At least two U.S. industries continue to expand due to strong demographics. The first is health care, with roughly one-quarter of the nation approaching retirement and Americans over the age of 85 representing the fastest growing segment of the U.S. population.
The other demographically driven industry is education, which has been expanding due to the Baby Boom Echo, also known as Generation Y, comprising Americans born between the early 1980s and the late 1990s. Correspondingly, the nation’s colleges are attracting record numbers of new students. (Note: A number of other factors are contributing to high enrollment figures, including more Hispanics completing high school and more young adults opting for higher education due to continued weakness in the employment market.)
As the tail end of Generation Y continues to work its way through middle school and high school, demand for educational infrastructure remains strong and could account for significant school construction volumes going forward.
A History of Spending
According to the U.S. Census Bureau, in 1997 the United States spent $35.5 billion on new school construction—including $8.4 billion for private schools, which at the time represented the fastest growing component of total school construction spending (58 percent growth during the prior four-year period). The $27.1 billion devoted to public school construction in 1997 represented a 23 percent inflation-adjusted increase compared to the same period four years earlier. During that same time frame, the nation’s school-age population expanded 6.6 percent, which suggests the United States was spending heavily on a per capita basis.
Motivated by demographic considerations, supportive politics and strong regional economies, the institutional construction boom extended into the 2000s. For instance, in late 1998, the chief executive officer of the District of Columbia schools announced a plan to invest up to $1 billion in school repairs during the following decade. The next year, New York City’s Board of Education estimated it would require $11 billion for school construction during the following five years. According to U.S. Census data, spending on school and university facilities increased 213 percent from the mid-1990s to the mid-2000s.
The Current Situation
Given social demands to provide better learning environments and better access to new technology, as well as the continual aging of the nation’s more than 90,000 public school buildings, the expectation might be for robust school construction programs in the years ahead. As early as 1995, the U.S. Government A
ccountability Office issued a report indicating it would cost $112 billion to bring existing K–12 schools throughout the United States into good overall condition. Four years later, the U.S. Department of Education increased the price tag to $127 billion. And just one year later, the National Education Association roughly tripled the estimate when it placed a $322 billion price tag on the cost of necessary school repairs, construction and technology upgrades.
But the aftermath of the recent recession obliterated forecasts of school construction for the current decade. All but a handful of states face funding gaps for fiscal year 2011, and many states already have dramatically downsized the portion of their capital budgets devoted to school construction.
Federal stimulus funding may blunt the impact of this retrenchment. The American Recovery and Reinvestment Act of 2009 allocated $11 billion in qualified school construction bonds that can be utilized to finance the construction, rehabilitation or repair of a public school facility, or for the acquisition of land where a school will be constructed. The bonds are available to states and to 103 large local educational agencies under a statutory formula tied to levels of federal education grant funding. Though meaningful, this level of funding falls far short of meeting identified needs.
Innovation through PartnershipsPublic-private partnerships may be an option for the nation to meet its school construction demands. Partnership techniques have become increasingly refined and proven over time, setting the stage for significant acceleration in this form of collaboration.
For instance, in the United Kingdom and Nova Scotia, it’s common for a private developer to finance 100 percent of the construction of a new school in exchange for long-term lease payments from the school system. The lease may operate for 30 years and cover only normal school hours. After hours, the developer can lease the building to compatible educational organizations, including trade schools and colleges.
The United Kingdom is considered the world’s leader in such partnerships: Between 1997 and the mid-2000s, public-private partnerships motivated the construction or renovation of more than 250 school buildings, and work was under way on nearly 300 additional schools.
In another partnership scenario, school districts issue bonds and then loan the proceeds to a private, for-profit developer to build the school. The school is then leased to the school district on a long-term basis. The cost of the lease is less than the cost of construction, with the developer making up the difference by leasing out the school building after hours. The developer’s profit is directly proportional to the amount of additional leases it can generate for the property. Experience suggests this process leads to faster construction at a lower cost.