adopt a modified role and mission with respect to infrastructure—one of stewardship. Government often has a necessary oversight role, sometimes has a necessary management role, and often is the “purchaser” of infrastructure facilities, but designing, building, and operating infrastructure facilities are increasingly tasks that can be accomplished by private firms in competitive situations.
Expanding the use of outsourcing for infrastructure projects has not come without controversy. Battles over measurement of cost savings, public-employee jobs, and other issues have swirled around outsourcing in most states. In 2000, California is one of the front lines of these battles.
In 1998, California voters rejected an anti-outsourcing initiative sponsored by the Professional Engineers in California Government (PECG), a group representing engineers employed by the state. An analysis of the PECG initiative issued prior to the election emphasized: “Contracting out in California has been used to speed project delivery and to help government secure needed expertise without having to incur the expense of overstaffing when workload is at a cyclical low.” 7
Unique Public-Private Partnership Delivers School to District of Columbia
In December 1999, District of Columbia Public Schools (DCPS) entered into a unique partnership with LCOR, a firm specializing in developing and managing facilities, to rebuild the James F. Oyster School. The new school will replace the deteriorating 73-year-old school in the Woodley Park neighborhood of Northwest Washington. LCOR will build the new school in exchange for excess land on which a new privately owned 211-unit apartment building, named the Henry Adams House, will be located.8
The new school will be the first new public school built in the District in 20 years.9 The current school has a leaky roof, does not have a cafeteria or gym, and cannot be wired for computers. The new school will be twice the size of the old one and will have a gym, kitchen, cafeteria, and common space.
A creative financing structure, made possible through the partnership, helped make the new school possible while realizing the value of an undervalued asset, the school’s excess land. The new school is being financed by an $11 million, 35-year tax-exempt bond issue underwritten by Paine Webber. The bonds will be retired by means of PILOT (Payment in Lieu of Taxes) payments made by the private owners of the Henry Adams House project. Under the unique PILOT program, the apartment building owners will make these payments in place of real-estate taxes.
“DCPS had an asset they could not properly utilize without a venture of this sort.”10 The partnership has brought a much-needed new school, as well as housing, to the D.C. area. Most important, the unique financing structure has brought these projects to fruition with little or no cost to the taxpayers—truly a win-win situation.
D.C. school officials started out skeptical but eventually got behind the project when the benefits became obvious. Mary Filardo, former head of the Oyster PTA, said after she helped arrange the deal: “It is important for other communities to do what we have done.”11
William Hamm et al., An Analysis of the PECG Initiative (Emeryville, Calif.: Law and Economics Consulting Group, November 1997), p. 3.
Tim Smith, senior vice president, LCOR, interview with author, March 2000. Susan Ferrechio, “School Saved by Private Funding,” Washington Times, December 11, 1999, p. A-8.
Smith, interview with author.
Ferrechio, “School Saved by Private Funding,” p. A-8.