Question:

Research Topic about: Public-private partnerships to build schools
This research topic should draw on the debates, evidence, concepts and theories. Should include the following because it is very important for assessment and feedback :

� Setting up the research topic
� Use of theories and concepts
� Handling of the academic literature on the topic
� Consideration of the debates and evidence
� Quality of the conclusions and how they derive from the analysis
� General comments and overall presentation

Answer:

Title: The utility of Public-private partnerships in building and renovating schools in the US

Introduction

The idea of public-private partnerships in the US has been necessitated by lack of sufficient resources in public schools. This shortage of resources has been caused by the move by the administration to undertake fiscal cuts in all sectors. With this shortage of funds, public school managers have been unable to spend as much as they would want on teachers, classroom supplies, textbooks, curriculum, and school facilities. Moreover, for a number of years, the quality of school buildings has been deteriorating, owing to lack of funds to renovate them as well as build new ones.

Against this backdrop, the idea of public-private partnerships (PPPs) has emerged as an appealing, innovative idea, whereby school systems would have the private sector contribute towards the facilitation of construction projects. This alternative source of funding has in recent years become attractive to even public universities. A public-private partnership is simply a collaborative effort between a public entity and a private entity to negotiate, structure, and implement the design, finance, development, and ultimately construction and operation of infrastructural facilities. In the case of public schools, these facilities are highly likely to be school buildings. In simpler terms, a PPP is a contract that brings together a government entity and a private actor to achieve a common goal that entails allocation of the associated risks between the partners.

The most common forms of PPPs bring together the two actors in construction projects, such as public schools (Bloomfield 2006, p. 406). With PPPs, many success stories have been created relating to public schools and hospitals. Over the past two decades, public school systems as well as universities have come to recognize PPPs as a highly efficient way of enabling them finance various projects touching on the facilities of these public institutions. The aim of this paper is to assess the utility of PPP arrangements for constructing and renovating public school buildings in the US.

The value of public-private partnerships in public schools
Many scholars agree that if well implemented, PPPs can be of great benefit with regard to efforts to build public school buildings (Vining 2005, p. 206, de Bettignies 2004, p. 153). One of the main benefits of resorting to a PPP is that the expertise and resources in the possession of the private sector are utilized. This is highly advantageous considering that the expertise of the private sector tends to be much higher than that of the public sector. Moreover, PPPs allow public schools systems to comfortably delegate all the tasks that are beyond their core mission to those private actors who specialize in those areas. When private sector resources and expertise are used, this can greatly reduce costs while at the same time diminishing delays associated with government construction projects. However, in the K-12 public school system, the uptake of PPPs has been low compared to that of public and private universities. For the latter, there is a widespread recognition of the reality that PPPs present a rare opportunity for partnering with the private sector.

Lack of universality of public-private partnerships

One of the most conspicuous characteristics of public-private partnerships is the lack of universality in the form taken by the contract. Basically, the parties to the contract simply tailor their partnership in a manner that will enable them meet the objectives of both partners. For this reason, each PPP project tends to have it own unique challenges. For example, a project aimed at constructing new school buildings is likely to present challenges that are different from those of a project involving the renovation of the existing school buildings.

In the case of new school buildings, the partners have to deal with the issue of whether to build them from scratch, whether to own them jointly, or whether they should be sold or leased back (Hodge 2007, p. 551). All these choices are determined by many factors, including the potential to reduce capital expenditures. The options that are available are often determined by the projected range value of the assets, the nature of building projects being undertaken, and the amount of risk that each of the parties to the contract is willing to take.

Indeed, the issue of risk is a key determinant of success in PPP building-construction projects in schools. It is difficult for PPP specialists to set up a universal threshold for determining which level of risk is acceptable to both parties. This is because each project has to operate within a unique set of opportunities, challenges, and constraints. On a positive note however, there are state and local laws in the US for determining the situations in which school districts should enter into PPPs with the private sectors and the ones in which they should not. In some cases, the laws limit the freedom of school districts to lease out or sell underutilized buildings (Wettenhall 2010, p. 101). In other cases, they allow the school districts to engage in private development by providing express authorization to such projects (Bovaird 2004, p. 214).

Sometimes, legislation sanctions facilitate the avoidance of some of the restrictive requirements that PPP development projects involving the construction of school buildings must obey. In essence, the availability of legal obstacles or loopholes depends largely on the degree of public and political support from respective communities, school district management, school boards, and local government. All these stakeholders have a role to play in determining whether a PPP will turn out to be a success or a failure.

Managers of public-private partnerships should always look for creative solutions in efforts to address the unique requirements of each partnership. An excellent example is the situation where a new school building project is financed through embarking on the commercial development of the institution’s excess assets such as land (Akintoye 2008, p. 29). An even better example entails a school’s administration settling for sale or leaseback structures. This enables such schools to obtain new buildings by incurring only operating expenses while avoiding capital expenditures. For such structures, it would be a reprieve to the private developers, who would start to see them being put into more useful and profitable uses.

Another example of a creative solution in a public-private partnership engagement in building schools is land swaps (Hart 2003, p. 70). In this case, a school may have excess assets such as land located in a place with an insufficient number of school-going children to use the new buildings. For this reason, it would not be plausible to set up a new building in such an area. In this case, school districts may consider leasing or purchasing commercial property in sites that are near a high population of school-going children. Sometimes, the chosen location may not attract as much private-developer interest as the school administration may have wanted. In this case, the municipality may opt to pay for such a school through a land swap agreement. In a land swap, the school sells land that is more suited for residential or commercial uses and uses the money to buy land that is more suitable for building a school. In most cases, the land that is suitable for commercial or residential developments will cost more than the land used to build a school. This price difference can be used to provide funds for paying operating expenses or funding a construction project in the newly acquired piece of land.

Issues and problems common to all public-private partnerships involving building schools

Although PPPs by their very nature are highly complex undertakings in terms of logistics, there are some issues that are common to all undertakings of this type. Although one may not predict with accuracy the nature of hurdles to be encountered along the way, there are some issues and problems that often appear common to all PPPs. The main issues arise out of questions relating to how the school construction is going to be structured and who is going to finance the whole project.

In typical situations in the US, a school district directly contracts a private investor to provide it with construction services (Schaeffer 2002, p. 175). The school district may rely on borrowed money or on bonds. The latter option may not always be practical because a school district’s capacity to issue bonds may be curtailed by the inability to secure voter approval or by existing debt. The option of borrowing money may appear inexpensive, although lenders may be unwilling loan out their money. For such lenders, the main worry would be the nature of a school district’s income stream, which normally makes the ability to repay a loan very uncertain. Worse still, a school may not have any credit history for lenders to use as a risk assessment tool before lending out their money.

Regarding profitability and maximization of benefits to all stakeholders, it is imperative to explore the issue from a theoretical perspective. Vining (2008, p. 10) notes that in developing theory on the performance of PPPs it is necessary to consider the goals that governments hope to achieve, the level of effectiveness of PPPs in delivering value for both citizens and governments, and the lessons that can be derived through the use of PPPs. Such a theory would have to explain the intended social goals of the government and assess the suitability of PPPs in achieving them. Vining (2008, p. 19) notes that a ‘positive theory’ perspective of PPPs should take into consideration the goal of profit maximization among private-sector participants and the political goals among public sector participants. Upon an analysis of 10 PPP projects carried out in Canada, Vining (2008, p. 41) concludes that in most cases, the potential benefits of PPPs are outweighed by very high contracting costs as a result of opportunism, which arises whenever there is a conflict of goals. Such opportunism overshadows the low total social costs, low production and transaction costs, and externalities that are associated with public-private partnerships. Vining (2008, p. 41) observes that such costs end up being exceptionally high in the case of construction projects of high operational complexity, in which case revenue uncertainty is normally equally high. In Vining’s view, whenever there is no effectiveness in contract management, it does not make sense to transfer a large amount of risk to private sector participants.

Whenever lenders loan their funds to a school district in the US, they get an interest rate that contains a premium for compensation for any perceived risks. This may explain why the cost of PPPs ends up being high, especially considering that the debt obligations are normally undertaken by the third-party developer. A viable option would be to fund such construction projects with tax revenue. However, the use of tax revenue is normally limited because there are many other community needs that get funding from this revenue as well as the fact that there are many constitutional limits imposed on the taxing authority.

Conclusion

In summary, it is clear that the availability of resources stands out as a key factor in determining the nature and level of success of a partnership agreement between a school and private-sector participants in the US. Other crucial factors that should be put into consideration when constructing school buildings under a PPP agreement include the creativity of the parties involved, and their flexibility. PPPs aimed at establishing school facilities such as buildings generally succeed if the school in question is in possession of a valuable asset such as surplus, which it can use in a land swap agreement. Through a public-private partnership, the school can be able to put the land into the best use as per the standards of the private market. From a theoretical perspective, a ‘positive theory’ best explains the need to reconcile the private-sector participants’ pursuit of profit maximization with the social and political goals of public sector participants. This would ensure that the social costs of PPP projects do not end up being exceptionally high.

 

References

Akintoye, A, 2008, Public-Private Partnerships: Managing Risks and Opportunities, London, New York.

Bloomfield, P, 2006, ‘The Challenging Business of Long-Term Public–Private Partnerships: Reflections on Local Experience’, Public Administration Review, Vol. 66, No. 3, pp. 400–411.

Bovaird, T, 2004, ‘Public–Private Partnerships: from Contested Concepts to Prevalent Practice’, International Review of Administrative Sciences, Vol. 70, No. 2, pp. 199-215.

de Bettignies, J, 2004, ‘The Economics of Public-Private Partnerships’, Canadian Public Policy, Vol. 30, No. 2, pp. 135-154.

Hart, O, 2003, ‘Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships’, The Economic Journal, Vol. 113, No. 486, pp. 69–76.

Hodge, G, 2007, ‘Public–Private Partnerships: An International Performance Review’, Public Administration Review, Vol. 67, No. 3, pp. 545–558.

Schaeffer, P, 2002, ‘Toward an Understanding of Types of Public-Private Cooperation’, Public Performance & Management Review, Vol. 26, No. 2, pp. 169-189.

Vining, A, 2005, ‘Public–private partnerships in the US and Canada: “There are no free lunches”’, Journal of Comparative Policy Analysis: Research and Practice, Vol. 7, No. 3, pp. 199-220.

Vining, A, 2008, ‘Public-private partnerships in Canada: Theory and evidence’, Canadian Public Administration, Vol. 51, No. 1, pp. 9–44.

Wettenhall, R, 2010, ‘The Rhetoric and Reality of Public-Private Partnerships’, Public Organization Review, Vol. 3, No. 1, pp. 77-107.