August 9, 2001

August 9, 2001 | News Releases on Education

Let Private Sector Help Communities Build Schools, Analysts Say

WASHINGTON, Aug. 9, 2001-A little-known provision in this year's landmark tax bill could help communities nationwide build public schools faster, better and more cheaply than they do now, a Heritage Foundation analyst says.

The bill, signed into law in June, extended the use of tax-exempt private activity bonds to public school facilities, notes Ronald Utt, a Heritage senior research fellow and former privatization "czar" in the Reagan administration. Before, only state and local governments and certain business enterprises could issue bonds paying interest that is exempt from federal taxes.

Now, in a move to ease school overcrowding, the government will allow developers to issue tax-exempt bonds to finance construction or renovation of public school facilities.

"The privileged tax-exempt status for state and local government borrowing left the private sector at a significant, though artificial, disadvantage when it tried to work with communities to build public infrastructure," Utt says. "The tax bill ends that disadvantage, at least as far as schools are concerned."

In public-private partnerships-an approach already used in Europe, Canada and parts of the United States-developers build schools to design standards set by the community or state, then enter long-term lease agreements for the schools with the local district. Developers are responsible for the physical appearance and material quality of the schools, but school districts operate them with their own teachers, administrators and curricula. When the bonds mature, ownership of the schools transfers to the school district.

By forming public-private partnerships to build schools, districts reap several advantages, Utt says. Schools can be built more quickly-in Florida, a partnership got a school built in nine months, as opposed to the five years usually required to go through the traditional siting, procurement and construction processes.

And school systems can reduce costs. Utt's analysis of privatization of local wastewater systems indicates savings could reach 30 percent. Developers, too, could recoup some of their costs by leasing the facility to outside groups during off hours.

At the very least, Utt says, schools could establish public-private partnerships for subcontracts. One school in England got a high-tech music room, an audio/visual lab and a recording studio constructed by an owner-investor who uses them for commercial enterprises on evenings and weekends. This principle also has been applied to kitchens, athletic facilities, art instruction areas and computer labs.

Such partnerships open a variety of possibilities for suburbs trying to meet the needs of growing school-aged populations and for inner-city school systems hoping to replace or rebuild schools. Through public-private partnerships, school systems have taken over vacant commercial space, such as a former grocery store in Mesa, Ariz., a former manufacturing facility in Raleigh, N.C., and an empty mall in Patterson, N.J.

"Under the conventional process, public school systems try to be both educators and real estate developers and often end up doing an inadequate job of both," Utt says. "Public-private partnerships allow everyone to do what they do best, making it possible to build better schools for fewer dollars in less time."

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