The Morning Report
San Diego news and info
you need to take on the day.
Tuesday, July 7, 2009 | The unusual idea of leasing space in the planned library for a downtown charter school has alternately been called visionary and foolhardy. But the bottom line is that it would not be cheap — at least not compared to some of the newest San Diego Unified schools.
Leasing two floors of the planned library would end up being relatively more expensive than two of the last schools built in San Diego Unified, according to school district estimates. It would, however, be less expensive than an elementary school that opened three years ago.
One advisor called it a good deal compared to the typical cost of renting space in a downtown high rise. And proponents say the costs are reasonable for the downtown market and worthwhile for a pioneering project that could marry the research heft of a new library to downtowners’ desire for a new school.
“It’s an area where you really need to be looking ahead for facilities,” said Todd Ruth, a member of the Education Task Force at the Centre City Development Corporation, speaking in favor of the library school several weeks ago. He added, “If you can find a better value, please tell me where.”
But other comparisons are less rosy. The unusual plan to spend school bond money to construct and lease two floors in the library would cost a total of $417 per square foot over 40 years, a heftier investment than both Lincoln High School ($362 per square foot) and Sherman Elementary ($295 per square foot), according to data supplied by Director of Planning Jim Watts. The two schools reopened in 2007 and 2008 respectively.
Nor does San Diego Unified usually shoulder the facilities costs for charter schools, which are independently run and compete with district schools for enrollment. A typical charter would lease its own building, pay a reduced rent to the school district for using their facilities, or fund new construction on its own.
“I doubt Donald Trump would agree to this,” said John Gordon, principal with Pacific Management Consulting Group and a member of the oversight committee. Gordon said that comparing the costs to downtown offices was improper and criticized increases built into the lease. He called the idea “catastrophic.”
The library school would, however, be less expensive per student than Normal Heights Elementary, which opened in 2006 and cost $320 per square foot. Watts said it was more expensive because it was a smaller elementary school and the land cost more to acquire. Land costs have also been named as a factor that would drive up the costs of finding a site downtown.
The bargain-or-bust question also hinges on whether helping charter schools is counted as part of the equation when funding public schools. Because the school district does not normally shoulder the facilities costs for charter schools, which usually cover the costs of their own buildings, spending money on a charter might seem like a loss. It is unclear whether the charter will pay anything for the space.
But while the project does not directly benefit the school district, it could still be considered an important public school investment. One expert said it could be a better deal than if a charter tried to fund such a lease by itself: It would save public money because charters generally get less advantageous rates than districts when seeking bond money on their own.
Yet it is unclear if the library lease would be a good deal for the charter school itself. If San Diego Unified covers all the costs of the lease and improvements, it would be a steal compared to the rents ordinarily paid by charters. Facilities costs are a frequent complaint for charter schools that have trouble mustering as much money through bonds and routinely pay for facilities out of their operational costs, unlike schools run by districts.
But if the schoobrary has to pony up the money for the lease, it may not be so sweet: The estimated costs for leasing and completing the library school exceed the annual lease of a recently shuttered downtown charter school, even without counting the additional costs of parking or common space shared with the library. New charter schools have been built recently for less per student.
The basic costs to lease two floors of the library for a charter school over four decades include $20 million in school bond money for the space and $10 million in other school facilities money for adding flooring, interior walls and other improvements, according to San Diego Unified.
There are also added costs that include utilities, insurance, parking, janitorial services and space that is shared with the library. Russ Sande, managing principal for a real estate advising firm hired by San Diego Unified, calculated that the total costs would initially be $2.44 per square foot per month — under $30 per square foot annually — and called it a bargain compared to downtown office costs of $3 per square foot monthly or more. Sande said those expenses will increase over the decades because of staggered increases in the lease and likely increases in utilities, insurance and other costs over time.
“It’s a favorable lease,” he said, because the school district is effectively paying its rent up front.
It is unclear how the costs compare to the typical utilities and other added facilities costs of an ordinary school, which would also increase over time. Watts said he believed that the charter school would cover its own utility costs.
Charters usually pay school districts for their buildings, not the other way around. California law requires that school systems provide charters adequate facilities at a discounted rate — $1 per square foot per year in San Diego Unified — which usually means renting out any vacant schools or old buildings. Examples include O’Farrell Community School, which pays more than $101,000 for a site off Skyline Drive, and San Diego Cooperative Charter School in Linda Vista, which pays $26,527. The school district earns a total of $617,528 in funding annually from charter schools under that state rate.
“It is very rare for a school district to be so forward thinking as to say, ‘We want to facilitate a charter school,’” said Alan Wohlstetter, a Philadelphia attorney who specializes in infrastructure. For instance, he said, Philadelphia schools recently sold a century-old building to a charter for $6 million. “It can be very ‘us against them’.”
Other schools lease space at commercial rates. Lisa Berlanga, regional manager for the San Diego area of the California Charter Schools Association, said most local charters pay between $1.20 or $1.80 per square foot per month for their space, more than fourteen times the rate charged by the district for vacant schools.
One charter school that recently closed downtown after suffering financial problems, Cortez Hill Academy, paid more than $10 per square foot annually for its site after negotiating down its lease to $240,000, according to Jacqueline Hicks, its former executive director. That lease is significantly smaller than the $17 per square foot annual cost estimated for finishing and leasing the library school.
A smaller number of charters have ventured into the world of construction, financing new buildings of their own instead of renting leftover schools, churches or offices. Unlike school districts, which ask voters to approve a facilities bond and pay off the bonds out of taxes agreed to by homeowners, charters go to market by themselves for bonds and usually pay off their bonds out of school revenue.
Escondido Charter High School got a private $25 million bond to build a roughly 60,000-square-foot site that opened in 2003 and now serves 925 students, said Dennis Snyder, executive director and founder of the school. Bonds also paid for two new High Tech High schools that were recently built in Chula Vista and North County for $28,200 and $37,200 per seat in the school respectively, said Chief Financial Officer Kay McElrach.
“We get no extra state revenue — not a nickel,” McElrach said. But she added that charters can save money on construction because they aren’t subject to the same state rules on earthquake safety, prevailing wage rules or bidding out projects as school districts.
Wohlstetter estimated the costs for charter schools borrowing money for facilities at 8 percent annually over 30 years in the current market, compared to 5 percent annually for school districts, which he said tend to have stronger credit ratings than do standalone charter schools. When it comes to a $20 million expense, he said, that could mean an ultimate savings of $600,000 over what it would cost if a small charter school tried to finance such a lease alone.
“It’s quite a creative proposal,” he said. “And it’s a lot more efficient.”