Baltimore City Public Schools 10-Year Buildings Plan: Implementation Strategy

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1 Baltimore City Public Schools 10-Year Buildings Plan: Implementation Strategy January 17, 2013 DRAFT

Every day we all parents, teachers, community leaders tell our students that their education is the most important thing. And then we send them to buildings whose physical condition tells them just the opposite. Roger Schulman, community member, 10-Year Plan Board Forum, December 19, 2012

The Need Is Great 3 Unprecedented academic progress in the last five years. Lowest dropout rate, highest graduation rate and levels of overall student achievement Increasing student enrollment, countering decades of declines Dilapidated buildings put this progress at risk. Research shows that buildings affect academic performance temperature, technology, science labs, air quality, natural light

The Time Is Now 4 Unprecedented sense of urgency Historically low interest rates and construction costs Foundation for a major capital investment Deep analysis of all buildings 10-year buildings plan New revenue sources to support the plan, with mayor s leadership A funding strategy based on data and best practices

Developing the 10-Year Buildings Plan: The Jacobs Report Jacobs Project Management report (2012) says buildings are Old and out of date 23 percent built before 1946; 74 percent built between 1946 and 1985 Large 18 million square feet of space across 183 buildings on 163 school campuses In very poor condition Facility Condition Index (FCI) for the district of 60 percent, reflecting what Jacobs calls facilities in very poor condition Ill-suited for 21 st -century learning Educational Adequacy Score 55 percent, which Jacobs calls a failing grade Under utilized 5 65 percent utilization: serve 78,511 but built to serve 121,302 Middle schools 43 percent utilization; high schools 51 percent utilization

10-Year Buildings Plan 6 After extensive community engagement, approved on January 8, 2013, by Baltimore City Board of School Commissioners Plan will Renovate or replace 136 buildings Vacate 26 buildings, better aligning the size of the district portfolio with projected enrollment Increase City Schools overall utilization rate from 65 percent to 77 percent, aligning the size of the district with its enrollment Place every student who attends school in a City Schools building in a 21 st -century learning environment Estimated base cost: $2.413 billion

Next Step: Legislation to Move the Plan Forward 7 Allow City Schools to receive the greater of $32 million or 15 percent of state school construction as an annual block grant for 30 years, which the district can in turn leverage to sell bonds to support implementation of the plan Create an independent authority to oversee all aspects of the 10-year plan implementation, from issuing bonds to overseeing construction activity Permit the city to pledge the revenue from the new beverage container tax to school construction Increase City Schools statutory debt capacity from $100 million to $200 million

Action Required: Establish a New Block Grant Funding Approach 8 Current approach Annual funding for specific, approved projects results in patchwork approach to repairing aging buildings can never keep pace with growing costs of upgrading buildings New approach Provide capital funding as a block grant, enabling the district to leverage existing and predictable revenue streams to raise significant capital dollars upfront for construction

Block Grant Approach: Legal, Prudent, Tested 9 Block grant approach is already legal under Maryland law If properly structured, a block grant approach would not affect the state s bond rating and debt affordability Precedent suggests that such issuances of bonds can be structured to allow the use of state grant funds to pay financing costs without negatively affecting the state s issuance of tax-exempt general obligation bonds. IAC Report Other jurisdictions have used this approach to overhaul their buildings E.g., Greenville, SC; Indianapolis, IN; Buffalo, NY

The Cost of Inaction Is Too High $7,000 10 The Price of Inaction to Fix Baltimore City Schools The cost will grow each year unless a new approach is taken. Current Estimated Investment Necessary to Renovate/Rebuild All Facilities Additional Project Costs Due to Continued Deterioration of Buildings Additional Cost Due to Construction Escalation Total $7.2 in millions of dollars $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Total $2.9 $2,862 Today Total $4.5 Billion $1,210 $819 $1,638 $2,519 $3,000 $2,519 10 years 20 years

City Schools Funding Proposal City Schools funding proposal addresses The costs of construction and renovation laid out in its 10-year buildings plan The costs of overseeing and managing implementation of the plan The costs of ongoing lifecycle investment requirements The impact of all of these capital investments on City Schools operating budget The impact of these investments on City Schools debt incurrence The estimated base cost of the 10-year plan is $2.413 billion Fixtures, furnishings and equipment (additional $106 million) Construction cost escalation (additional $373 million over 10-year program) 11

The Achilles heel in our school is the heating system. While reading a book to a kindergarten class the other day, two students, within minutes of each other, were rushed to the nurse with gushing nosebleeds due to the dry heat. And last week, a first grader raised her hand during a story and asked me why her armpits were leaking water. It was funny to try to explain sweat to six-year-olds, but our children deserve better than this. Terra Hilton, part-time librarian, Roots and Branches School, 10-Year Plan Board Forum, December 19, 2012

City Schools Funding Strategy: Phase I 13 Phase I: 2013-2018 (2013-14 planning and start-up) Costs $1.147 billion (4o percent of total construction and renovation program) Modernizes or replaces 65 buildings Focuses on buildings that are in worst condition, have lowest utilization rates, are most overcrowded Includes almost all of the proposed closure actions under the 10-year plan Increases utilization from 65 percent to 77 percent Results in significant savings in utilities and operating costs

Capital Source of Funds for Phase I Sources of Funds for Phase I Annual Amount Received and Pledged* 14 Amount Leveraged from Pledged Revenues* Amount for Direct Construction Expenditures* Total Phase I Funds* State capital block grant $32 $510 -- $510 Historical city capital contribution $17 $271 -- $271 Beverage container tax $8 $128 -- $128 Video-gaming tax $2 $32 -- $32 Table-gaming tax $3 $48 -- $48 Capital generated by city retirement $7 $112 payments -- $112 Fundraising program -- 0 $30 $30 Other revenues and interest earnings -- 0 $16 $16 TOTAL $69 $1,101 $46 $1,147 *Dollar amounts in millions

Phase I Begins to Alter City Schools Landscape 15 Remaining Construction Investment Required after Four Years of Capital Spending: Block Grant Financing vs. Project-by-Project Funding

City Schools Funding Proposal: Phase II 16 Phase II: 2018-2024 Costs approximately $1.715 billion Is paid for by Operating efficiencies resulting from improvements made during Phase I and Phase II, including utility savings of $18 million a year (leveraging $257 million in upfront capital) $143 million in one-time funds, including interest earnings and fundraising New revenue streams a task force with representation from City Schools, the state, the city and the larger community will be established to identify appropriate new revenue streams for Phase II

Action Required: Increase City Schools Debt Capacity to Support Lifecycle Investments 17 Increase in City Schools debt capacity from $100m to $200m will help support key lifecycle investments outside the 10-year plan Lifecycle costs that arise while 10-year plan construction is underway (e.g., a building scheduled for renovation in Year 8 may require a new boiler in Year 3) Lifecycle costs after renovation to maintain asset value Increase in debt capacity, along with other sources detailed in the plan, provides resources for ongoing lifecycle improvements

I have a 7-year-old who attends 2 nd grade in Baltimore City, and I am a former teacher s aide and student. Any time I can see still the leaky faucets and dripping ceilings from when I went to school and I m 32 now that my son now sees something is wrong with that picture. I like the work that [City Schools] has done academically, but our buildings need to match those achievements. Nakeia Kelly, parent, Southwest Baltimore Charter School, 10-Year Plan Board Forum, December 19, 2012

Action Required: Establish an Independent Authority to Maximize Oversight, Accountability 19 Legislation creates independent third-party oversight entity, the Baltimore City School Construction Authority. This Authority would work cooperatively with the IAC, City Schools and Baltimore City and Ensure independence Provide transparency Set up checks and balances to ensure quality construction and effective use of public funds Minimize bureaucratic duplication by leveraging and streamlining existing expertise and capacities

Structure Creates Independence, Transparency, Checks and Balances, Efficiency IAC Reviews specs, design plans and contracts (follows current process) MBE/WBE review Inspections and approvals (follows current process) Baltimore City Planning Commission review Architectural Review Board review Baltimore City School Construction Authority (9 members) Financing: Issues bonds directly or through a conduit issuer Construction oversight: o Enters into all block grant-funded construction contracts o Works closely with IAC and City Schools facilities department to ensure contract performance o Accepts completed buildings (with consent of IAC and Board) Reporting: Quarterly reports, annual financial audit, annual construction audit Board of School Commissioners Authorizes projects within the 10-year buildings plan Approves educational specifications Provides input and consent on certain Authority contracts City Schools Facilities Department Provides input on contract specifications to Authority Ongoing inspection, monitoring with information provided to Authority Provides procurement infrastructure for Authority to use

Action Required: Establish an Independent Authority to Maximize Oversight, Accountability 21 Authority will have a board with nine members: Three appointed by the governor, one of whom must be a member of the IAC Three appointed by the Mayor of Baltimore City, one of whom must have expertise in finance Three appointed by the Baltimore City Board of School Commissioners, two of whom must have expertise in the fields of architecture, engineering, finance, banking or construction The Authority board chairperson will be elected by the nine members.

We ve gotten new roofs here, windows here and there and maybe a new heating and cooling system that were sprinkled throughout our school system. But all of these were placed in outdated, unacceptable buildings. Shannen Coleman, community member, 10-Year Plan Board Forum, December 19, 2012

An Implementation Strategy That Benefits Baltimore and Beyond 23 More efficient use of state funds Under the block grant approach, City Schools total construction need would be reduced significantly from $2.4 billion to $1.5 billion after the first four years of spending. Under the current funding system, the total need actually increases over the same time period to $2.5 billion, due to construction cost escalation. Stays within historic level of funding going to Baltimore City Legislation does not seek additional funding for Baltimore City, but just to receive the money in a different way the greater of 15 percent of the state school construction funding or $32 million. Avoids larger future costs Absent block grant funding, City Schools buildings will continue to worsen and ultimately create a much greater drain on state resources moving forward.

An Implementation Strategy That Benefits Baltimore and Beyond 24 Estimated Economic Impact of City Schools 10-Year Plan Baltimore Jobs 7,795 Direct spending $1,959,000,000 Indirect/induced spending $691,000,000 Earnings $378,000,000 Maryland Jobs 58,562 Direct spending $2,114,000,000 Indirect/induced spending $2,157,000,000 Earnings $2,711,000,000

A Key to Maintaining Maryland s No. 1 Status 25 The improved performance of Baltimore City students, supported by City Schools 10-year buildings plan, will affect all of Maryland. The district s progress over the past five years has been a key driver of Maryland s nation-leading performance as a state educational system. Implementation of the 10-year plan is critical to continuing that progress.

If football teams can play in modern day palaces, if corporations can build glass temples, if politicians can work in relative wood-panel splendor, then our children should be able to learn in bright, safe and well-maintained buildings. All of our children, all the time. John McGill, community member, 10-Year Plan Board Forum, December 19, 2012