Public-Private Partnership Comes to Yonkers
(08/24/2012)

YONKERS, N.Y. —Yonkers Public Schools became the first school district in the nation to begin the possible implementation of a public-private partnership. The $1.7 billion project would allow the school district to rebuild and/or replace aging facilities through renovation, reconstruction or tearing down and completely rebuilding.

Created in 1881, Yonkers Public Schools is the fourth largest district in the state of New York. The most recent demographic study showed that the school district is now almost 4,000 seats short and by 2017 it will be 7,000 seats short.

About three years ago, the district looked at ways to solve its ongoing construction capital problem. With 38 schools with an average age of 73 years, six schools more than 90 years old and one school more than 120 years old, the buildings are rundown. Capital projects have been under-funded the last few decades and much maintenance has been deferred.

Yonkers conducted a building condition survey in 2005 that disclosed the district needed close to $300 million in repairs; after investing $80 million into the schools, a 2010 survey showed the number was closer to $400 million.

“We just were not able to catch up on the repairs that were needed in the district and we needed to find a better way,” said Bernard Pierorazio, superintendent of Yonkers Public Schools. “We looked at a strategy that would not only bring us new buildings, but refurbish our older buildings and provide the very best education facilities for our children.”

The P3 ideal — public-private partnership — uses a design-build-finance-maintain model that offers availability payments to provide motivation for the private partner to make renovations and necessary updates.

“We’ve got a $1 billion problem to deal with; and we had to bite the bullet and find a way to move forward with it,” said Joe Bracchitta, chief administrative officer. “We had to think outside of the box, and that’s what brought us to the idea of public/private partnerships.”

The traditional model that the school district had been using was taking too long and costing too much. As the district considered its options, it became aware of public-private partnerships in school districts.

The first step was to create a request for proposal (RFP) to secure advisors with global experience — Macquarie Capital (finance), Freshfields Bruckhaus Deringer LLP (legal), and URS Corporation (technical). These advisors will provide guidelines regarding how the project should be phased and what the availability payment will be.

Once the feasibility report is complete, Yonkers will put out a request for quotation (RFQ) to obtain companies’ specs, which will allow for a short-list RFP. The private-sector partners will be selected based on the RFP.

If the project were facilitated as public only, the district would sell bonds to the public and manage the contractors, construction, and maintenance.

“One thing we found out is we are very good at educating children, and we’re very good at determining what our buildings should do and what they should look like,” said Bracchitta. “But we are not efficient at all in terms of the construction and the on-going maintenance of these buildings. We are not designed to be building caretakers; we are designed to be educators and leaders in education.”

This creates a high amount of risk for the district, since it is not well versed in managing aspects such as construction or maintenance or contractors. The private-sector partners work with all of those aspects every day, and do so efficiently, says Bracchitta. Therefore, the public/private partnership shifts the risks to the private sector and allows the district to retain control and ownership of the buildings. The district stays in control of instructional programs and through the availability payment, it ensures the private sector properly maintains the buildings and provides the output needed.

“If it [P3] works, it’s a perfect marriage. It allows us to maintain the risks on the items we’re good at and give the risks to the private sector, for a price, that they are good at maintaining,” said Bracchitta.

The initial plan contemplated three phases over 15 years, but additional phases may occur in order for the district to more easily digest the costs.

The Yonkers project was ranked in the second edition of Infrastructure 100: World Cities Edition, showcasing the World’s 100 Most Innovative Urban Infrastructure Programs, announced by KPMG, an audit, tax and advisory firm, at the World Cities Summit in Singapore. Judges select projects based on their scale, feasibility, complexity, innovation and impact on society. Yonkers is one of ten projects selected from across the globe for the education category and is the only one based in the United States.

“We were ecstatic that the group at KPMG considered the Yonkers project. It was completely a surprise,” said Pierorazio. “It was mid-June when we were notified; we were actually notified a bit late because of an errant email address. So we got a call from KPMG, discussing this and we were just so overwhelmed. We were extremely excited about it.”

The recognition from the KPMG list will only help the Yonkers project, explained Pierorazio.

“It pushes the project not only into the local limelight, but the national and international. It will open more doors for us in terms of possibility for us moving forward,” said Pierorazio.

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