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Could public-private partnerships help replace aging school buildings?

Updated: Jul 21, 2023

Idaho school districts are facing a big problem. A recent survey conducted by the state’s Office of Performance Evaluation found that just under half of the state’s 115 school districts have self-reported school buildings in fair or poor condition. Lawmakers aren’t sure of the exact scope of the problem (only 77 of the state’s 115 districts even responded to the survey), but the current estimate is that it would take $847 million to bring these schools up to “good” condition.

Many school districts may not be able to fund these renovations through bonds due to voter fatigue and the constitutionally-required two-thirds threshold for indebtedness.

In advance of the January legislative session, lawmakers have assembled an interim working group to brainstorm school funding ideas to address Idaho’s aging school buildings. They should add public-private partnerships to the state’s fiscal toolbox to clear some of the backlog of school projects.

A public-private partnership (P3) is a contractual arrangement between a government and a private entity for all or some of the provision of infrastructure and services. Although public financing of public schools has been the norm for most construction projects in the U.S., many P3 schools are now successfully operating all over the world. With roughly thirty years of data for some of the world’s oldest P3 schools, Idaho lawmakers can explore what kind of conditions, contracts, objectives, planning, and management results in successful partnerships. These “lessons learned” can help shape what P3 legislation would need to look like to be successful in Idaho.

In the late 1990’s, Nova Scotia constructed thirty-nine P3 schools with mixed results. Although the schools were critical to closing the education infrastructure gap, due to lax oversight, poorly-worded contracts, and confusion over pubic-private responsibilities, the program is often used as a “cautionary tale.” In his analysis of the partnership, Paul Bennett, Founding Director of Schoolhouse Consulting, observed, “Critical to the arrangement are contracts which provide an acceptable level of public transparency and yet respect the proprietary rights of private companies to structure projects, financing, and performance contracts in ways that reduce costs and ensure a fair return on their investments.”

To that end, many other governments have successfully used public-private partnerships. Australia, British Columbia, Scotland, and other parts of the UK have built hundreds of P3 schools. Governments that have adopted these arrangements are looking for ways to economically deliver large infrastructure projects while the private contractor assumes the construction risk. Such an arrangement brings private money and management skills to school planning, capital financing, and operations, allowing the public partner (school administrators or the charter school management company) to focus on education rather than school building maintenance.

Entertainment Properties Trust is a specialty Real Estate Investment Trust (REIT) that built or rehabilitated 47 U.S. charter schools until the portfolio was sold for nearly half a billion in 2019. The company’s CEO stated that EPR had enjoyed “very attractive returns” for its charter school market, but the tax-exempt bond market created competitive financing alternatives that ultimately led to the sale. Rosemawr Management took over the charter school portfolio.

The Turner-Agassi Charter School Facilities Fund develops school sites in urban communities, attracting private equity social impact investors. Nationwide, the fund has built 124 charter schools since its inception, creating nearly 60,000 school seats. The fund provides turnkey facilities and 100 percent of a school’s development costs, which are then leased to school operators. This arrangement allows charter school administrators to focus on education, while the fund takes care of the building and facilities. The administrators can purchase the schools once they reach enrollment objectives, and the fund assists schools with their capital campaigns and long-term funding options.

There are many factors to consider whether and when a P3 arrangement may be appropriate for Idaho schools. Private competition is important to drive costs down for taxpayers. A costly or complex procurement process can discourage bidders and result in more expensive projects. Well-designed contracts, clear roles for each partner, oversight, and performance measures need to be employed to ensure the public-private partners work together to achieve agreed upon objectives.

While there are advantages to being a landlord, Idaho legislators should ask, “What is the role of government in education?” Article IX, §1 of the Idaho Constitution states, “…it shall be the duty of the legislature of Idaho, to establish and maintain a general, uniform and thorough system of public, free common schools.”

Idaho’s constitution does not mandate how this is to be done, only that it must be done. School buildings are the means by which children and teachers gather to learn together. But there is no inherent requirement that state or local governments own, operate, and maintain the school buildings. In fact, such responsibilities can detract from administrators’ primary mission: to educate kids.

Idaho is a frugal state—and that’s a good thing. Being at the top of the spending pack is not the goal, but rather building a high-achieving, student-centered system that delivers results for families and taxpayers.

A few decades ago, it would have hardly been possible to imagine any arrangement other than a government-owned school building, but the 21st century has ushered in opportunities for public-private partnerships that could be the answer to the state’s education infrastructure problem.

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