Teachable Moment: Yonkers Evaluating Private Finance for $1.7 Billion K-12 School Modernization Program

Call me crazy, but for years I’ve been scratching my head wondering why K-12 public school systems still rely on an antiquated 20th century model to build and maintain school facilities—one based on a combo of debt, taxes and inefficient contracting processes—when there are other options out there, like public-private partnerships (PPPs) that dial up the private sector’s role in financing, delivering and maintaining assets. The transportation sector realized decades ago that PPPs offer a innovative way to deliver public infrastructure assets as needs grow and citizens’ willingness to absorb new taxes and debt plummets.

It’s taken some time, but it seems that K-12 schools are slowly starting to wake up to the emerging PPP opportunity as well. The most recent evidence comes from Yonkers, NY, where school district officials announced today that they’ve selected a team of financial, legal and technical advisors to evaluate the potential for using PPPs to deliver a whopping $1.7 billion in school construction and address a $460 million backlog in facility repairs. Today’s press release offers more details, and a February Construction News article offered a good summary:

For a city chock full of hopes and dreams, Yonkers has enjoyed many groundbreakings over the years. There just may be another one on its horizon: the use of a public-private partnership, or P3, which its public school system is exploring as a means to finance some $1.7 billion in school construction.

If it happens, the Yonkers School District would be the first in the nation to engage in the much-discussed (and debated) P3 financing methodology for financing a public school project.

[pause] Close, but not quite right. Puerto Rico’s “Schools for the 21st Century” project, currently underway, beat them to it. And that’s just in the U.S. and its territories. Earlier this year, New Zealand announced a winning bidder for its pilot schools PPP project. Last summer, the U.K. launched its privately financed Priority School Building Programme. Earlier that year, the Netherlands-based Amarantis launched a PPP procurement for several schools. Those are just a few recent efforts; suffice to say that PPP schools are nothing new under the sun from a global perspective. Continuing on with the Construction News excerpt:

Yonkers Schools Superintendent Bernard Pierorazio and Joseph Bracchitta, chief administrative officer for the Yonkers Public Schools in a telephone interview with CONSTRUCTION NEWS, discussed the progress of the P3 initiative and the need for creative financing for the school district’s sizable capital project needs.

As initiatives are underway from the Governor’s office and others to propose and pass legislation that would allow public-private partnerships on construction projects in the state, the Yonkers City School District has the ability to “engage the private sector” through its Educational Construction Fund statute. To actually undertake a P3 for school construction work will most likely require some legislative authority from the state, Superintendent Pierorazio said.

[…] The need for creative financing is caused by the age of the schools in the City of Yonkers. The average age of a Yonkers school is 73. Its oldest building is 117-years-old and nine of its school buildings are over the age of 95. In 2009, the school district released a long range Educational Facilities Plan that identified at least $1.7 billion in construction needs (either school renovations or new construction), along with $460 million in emergency repairs.

School Superintendent Pierorazio said that studies show that the school district is short 5,000 seats for students and will be short by another 3,000 students by 2018- 2019. As part of the master plan, the Yonkers City School District has, for the last three years, been exploring the possibility of using public equity and public-private partnerships to fund its capital construction program. The only school districts to successfully complete projects via a P3 arrangement are in the United Kingdom and Canada.

“We felt at this point in time it would be the only way for us to do a massive refurbish and rebuilding of the district,” he said.

In November the school district issued an RFP for a consulting team to further explore P3s as a possible funding mechanism for the first phase of the capital construction project, estimated at about $700 million. A total of eight project teams responded to the RFP. The city expects to make a selection sometime in March.

[…] The P3 arrangement the school district is looking to structure is a “Design-Build and Maintain” with the private sector. The school district, which would retain ownership of the buildings and the properties, believes that by utilizing the P3 method it will be able to finance the capital program and achieve significant savings on the maintenance costs of the school properties.

Check out the District’s original RFP here for more details.

Yonkers School District officials deserve kudos for taking a serious look at the PPP opportunity, and others should follow their lead because the long-term viability of the 20th century school finance model is questionable at best. And it’s not just about dollars and cents. Puerto Rico PPP Authority executive director David Alvarez notes the real value play with the PPP model:

So at the end of the day, with this school program we’re tackling infrastructure challenges, but the ultimate goal for us is to improve academic performance of students. We’re trying to go in an indirect way towards academic performance by providing and delivering better infrastructure, with the goal for students to perform better at school—to keep more people in school and to get better results. That’s the ultimate goal of the program, really.

Hopefully other school systems adopt the same forward thinking approach as Puerto Rico and Yonkers.