With an increasing number of public school districts nationwide planning to continue distance learning in the fall, few people are thinking about the physical state of school buildings. Yet, Prince George’s County is raising eyebrows with a secretive, ill-conceived plan to build new schools using private, rather than public, financing.
The plan, known as a “public-private partnership,” is estimated to cost $350 million and last for 33 years, including construction and maintenance. The county would borrow money not through a traditional municipal bond — how public buildings are usually financed — but from private investors.
No other details have been publicly released since October 2019, when Prince George’s County Public Schools announced that two new schools are expected to be constructed, and four rebuilt. The district stated that it would meet with families and communities to discuss the plan “in the coming months.” It appears that no public meetings have taken place.
The lack of transparency is worrisome. Not only because Prince George’s is set to be the first jurisdiction in the nation to use a public-private partnership to construct public school buildings. But also because evidence is mounting that public-private partnerships are often a bad bet for state and local governments. With counties nationwide estimated to take a collective $200 billion hit due to coronavirus, Prince George’s can’t afford to take such a foolish risk.
Here are five reasons why Prince George’s shouldn’t use private financing to solve its school building problem.
First, public-private partnerships are more expensive than borrowing money the traditional way — sometimes vastly so.
While no U.S. jurisdiction has used a public-private partnership to build schools, several Canadian provinces have experimented with the controversial procurement model. Nova Scotia entered into a partnership in 1999 to build more than two dozen schools. A decade later, the provincial auditor determined the public could have saved $52 million if it had gone the traditional route. In 2017, the province announced it was buying back 10 schools from private investors because it was cheaper than leasing them.
Here in the U.S., a state courthouse in Long Beach, Calif., built in 2013 became the first major public building constructed using a public-private partnership. After the contract was signed, the California Legislative Analyst’s Office estimated that the deal may have been as much as $160 million more expensive because of the use of private financing. The courthouse came “at a cost so exorbitant that it has resulted in many counties needing courts and not getting them,” according to the president of the Alliance of California Judges.
The bottom line: Governments can borrow money at lower rates than the private sector.
Second, public-private partnerships are risky — and that risk is increasing.
Some states and localities have argued that “availability payment” public-private partnerships — the type Prince George’s is proposing — shouldn’t count toward budgetary limits on outstanding debt. Yet, in June, the organization that sets accounting and financial reporting standards for state and local governments, the Governmental Accounting Standards Board, announced that such “debt” does, in fact, count.
Additionally, all three major credit ratings agencies consider public-private partnership obligations in their calculation of a county or state’s debt, which ultimately impacts a government’s cost of borrowing.
In other words, if Prince George’s goes through with the plan, not only will it be paying more, but it will also likely be committing a larger portion of its debt capacity than if it used municipal bonds.
Third — if all that weren’t enough — two nearby infrastructure projects are revealing why public-private partnerships aren’t worth the risk.
Maryland’s $2 billion Purple Line project, halfway built, has been barreling toward collapse since May. The consortium of companies that agreed to design, build, finance, operate and maintain the transit line are holding the state hostage for $755 million in cost overruns.
Meanwhile, Gov. Larry Hogan’s plan to use a public-private partnership to add express toll lanes to the Capital Beltway and Interstate 270 remains controversial after it was revealed that the project — which had been described as requiring zero taxpayer money — could cost the public millions beyond the cost of the tolls.
Fourth, public-private partnerships often experience maintenance issues decades into the life of the contract.
A recent report from the Canadian Centre for Policy Alternatives found that the public-private partnership model is “often wildly inefficient, creating layers of wasteful management and byzantine decision-making processes that often undermines the functioning of … institutions and the publics they serve.”
Advocates of public-private partnerships often tout the model’s superior efficiency. Yet, the report documents instances of public and private workers sharing duties in absurdly inefficient ways. One public worker describes only being allowed to clean the inside of a door because a private contractor was to clean the outside. Others describe having to act as unofficial monitors of subcontracted workers brought in by the private investors. “With every new subcontractor brought in to do a repair, it was almost a ritual to have to explain to them ‘This is how you do stuff in a school,’” one public worker said.
State and county leaders have claimed that a public-private partnership will speed up Prince George’s County’s response to maintenance issues. This simply doesn’t match the track record of public-private partnerships.
Finally, county residents should be concerned about the company hired to consult on the plan. Like many government contractors, Jones Lang LaSalle (JLL), the world’s second largest commercial real estate firm, has a history pockmarked with critical audits, conflicts of interest and labor violations.
One glaring example: In Tennessee, JLL has received multiple critical reviews in audits of its management of public facilities. One audit cited an “organizational conflict of interest” because the company could recommend that the state lease buildings, then make a profit from negotiating the lease. In 2017, under the leadership of billionaire Gov. Bill Haslam, the state inked a now-notorious scheme in which JLL essentially awards contracts to itself. In a contract written with JLL’s help, each facility was granted the right to outsource jobs to, you guessed it: JLL.
Surely, there’s a need for renovations and new school buildings in Prince George’s. But public-private partnerships are shortsighted solutions that often turn into problems as soon as the ink is dry.
Instead, Prince George’s should be teaming up with state officials to do what innovative leaders elsewhere are doing in this time of crisis. Seattle recently approved a new progressive tax on big businesses that will raise more than $200 million a year for housing, local business assistance, and community development. Democrats in New York’s state legislature have introduced a new tax on billionaires that would raise $5.5 billion a year.
Now is not the time to mortgage the future by paying more for substandard, inefficient service. It’s time to find truly innovative ways to weather the crisis while also building a better, safer and fairer future.
— JEREMY MOHLER
The writer is the communications director for In the Public Interest, a national nonprofit research and policy organization that studies public goods and services.