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Kevin Sullivan of KnowledgeWorks Foundation
moderates the discussion of federal initiatives. |
Introduction
Kevin Sullivan, consultant, KnowledgeWorks Foundation and National Clearinghouse for Educational
Facilities; former advisor to U.S. Secretary of Education
Richard Riley
Historically the federal government was not involved in building
schools. Schools were not on the map until 1996, when the
nation’s enrollment record was broken. The “baby boom
echo” nationalized the local issue of crowded schools. The
Department of Education became more involved, sponsoring a national
school design symposium and creating the National Clearinghouse for
Educational Facilities (NCEF). Congress passed the Qualified Zone
Academy Bonds (QZAB) bill to support school renovation.
Interest in school modernization is reviving today because of the
No Child Left Behind Act (NCLB), which raises the question of
how design affects achievement and also revives the small-schools
debate. There is growing emphasis on potential opportunities for
public-private partnerships to create schools that are not just
centers of community but also enablers of community. The
current financial models for public works place the private
sector at a disadvantage; however, the tax code is starting to
provide opportunities for districts, architects, and developers in
funding innovative schools.
Public-Private Partnerships
Dr. Ronald Utt, senior research fellow, Heritage
Foundation
The basic definition of public-private partnership is:
private-sector capital or expertise joins with a public agency to
provide some kind of infrastructure and earn an ongoing fee for
doing so. The concept is that both parties bring resources and reap
benefits. Public-private partnerships are becoming extremely common
in Europe, but they are less so here, for reasons that are unique
to the United States.
Public finance in the United States is extremely conservative and
risk-averse. Preferential borrowing terms give the public sector a
30 percent advantage; the private sector has to be at least
that much more efficient to break even. We haven’t really hit
the wall, as they have in Europe—with high tax burdens and
social-service spending—so we haven’t needed innovative
financing yet. However we are seeing cases of school districts
hitting the wall and being driven to innovation. Failed bond
measures led to hybrid funding for schools in Houston and
Greenville, N.C., that did not require voter approval. Some states,
such as Arizona, have flexible and encouraging systems for charter
schools, but they need to be creative with the development of
facilities.
Population growth is putting such a burden on schools that some
communities are saying “no” to additional development. In
these environments, some builders are offering to provide public
infrastructure, including schools, to get permits. Some communities
are growing so rapidly that the conventional way of building
schools can't keep up. A Virginia bill provides new funding
opportunities for schools. In Stafford County, there’s a
project that involves two elementary schools, a high school, a
public library, a YMCA, childcare, and higher education—all
working together to get the maximum use of the capital investment
instead of building overlapping facilities. The community is
getting more for less.
There has been an effort to bridge the gap between the borrowing
power of the tax-exempt public sector and the private sector.
Qualified Public Education Facility bonds (QPEFs), a provision of
the Economic Growth and Tax Relief Reconciliation Act of 2001,
allows investors to use tax-exempt bonds to build public
facilities, including schools, which they lease to public entities
at a cost lower than their construction costs would have been.
However there was a flaw in the legislation that makes it
financially unattractive to investors: The facility reverts to the
school district in 20 years, so by IRS rules the investor
doesn’t own the property for the purpose of depreciation.
Discussions are under way to amend the statute, and until then
there won’t be much action. When that happens, it will create
an even playing field and increase the opportunities for the public
and private sectors to work together for their mutual
benefit.
Qualified Zone Academy Bonds
Bob Canavan, chair, Rebuild America’s Schools
Congress has extended Qualified Zone Academy Bonds (QZABs)
through 2004 and 2005. The IRS issued allocations for 2005 in
December, and states can now issue the 2004 and 2005 allocations to
local school districts ($400 million per year nationwide). Congress
has authorized $3.6 billion in QZAB allocations since 1997. QZABs
have been extended by the last two Congresses, and the Bush
administration’s budget extends the program for another two
years. Even in these days of budget struggles, QZABs are
recommended for extension because it’s a tax credit program,
not an appropriation.
Urban and rural school districts across the country are saving
money by using QZABs to underwrite school renovations. Investors
receive federal tax credits in lieu of interest; over the life of
the bonds, the district’s savings is approximately 50 percent.
Some states have waiting lists or lotteries, but in others
it’s just a matter of contacting the state department of
education.
A bond must meet a number of requirements to be treated as a
QZAB:
- The bond must be issued pursuant to an allocation of bond
authority from the issuer’s state educational agency.
- At least 95 percent of the bond proceeds must be used for
an eligible purpose at a qualified zone academy. Eligible purposes
include rehabilitating school facilities, acquiring equipment,
developing course materials, and training teachers. A qualified
zone academy is a public school—or an academic program within
a public school—designed in cooperation with business and
either located in an empowerment zone or enterprise community or
serving a student population of whom at least 35 percent are
estimated to qualify for the federal free or reduced-cost lunch
program.
- Private entities must promise to provide in-kind contributions
of property or services equal to 10 percent of the bond
proceeds.
QZABs are on the books and used successfully in all states. The
proposed America’s Better Classrooms Act would use the same
mechanism to put additional money into the system: $25 billion for
school construction. Decisions about sites, architects, and
builders would remain at the local level; the only federal
involvement would be the provision of the tax credit. We’re
talking about NCLB and national standards; we also need to take a
look at the school in which the child is learning to see if
it’s the best environment for learning.
Charter School Funding
Jim Houser, director, Charter School Facilities Grants Program,
Office of Innovation and Improvement, U.S. Department of
Education
Charter schools are public schools of choice, with greater autonomy
and accountability. Contrary to popular belief, they are not
selective; competitive admission is not allowed. They are growing
in numbers—in urban districts as alternative educational
programs and in suburban districts as a release valve for
enrollment growth.
Two federal grant programs are designed to help develop
charter-school facilities. (1) The Credit Enhancement for Charter
School Facilities program is like mortgage insurance; it improves
the credit worthiness of the borrower. Credit enhancement is
important because many investors perceive charter schools as risky
investments. Credit Enhancement grants are used to guarantee and
insure debt and leases and to facilitate lending and the issuance
of bonds. (2) State Charter School Facility Incentive Grant funds
may be used to establish new facilities or enhance existing ones. A
per-pupil facilities aid program geared for charter schools, it
provides a federal match that decreases from 90 percent in the
first year to 20 percent in the fifth year.
The development of charter-school facilities has implications for
architects, who are often asked to convert commercial or
industrial space to educational use. Their school clients often
need “flexible incubators,” where they can develop their
program and grow their enrollment. Investors are particularly
interested in how easily the facility can be converted back to
commercial use; the greater the number of potential uses, the more
value the project has for potential investors.
School Safety and Security
Sara Strizzi, Office of Safe and Drug-Free Schools, U.S.
Department of Education
There is a strong interest in the relationship between the way
schools are designed and maintained and school safety and function,
and the Department of Education has made a commitment to working on
these issues.
One key area is the response to 9/11. The department worked with
school safety experts to determine how to help schools better
respond to emergency situations. There were six schools in the
ground-zero area, and we drew upon their experiences to prepare a
guide, using the four-phased FEMA model of crisis mitigation; that
has been the focus of our efforts since.
The Emergency Response and Crisis Management Grant Program is a
high priority. In 2003 and 2004 combined, 243 school districts
received funding. Funds are also available in 2005 and 2006 to help
schools enhance their emergency response programs. This includes
finding ways to make facilities safer, such as conducting security
assessments and making corrections, improving traffic flow, and
converting floor plans into electronic formats and sharing them
with first responders. We are encouraging districts to consider
multiple hazards—whether terrorism or accident, for
example—by assessing potential hazards and vulnerabilities in
the vicinity, such as a chemical plant or railroad tracks.
As you work with school districts, offer your expertise to help
them identify hazards. We have established a school preparedness
“one-stop shop” at www.ed.gov/emergencyplan.
In addition, the Office of Safe and Drug Free Schools works with
indoor air quality issues. We have staff working on heath and
environment safety issues, and we are involved with the
presidential Task Force on Environmental Health Risks and Safety
Risks to Children.
New Markets Tax Credit Program
Kevin Sullivan
Congress created the New Markets Tax Credit (NMTC) Program in 2000
to encourage commercial investment in low-income communities. These
tax credits may be used to build joint-use facilities, and they
have been used to encourage charter schools, as in Arizona. The
program is designed to generate $15 billion in new private-sector
investments. The first $2.5 billion credit allocation was awarded
last June through a competitive process administered by the
Community Development Financial Institutions Fund (CDFI), a unit of
the U.S. Treasury Department.
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