Page 32 - School Planning & Management, October 2017

BUSINESS BETTER THAN BAKE SALE FUNDING FOR CAPITAL PROJECTS
Pay back. Photovoltaic arrays, like the ones on the roof of this building, are an essential part of alterna- tive financing strategies for high-performance facilities generating a significant amount of energy and return on investment. By using energy-neutral and energy-positive school projects, the district can conserve resources and has the potential to reduce and/or eliminate utility costs. In some instances, the district can negotiate a performance contract. Although there may be some up-front costs, usually the district ends up paying what it would have in utility payments to a company that installs high-perfor- mance equipment that saves energy. The result, after five to seven years, is that the district inherits more efficient equipment and has not paid any more than it would have in utility costs.
Performance contracting has been used for many years as a tool to upgrade energy- using building systems. There is often an up-front payment required, after which the district pays what it would have normally paid in utility payments to a company that installs high-performance equipment that saves energy. The result after five to seven years is that the district inherits more effi- cient equipment and has not paid any more than it would have in utility costs.
When capital dollars get scarce, this funding method is sometimes used cre- atively. Michael Bobby recalls a project in Ohio several years ago when the equipment for a new building was funded through
a performance contract. School districts often make this case during the annual budget cycle. Deferring major maintenance is more costly than funding replacements. This is similar to the performance con- tracting logic — the same or higher cost over time under the terms of the contract yields an upgraded performance.
Because deferred maintenance competes in the annual operating budget request with classroom expenditures,
it usually loses. As unaddressed aging infrastructure becomes more of an issue, substantial increases in capital funding are a necessity. In the face of increasing downward pressure from taxpayers, many districts are forced to find other means of creating revenue. Similar to large corpo- rations that have divested themselves of inventory through sale/leaseback, urban districts with attractive inventory are considering ways to monetize that prop- erty. Rural districts with much smaller tax bases are turning to creative financing mechanisms like the packages offered by Robbie Ferris and other industry funding innovators. SPM
>> Mike Raible is the founder and CEO of The School Solutions Group in Charlotte, N.C. His email is mkraible@theschoolsolutionsgroup.com. Andrew LaRowe is founder and president of BAISCA, LLC, located in Winston Salem, N.C. He can be reached at andrew@baisca.com.
the project configuration.”
Ferris’ firm has done 25 high-perfor-
mance projects, with 11 of those being energy positive (i.e. they generate more power than they use). They have com- pleted projects in small rural districts and larger more affluent ones as well. “If the district decides to do a high performance school, we can find a way to do it.” And that includes the financing.
Because the installed equipment is fairly sophisticated, there are two basic delivery models that have worked well. The
Performance contracting has been used for many years as a tool to upgrade energy-using building systems.
first is a simple design/build/leaseback with an option to purchase. In this case the school district leases the building and the onus is on the developers to demonstrate that the building will perform as promised. Although in some cases, even when it does, the school district has not exercised their option to purchase. They prefer instead
to continue to pay the lease payments (far lower than debt service on the full cost) and leave the developer responsible for the building systems.
The second high-performance delivery method is a design/build/operate model. In this case there is an extended optimization period(usuallythreeyears)inwhichthe district owns the building, but the developer operates the building systems. This is similar to an extended commissioning period. Again, all systems are functioning as designed when they are turned over to the owner. This is often used when the lease/purchase arrange- ment is not permitted by state law.
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