During the past decade, many parents, teachers and public officials have argued that public school buildings are overcrowded, obsolete or unsafe. This concern has produced a surge in spending on school infrastructure — a cost to taxpayers that could be reduced through public-private partnerships.
According to U.S. Census data, spending on primary/secondary facilities has increased 213 percent over the past 10 years, and is growing almost twice as fast as spending on new residential construction, which itself has experienced one of the biggest booms in recent memory. In 2004, school districts spent more than $29 billion nationwide on new schools, additions and modernizations. This is a record, according to American School and University magazine.
In Michigan, school construction spending is up dramatically. According to the Anderson Economic Group, between 1994 and 2004 property taxes dedicated to school debt activity — such as school construction spending — increased 217 percent. This greatly outstripped inflation, which rose by less than 21 percent during the same time period. It also outstripped enrollment, which increased less than 12 percent, according to the U.S. Department of Education. A February 2004 report from the Michigan Land Use Institute found: "(A)nnual expenditures in the U.S. for school construction doubled since 1992. In Michigan they tripled."
Indeed, from 2003 to 2004, applications to the Michigan School Bond Loan Program, a state Treasury plan that indirectly subsidizes the cost of school borrowing for new construction projects, jumped from 24 to 40. The overall value of Michigan public school projects (including technology, furnishings, site acquisition and other expenses) increased by a surprising 65 percent between 2003 and 2004.
What mechanisms might be employed to save districts — and thus taxpayers — money in school construction? A number of innovative solutions have emerged in the United States, Canada and the United Kingdom, and many involve partnerships with private developers, builders and nonprofit agencies.
In the United Kingdom and Nova Scotia, a private developer will often finance 100 percent of the construction of a new school in exchange for long-term lease payments from the school system. This lease may run for 20 or 30 years and cover only normal business hours. After hours, the developer is free to lease the building to compatible educational organizations such as trade schools, refresher programs, colleges and universities.
Much of the developer’s increased revenues under this arrangement are effectively passed on to schools in the form of lower rent. When builders know they can make more money by leasing their facility at night, they adjust their bids accordingly when they vie for the right to build the school.
In many cases, school systems also have the option to buy the building at a predetermined price. Contracts may even call for the owner of the building to refurbish the kitchen or other aspects of the building.
The United Kingdom has the world’s most extensive public-private partnerships for schools. Since 1997, such partnerships have driven the new construction or renovation of 256 school buildings. Currently, work is underway on another 291 schools, and an additional 222 schools are in various stages of the procurement process for renovation or new construction through public-private partnerships. Clearly, the approach has appeal.
Consider the money that could be saved if a frugal public school district partnered with an organization like the Bouma Corporation of Grand Rapids (this example is not meant to suggest Bouma’s interest in such a partnership). The Bouma Corporation designs and builds charter schools for as little as $65 per square foot, or about $100 per square foot when land acquisition and furniture costs are included. By contrast, new conventional public schools, such as the Cass Technical High School and Detroit High School for the Fine, Performing & Communication Arts, cost about $262 and $391 per square foot, respectively. Furthermore, Bouma’s buildings are built in one-fifth the time of similarly sized school buildings.
Combining such private-sector cost advantages with a partnership in which a private firm can rent out a building after normal school hours could dramatically reduce school districts’ costs for developing educational infrastructure. The savings could matter greatly in fast-growing suburbs, deteriorating cities, and places that are experiencing a demographic boom of school-age children. Although there are many reasons why some communities are struggling with school infrastructure, a common cause of the shortfalls is the cumbersome public-sector design and construction process.
As has been demonstrated in the United States, Canada and especially the United Kingdom, public-private partnerships offer the prospect of serving more community needs for less cost and in less time. Michigan school officials may wish to pursue public-private construction partnerships in order to save money and reduce the need for higher property taxes.
Note: Portions of this article were excerpted from the Ron Utt study, "Public/Private Partnerships Offer Innovative Opportunities for School Facilities," a publication of the Maryland Public Policy Institute.
Ronald D. Utt, Ph.D. is the Herbert and Joyce Morgan Senior Research Fellow of the Thomas A. Rowe Institute for Economic Policy Studies at the Heritage Foundation in Washington D.C. Michael D. LaFaive is director of fiscal policy for the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy.