes–as bond proposal for 47.7 mills on April 27. It was the district’s fourth attempt.

Unfortunately, taxpayers just aren’t biting. In 1998 there were 107 school bond proposals on ballots across the state requesting more than $2.2 billion in new revenue. Less than 37% of these passed, raising only $798 million.

Case in Point: Van Buren Township

In recent years, Van Buren Township has tried three times to pass a millage that would allow for the construction of two new elementary schools and provide for the expansion of Belleville High School. Each millage has failed at the polls, the last by only two votes. Previous attempts were clobbered at the polls by taxpayers who no doubt took issue with the huge $50 million price tag. The third millage attempt requested a mere $16 million.

The Solution: Public-Private Partnerships

What can communities like Van Buren Township do? They can give the taxpayers a rest and go to where all funding comes from in the first place: the private sector.

In Nova Scotia, Canada, public-private partnerships are helping facilitate the construction of new schools. By the end of 1998, as many as 41 new schools had either been completed or approved for construction. Another 12 had been proposed. Scotland has a similar program underway. To date, the Scots are replacing or renovating 56 schools at a total cost of $554 million.

How are they doing it? The key is to shift the burden of financing to the private sector. It works like this:

• School districts ask private developers to bid on a contract to construct a school from start to finish.

• The district converts the cost of the project into a 20-year lease with annual rent payments equal to 85% of the cost of the project (based on the winning bid).

• The developer constructs the school complete with furnishings (such as desks and chalkboards), computers, administrative offices, landscaping, and athletic facilities.

• The district effectively gains use of a school building for 15% less than it would cost to construct on the district’s own accord.

Private developers receive an additional bonus: They get control of the buildings and classrooms when they are not in use by the school. During evenings, weekends, and (possibly) summers, the developer may lease classrooms to for-profit trade schools and approved civic, political, or religious groups.

Have any school districts in the United States latched on to these innovative ideas? You bet they have. In the fall of 1998 a new charter school opened in Florida that was constructed with a creative public-private financing plan. Pembroke Pines, a public charter school, hired a private company, Haskell Educational Services (HES) to build and operate its new facility. In this way, the charter school saved between 22% and 34% on the cost of the building. The school used its advantage as a public entity to finance construction of the school with tax-exempt borrowing, and then leased the building to HES to operate as a charter school. HES receives a state reimbursement of $3,750 per student per year to operate the school but this is not enough to cover expenses. HES covers the rest of its costs and makes a profit by offering fee-based, after-hours programs at the school such as day care, and other programs for students.

How could a Michigan community like Van Buren Township take advantage of this idea? Van Buren school officials could propose a "Covenant with the People of Van Buren" that promises to implement cost-saving measures, such as the partnership described above, in response to the passage of the millage officials want approved. The district could promise to competitively bid out services such as busing, cafeteria, janitorial services, and health insurance for district employees, too. Anticipated savings would be factored into the millage request so the next vote would be for fewer mills.

Combining a bold private financing operation, like the ones just described, with a district’s promise to cut costs through competitive bidding of support services may be just what the education doctor ordered for Van Buren and other Michigan communities desperate for new and improved schools.