NAHB’s Land Development Services has completed research on finance alternatives for public schools to assist HBAs and local governments with solutions for funding educational facilities.  These documents are all available at www.nahb.org/infrastructurefinance.

School building and renovation is a $30 billion per year industry. According to the National Center for Education Statistics, there were 97,382 public elementary and secondary schools for the 2005-2006 school year, 2128 special education schools, 1221 vocational/technical schools and 6448 other/alternative schools. There are also roughly 28,380 private schools in the United States. A National Education Association study in 2000 estimated that $268 billion is needed to fix the 60 percent of school buildings that suffer at least one major structural problem. 

The purpose of NAHB’s research was to find additional methods of school financing and whether these strategies were successful or not for the community.  Over 25 case studies are described in the research paper.  Twp case studies are described briefly below:

Public Private Partnerships

Public private partnerships are becoming an increasingly popular method of funding school infrastructure in many countries, especially England and Australia. Although this model has yet to take firm root in the U.S., some campaigns for school building have been successful using this approach.  In short, a public-private partnership describes a situation where one or more private  companies fund and operate all or part of a government service or project.

The Niagara Falls School District partnered with a private developer to manage a high school construction project.  Honeywell was chosen as construction manager, after a successfully completing a previous project as the energy management company for energy retrofit work on almost 20 schools as part of a performance contract.

Honeywell selected J.P. Morgan to secure private capital for construction and issue “certificates of participation.”  A special purpose entity was established for financing and ownership, and to lease the building to the school district.   The New York legislature had to approve the privatization plan, which meant making provisions to override a law that public-works projects be given to a lowest bidder and that four primary contractors be involved in a public school project. The exemption went through after the school district pledged to only hire union labor.

In the agreement, the district will rent the building for $4.8 million a year for 30 years, after which the district owns the building and remains debt-free.  Investors were repaid with the school district’s payments.

The innovative financing method allowed to the school district to sidestep a time-consuming bond election process and the uncertainty of the voter decision and open its new high school sooner.

Tax Increment Financing

Tax Increment Financing was used to build and renovate public schools in the City of Huntsville, Alabama.  The new schools needed financing for both the buildings and the associated infrastructure as roads would need to be widened and sewer and drainage infrastructure would also need installation.  Dallas Fanning, Huntsville’s Director of Urban Development, presented a proposal to finance school renovation and building projects with a TIF.  According to Fanning, the initial challenge was to convince the public officials that a TIF would work and that the new facilities would help the area see faster growth. When Fanning and his team presented the concept to city and county public officials, he acknowledged it was “a leap of faith” since the project’s success was dependent on growth and home builders were asked informally, not contractually, to build houses.

Five TIFs were used to complete these projects.  In February 2008, Huntsville Mayor Loretta Spencer reported the TIF had succeeded with impressive results.  Her team reported that “the success of the TIFs has increased tax payments to Huntsville City Schools, Madison County Schools and Madison City Schools by more than $6.5 million from 2002 to 2008. In addition to the increased tax payments, the five TIFs have provided $65 million for capital improvement projects for Huntsville City Schools.”  All of Huntsville’s TIF’s are currently ahead of repayment schedule.   According to Fanning, the TIFs were a “painless way to help the school system without raising anyone’s taxes.”

Twenty-three additional case studies are available in the complete document at www.nahb.org/infrastructurefinance.  These examples provide additional alternative financing mechanisms which fund all or part of a school district’s financing needs. 

For more information, please contact Thais Austin at 800-268-5242 x8343.
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