Creative financing solutions for K-12 facility funding woes

It’s no secret that many U.S. public school districts are weighed down by aging and outdated school buildings that undermine their education mission. Yet, funding for capital projects can be hard to come by. The United States faces a projected shortfall of a staggering $85 billion in funding—annually—for maintenance, operation and capital improvements, according to the 2021 State of Our Schools Report: America’s PK-12 Public School Facilities. For public school districts, the quest for funding means not only pursuing the traditional approach of the bond request, but also looking for new solutions such as sale-leasebacks and public-private partnerships (P3s).

For the typical K-12 school district, a public bond request is the tried-and-true approach to secure funding for facilities improvements. However, not all bond requests are successful—and the ones that do receive taxpayer support are those that make a compelling and accurate case for facilities funding.

Preparing an effective bond request requires both data and expertise. It’s important to prioritize projects and to provide accurate cost forecasts. For instance, you may need to conduct financial analyses to determine whether an aging school should be renovated or replaced. Depending on your district, you may face competing priorities to both address longstanding deferred maintenance projects and create new schools for an expanding district population.

The more specific, data-driven and informed your bond request, the more likely taxpayers are to support funding to address critical maintenance needs, update your classrooms or build new schools. The most effective approach is to first uncover needs through a comprehensive facility condition assessment (FCA) of all your district schools. With the FCA data, you can score and rank projects to create a data-driven capital plan. Another useful tip is to add artists’ renderings or before-and-after images to your request—after all, a picture is worth a thousand words.

Given the pressing need to modernize and right-size their K-12 facilities, some forward-looking school systems—such as Maryland’s Prince George’s County—are looking to public-private partnerships (P3s) to help them accelerate delivery and ensure lifecycle asset management for their schools. While Prince George’s County was a P3 pioneer in the United States, the concept has been implemented in K-12 school districts elsewhere in the world.

Although the concept lacks a single universally accepted definition, a P3 generally refers to a medium- or long-term contract between a public sector entity and a private sector company that assumes responsibility for the design, construction, financing, operation and/or maintenance of public infrastructure. In the case of Prince George’s County, the P3 was created to deliver and operate new schools over several decades.

In a P3 agreement, you retain ownership of your schools and the private partner puts its own debt and equity capital at risk to execute your projects—receiving compensation only after delivering projects and services at prescribed levels and standards. Also, your district retains control of quality standards and other key elements, while the P3 partner takes on the completion and performance risk.

P3s come in many shapes and sizes, which can cause confusion as to what a P3 actually is. Unlike privatization, a P3 puts you in control of your assets. What’s most important is that a P3 can be structured around the goals and needs of your organization. For instance, your P3 contract can require the use of union labor or labor rates aligned with market standards. With a well-thought-out plan and request for proposals, you can attract highly qualified private sector partners to make your P3 a success for your schools.

In the private sector, many corporations have used the sale-leaseback strategy to access equity in their owned properties. If your school district owns its administrative facilities, a sale-leaseback potentially could help unlock new funding for district-wide facilities needs.

In a sale-leaseback transaction, your district would sell its administrative facilities to private investors. Then, your organization would lease the facility you already occupy—paying rent instead of mortgage installments. With smart negotiation, the lease can be structured so that your district retains some control over the space it occupies.

A sale-leaseback can typically be executed in 60 to 120 days, providing a fast track to funds for facilities needs. Where a corporation would likely face tax liabilities for the facility sale proceeds, your school district would receive an exemption as a public sector organization.

Of course, not every administrative building will be a good candidate for a sale-leaseback—or you might not actually need the entire facility. If your organization is continuing provide remote work options as was customary during the COVID-19 pandemic, you may find you need less square footage and different types of workspaces. Other considerations include how much of the mortgage remains to be paid and whether your district offices could cost-effectively access higher-quality offices by leasing a different facility.

Facility funding is a longstanding challenge for K-12 schools—but it doesn’t have to stay that way. By improving your traditional bond requests and adding new approaches to the mix, you can begin to create safe, healthy and inspiring learning environments to better serve your education mission.

Learn more about how JLL consultants and technologies can help you finance your district's needs in the best ways or reach out to us.