Out of Control Policy Blog

Alberta Announces Major School P3 Project

Public-private partnerships (PPPs): they're not just for roads. More here:

Alberta will pay a private company $634 million to build and maintain 18 new elementary and junior high schools in Edmonton and Calgary, provincial officials said this morning.

It is the first time that the province has revealed the costs associated with its plan to finance school construction and maintenance costs through a public-private partnership and repay them over three decades.

The use of P3s has been controversial. But the province said it is so confident in the model that it plans to build another 14 new schools in Edmonton, Sherwood Park, Spruce Grove, Calgary, Langdon and Okotoks using a P3.

"Not only have we saved $118 million for Alberta taxpayers, that represents a 16-per-cent saving over conventional construction, but we're creating space for more than 12,000 students two years earlier than would have been possible through traditional methods," Infrastructure Minister Jack Hayden said.

The province said it will save Alberta taxpayers $118 million by contracting the project to a consortium led by Babcock & Brown Public Partnerships. Under the contract, the schools are scheduled to be completed by June 30, 2010. At that point, the Alberta government will advance $125 million to the consortium, followed by annual capital and maintenance payments.

The schools will be owned and operated by the school boards.

For school districts looking for creative ways to get new schools built today to accommodate tomorrow's growth--all while dealing with grim public sector fiscal conditions in most places—PPPs offer a powerful opportunity. Obviously, bundling several schools into one package accelerates their development and avoids future construction and labor cost inflation—i.e. it'll be far less expensive to build them today than to wait.

School districts can essentially fix, via contract, the amount they'll pay for these schools over a 20-30 year terms. And that's all in—factoring in maintenance and operations for all the P3 schools over their multi-decade life-cycle. In these contracts, if a pipe bursts in Year 15 and floods a science lab that's closed for a week, the private sector operator covers the repair and maintenance costs, and further, they'd be penalized a specified amount (translating into a lower lease payment by the government entity that year) for that lab not having been available to students those days.

Most school systems under the status quo can never guarantee those kinds of outcomes. They do whatever maintenance on their facilities their budgets that year will allow. Deferred maintenance—slow, creeping neglect leading to higher and more frequent replacement costs down the road—is endemic. If pipes break, schools have to fix them and pull resources away from operations, maintenance, and other school needs.

And what about the outcomes that matter most--educational attainment? A recent KPMG study looking at schools renewed or rebuilt through the U.K.'s Private Finance Initiative (PFI) found that educational attainment improved 20% faster in renewed PFI schools than in renewed, conventionally financed schools. Further, educational attainment improved 92% faster in fully rebuilt PFI schools than in fully rebuilt, conventionally financed schools.

[It's worth remembering here that the UK has launched an ambitious initiative to rebuild ALL of the country's secondary schools—Building Schools for the Future (BSF)—and PPPs are going to play a significant and vital part of delivering on that ambitious promise, which will literally touch the lives of practically every child in the UK.]

My colleague Lisa Snell has written on this issue recently here, here and here. And I'm pleased to report that Reason has a policy brief in the works on innovative partnerships for school facility construction.

» Reason's Privatization Research and Commentary
» Reason's Education Research and Commentary

Leonard Gilroy is Director of Government Reform


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