One of the great pleasures of McKinstry’s work in the Great Lakes region is working with K-12 school districts every day. Unfortunately—due to budget pressures caused by increasing costs and declining state funding—we find these districts are too-often forced to delay necessary improvements to their school facilities. Accordingly, we often work with districts to find alternative funding sources for much-needed facility and infrastructure upgrades that aim to improve the learning environment.
Project delays due to inadequate funding often lead to costly emergency repairs. Even worse, such delays can further a public perception that a district doesn’t plan or maintain their facilities properly. Most vitally, though, these delays can have an adverse effect on classroom effectiveness.
So, how can school districts avoid disastrous delays while also staying within their budget constraints? McKinstry has the answer!
Funding business case elements
At McKinstry, we have a proven ability to sell the business case for facility upgrades to district boards. Typically, we present a business case with a solid technical component, as well as a financial model representing the life cycle impact of operating and maintaining facilities. These two elements can be developed simultaneously, and our standard approach of co-authoring the solution is a proven, successful model for school districts. Critically, we also enable and empower the district to remain in control of the project scope and financial criteria.
Within a business case, the technical component comes first. We document this component in a facility condition assessment (FCA), which was highlighted in our previous newsletter. The primary purpose of the FCA is to document current conditions and detail the funding requirement to close the building systems renewal gap—reducing the risk of failure of major systems. A secondary outcome of the FCA is to quantify and document the amount of deferred maintenance and infrastructure renewal requirements within a facility.
These FCAs have elements of a master plan, but do not include elements like space planning or enrollment projections. Architects are typically hired by districts to generate a master plan and these plans will include a facility condition assessment. The architects will use a consulting engineer for these assessments. Our systematic approach to these assessments provide a multi-year technical and financial roadmap, upon which districts can focus improvement dollars.
The second business case component is the financial model, typically represented by the project cash flow spreadsheet. The inputs used in the financial model include: Project investment, cash flow discount rate, savings and project cost escalation rates, and project savings streams. The output of this model provides a rate of return percentage and net present value dollar amount, which accounts for the time value of cash flow on the project.
Project funding alternatives
Infrastructure renewal projects typically require capital beyond what’s provided by energy savings alone. Operational budget savings, future avoided expenses, and capital cost avoidance are all additional sources of capital. Once these contributing sources are quantified, the next step for a district is structuring funding for the project. There are several possible sources:
- A referendum/bond issue
- A state energy revenue limit exemption
- A standard performance contract
- An annual capital contribution
The approach described here can be applied regardless of the funding source chosen for the project. This process is very similar to McKinstry’s typical project development, but takes a broader and independent view beyond just energy projects.
Districts are frequently looking for partners who will work in their best interest and take a long-term perspective—which is precisely McKinstry’s business model. McKinstry’s team is a fantastic value for school districts, especially in the current cash-strapped K-12 environment.