Private capital for public schools: districts overcome cultural barriers to find non-public building partners

School Administrator, August, 2003 by John M. McLaughlin, G. William Bavin

The innovative financing of Niagara Falls High School bought the district something that traditional financing methods could not--time. The district would have had to go through the entire lengthy bond election process and faced an uncertain outcome with voters. The agreement with Honeywell allowed the district to open its facility much sooner than it would have with the traditional method of financing.

Efficiency Mechanism

For decades, businesses have used innovative financial structures to manage their real estate needs and exposure. Based on the experiences of the Natomas and Niagara Falls school districts, other public schools might benefit from similar mechanisms.

A recent study by the Center on Reinventing Public Education focused upon national trends in education and the effects these trends will have on facility development in public schooling. The study identifies six criteria as important for the leadership of school districts to consider. One is economic efficiency. A section of the study titled "The Future of School Facilities" states: "In education, efficiency means focusing spending on productive activity, i.e., instruction, Through innovative partnerships and other arrangements, districts may be able to redirect resources away from inefficient facilities toward instruction. Districts should also ask themselves if the potential exists for improving the quality of facilities without increasing public spending, or if it is possible to provide the same quality of facilities at a lesser cost to the taxpayers.

If necessity is the mother of invention, the current fiscal crisis facing state and local education budgets bodes well for a rapid expansion of the use of private capital in public school development and renovation. It seems reasonable to expect that progress on this front will be measured in miles, not inches, in the not too distant future.

Resources

The authors suggest the following resources related to private financing for public school facilities:

"Financing School Facilities," available from Association of School Business Officers International, 703-478-0405, www.asbointl.org.

"Modernizing Our Schools: What Will It Cost?" available from National Education Association, www.nea.org

"New Tax Law Boosts School Construction with Public-Private Partnerships" by Ronald D. Utt, available from the Heritage Foundation, 202-546-4400, www.heritage.org.

School Planning and Management 2002 Construction Report, available from www.peterli.com

The Future of School Facilities: Getting Ahead of the Curve, by Michael DeArmond, Sara Taggart and Paul Hill, available from Center on Reinventing Public Education, University of Washington, 206-685-2214, www.crpe.org

John McLaughlin, an education consultant on finance and strategic planning, is president of the John Mclaughlin Co., 1524 S. Summit Ave., Sioux Falls, S.D. 57105. E-mail: john@mclaughlincompany.com. William Bavin is the founder of Education Capital Markets, an investment bank and financial advisory firm in Alexandria, Va.