Builders Pick Up Tab for Schools

Rio Elementary School District Supt. Yolanda Benitez suspected she was in for a fight when she first met with developers of the huge RiverPark project in Oxnard last year.

“We asked for the land and the completed schools and everything inside,” said Benitez, chief of the small Ventura County district. “And they just said, ‘OK.’ ”

What is emerging from that exchange is a rare agreement between a developer and a California school district.

Instead of donating land or paying for one-third to one-half of the construction, as other developers may have done, RiverPark investors thought completed schools so enhanced their 2,800-home project that they agreed to spend $47 million to build and equip three campuses right away, with no guarantee of repayment.

If that deal is finalized, the Rio district will become one of a handful in California to get developers to build new schools themselves instead of passing that responsibility to cash-strapped districts, which often rent portable classrooms for years while awaiting voter approval of state and local construction bonds.

“School districts are looking at new alternatives,” said Duwayne Brooks, director of school facilities planning at the state Department of Education. “And if you can get a developer to donate schools, that’s great, if they will work with you on the design. But there are just a few instances where that has happened.”

Since 1998, California districts have submitted plans to build 725 schools, including about a dozen where developers agreed to pay for the campuses up front, according to the state architect’s office.

Only a few have been built so far, including two in San Francisco’s suburban East Bay and one in Corona in Riverside County, both fast-growing areas. Districts in Merced, San Joaquin and Yuba counties have also approved developer-built schools.

And more are on the drawing board in areas where new subdivisions are large enough to support big up-front expenses--in San Ramon in Contra Costa County, near Santa Clarita in Los Angeles County and in Moreno Valley, Camarillo and Santa Maria.

“It can be a very good deal for school districts and developers,” said Bill Van Gundy, former executive officer of the state Office of Public School Construction. “It can be a win-win situation.”

But it’s not common, at least not yet.

One reason is because not many developers have the financial wherewithal to offer such an expensive bonus. And districts have a legal right to demand only part of the construction cost from developers.

Another is because animosity between home builders and districts grew during the last two decades as California public school enrollments increased 50% to about 6 million students. It was not until 1999, when a new law established stricter guidelines for developer fees, that tensions began to ease between builders and educators.

“There has been almost a line drawn in the sand,” Van Gundy said. “There’s a lot of acrimony over fees and sites and all kinds of things. School districts kind of distrust developers, and some school districts have been overzealous in their desire for fees.”

But it didn’t take long for developers of the $750-million RiverPark project--the largest home-and-business development in Ventura County history--to see the political benefit of getting Benitez on their side.

The Rio district is already saddled with a 3-year-old elementary school consisting solely of several boxy, brown portable buildings. And the Oxnard City Council wanted to make sure the same thing did not happen again.

RiverPark’s developers realized, too, that it would be good business to have schools ready to open when their houses first go on sale in about 2004.

“We told the school district we need to have the schools in place when we bring the houses on board, and they said they didn’t have the money,” said RiverPark partner David O. White.

“Schools are home buyers’ first concern,” White said. “They don’t want their children bused or stuck in portables. So we wanted to make sure our development has first-class schools.”

Sacramento lawyer Addison Covert, who specializes in school construction and finance, said big developers have grown more interested in building schools because the state construction process is so cumbersome. They also think, he said, that they can build high-quality schools far more cheaply than districts can as part of a larger construction plan.

Under the traditional process, school construction money comes from state and district bond sales--both requiring voter approval--and developer fees. About half comes from the state, but that well ran dry last summer and there is a waiting list of $5 billion in projects. Voters would have to approve a $13-billion bond sale in November and a $12-billion sale in March 2004 to replenish the supply.

Once state money is secure, school districts must match it. But in fast-growing districts, administrators often borrow from tomorrow to pay for today.

“It’s not a very satisfactory approach to dealing with schools,” Covert said. “Developer fees are a one-time opportunity for a district to collect money, and then they spend [some of] it setting up portables.”

By contrast, up-front construction builds schools when they are needed, rather than after the fact or not at all.

Not that there aren’t potential pitfalls.

Developers have to follow the same state siting and construction rules as school districts. So districts and developers must take care in choosing builders and designs and crafting cooperative agreements.

“It’s a partnership that really requires a lot of careful analysis by both sides,” Covert said. “The school district needs to make sure it does not get involved with a development team that’s not reliable, and the same rule applies for the developer.”

Covert, who represents the relatively poor Rio district, found the right combination in the rich commuter haven of San Ramon in an inland valley of the San Francisco East Bay.

There, the school district paired with developers Shapell Industries and Windemere, which are each building half of the 11,000 homes planned for Dougherty Valley. The builders are paying nearly all the estimated $266 million in costs for land and construction of four elementary schools, two middle schools and one high school, said Joan Butt, assistant superintendent for the San Ramon Valley Unified School District.

The district’s stylish 740-student Coyote Creek Elementary School opened in August 2000 amid a community celebration with clowns and food. The school cost $17 million, the party $35,000. And Shapell paid for it all, Butt said.

“It was the first really successful undertaking where a developer built a quality school in lieu of developer fees,” Butt said. “If anything, Coyote Creek is nicer than if the school district had built it ourselves, and it cost us nothing.”

The way she figures it, Butt said, San Ramon schools are getting about twice the value they would have gotten with straight developer fees.

“For this to work, you’ve got to have a developer big enough to front-load the costs,” she said. “This won’t please the slow-growthers, but the small-time guys just can’t do it. And I’m always cautioning other districts not to let a developer come in and give land and portables--those only last 15 or 20 years, then you have to replace them, and there’s no money left for that.”

Tom Koch, a vice president for Shapell of Northern California, said his company built what he believes was the state’s first developer-constructed school in Castro Valley, about 10 miles from San Ramon, in 1995. That school was pre-built and much cheaper, and the builder got no reimbursement from the state.

At the San Ramon school, Shapell is eligible for $8.4 million in reimbursement, he said. But even if that comes through one day, the builder will have spent millions of dollars beyond the simple developer fees it was obligated to pay.

“There are benefits to having these schools [up front],” he said. “But we built Coyote Creek four years earlier than we had to and with a series of design elements and treatments they requested.”

In several other California districts, administrators and developers are working together to build modular schools, as distinct from portable classrooms.

The modular buildings may look the same as traditional wood-and-mortar buildings, and they often have the usual concrete slab foundations. But they have steel frames, instead of wood, and pre-cut walls.

Builders say they cost 15% to 25% less than a school built in the traditional way and, but can have the same 50-year life. They are inexpensive enough that some developers say they can put them up for about the cost of the fees they would have to pay schools, if the state comes through with some reimbursement.

“We received a very typical California elementary school,” although with modular construction, and paid for by the developer of an 1,100-home subdivision, said Ted Rozzi, assistant superintendent at Corona-Norco Unified School.

“It came in at $7.4 million [about 25% less than traditional], and they built it in six months, as opposed to the traditional year,” Rozzi said.

The San Ramon and Corona-Norco models are being passed around the state by school facilities experts.

Benitez, the Rio superintendent, was aware of both as she met with representatives of RiverPark, which is backed by a $12-billion pension investment fund. So she asked for it all, and got it.

“It’s good business for us,” she said. “And it’s good business for them.”