School Board Considers Public-Private Partnerships

(Wednesday) January 13, 2010

By James Cullum
alexandrianews.org

Jefferson-Houston Elementary School. (Courtesy Photo)

With rising student enrollment, aging school buildings and a $14.2 million budget gap, the Alexandria City Public School system is thinking creatively about how to finance new construction. Last night, the School Board held a work session and listened to a presentation on public-private partnerships with representatives from real estate consulting firm CB Richard Ellis. The main issue: evaluating the opportunity for  a public-private partnership to construct a multi-use facility on the Jefferson-Houston School site. The site could house the ACPS central office, which costs $1.1 million a year for the space on North Beauregard Street.  That lease will end in 2013.

“Continuing to stay in [the Beauregard] building is not the prudent, fiscal thing today. It would be much less expensive to occupy another building than to stay in the one you currently rent,” said Mike McShea, CBRE executive vice president. “We’ve completed a programming exercise to establish future space requirements for central office. The question is: could we fit existing facility needs and perhaps, if we can afford it, add a new performing arts center and public swimming pool?”

ACPS Superintendent Morton Sherman said that the Board needs to act. “In the next four to six years, based on enrollment projections and the change in our facilities, we are projecting we need three new elementary schools. Those figures are based on the age and condition of the buildings. Based on that projection, we’ve looked at phasing in those buildings,” he said. “We’ve been in this [headquarters] building for a number of years, and what have you gained by it as a board? Another lease.”

A public-private partnership is a contract in which a private party, usually a nonprofit foundation, assumes the debt and risk of a project, with no risk to taxpayers. The nonprofit assumes ownership of the property and then has it redeveloped and financed by a private developer. The property would then be leased to the school system.

Jefferson-Houston was built in 1970 as a school-without-walls. The building needs to be torn down and rebuilt. “The outset of  the cost for the City may be more because of the additional cost of borrowing, but the cost to the taxpayer is at net zero. The foundation is issuing the debt and the developer assumes the delivery risk and constructs improvements to bid specs,” McShea said. “The 501-c3 [nonprofit] would receive a 40-year ground lease for the project. Buildings are leased to a public occupier for a 15 to 20-year base term plus renewal options. Rent is calculated as a direct pass-through of bond financing, and at the end of the base lease term, eventually, all of the buildings, all of the improvements would revert back to the City. It’s really not much different than the city issuing bonds.

“The Jefferson-Houston site has the opportunity to be a transformational project for schools and the City and it’s the kind of project that could be a national model across the country – being so close to the Metro in such a historical area,” McShea said.

Board Member Helen Morris supports using public-private partnerships. “I think that, largely, the community will support a new school on the site. I think it’s clear, if you walk on the site, that it needs to be upgraded. Its uses are limited right now. I think, judging from the Braddock Small Area Plan meetings, the community at large will have strong feelings about height density of the building, what kind of retail spaces there will be,” she said.

Board Member Charles Wilson said that this will be easier than the City financing a project through bond issuance. “This way of working gives higher probability to the fact that this will get done. When you go out and try to raise funds all over  the country, you know that’s the hardest sell city’s make is to sell bonds,” he said.

The foundation would have to be run by a board of directors. Some School Board members were concerned with that prospect. “It’s an independent body.  You can’t stack the foundation with the members of the School Board,” said Board Chair Yvonne Folkerts. “The way that you control that is through your land lease and your operating documents.”

Wilson was not convinced. “I know that you can’t stack the Board, but you can find friends of the [School] Board,” he said.

Board Member Mimi Carter asked who determines what retail uses occupy the space if the private developer assumes the risk.

“You don’t want to tie the developers’ hands so that they feel that they can’t do they work, but I could counsel you to be very careful about writing your leases. We’re not looking at a private partnership which would have industry on the site,” McShea said.

Time is running out for ACPS. “If you don’t act now, you’re going to miss the boat on your 2013 expiration of your lease,” McShea said and gave the Board a timeline. “In spring or early summer, digest considered alternatives and then pick some alternatives of what you want to do. The reason for that is the construction schedule. Permit issues take time and we’re going to need some support to get through that process in a timely fashion.”

Sherman said that the school system may have to work independently of the City. “I believe [a public-private partnership] is the right thing to do. And maybe if the City says it may not be the right thing to do, then the school system should go on independently,” he said.

Folkerts ended the discussion. “Gulp,” she said and called a ten minute recess.