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WILKES-BARRE — The proposal that private investors renovate or build schools for cash-strapped Wilkes-Barre Area is “absolutely blue sky thinking and a very creative approach,” but is also “likely fraught with many legal and operational questions,” according to the head of the Pennsylvania Association of School Business Officials (PASBO).
While the specific transaction proposed to the school board by Bob Sypniewski at best falls in a gray area of the school code — the state law governing much of public education — there’s no clear ban against it.
A 1994 graduate of GAR High School, Sypniewski told the school board and the public that investors are lined up to provide as much as $300 million to either renovate Meyers High School or replace it, and to replace Coughlin High School either on the same site or elsewhere.
The goal is to keep the three “neighborhood school” system, as opposed to the plan approved by the Wilkes-Barre Area School Board: Close Meyers and Coughlin, merging them into a new building at the Coughlin site.
The investors would select architects and contractors for the job, while the district would own and maintain the buildings. The district would pay back the money over decades — 30 years is most commonly mentioned — with interest.
The specific payback rate would be based on the cost of the project and the district’s financial ability to pay.
State law
Pennsylvania Department of Education spokeswoman Jessica Hickernell said state law bars a district from borrowing from private investors to do its own construction — such money must come from issuing bonds through a bank or through the state Public School Building Authority.
But Sypniewski is proposing the investors, not the district, do the construction. Hickernell conceded there is no record of such an arrangement “to our knowledge” and that PDE would need more information.
Asked about the deal proposed by Sypniewski, Pennsylvania School Boards Association Spokesman Steve Robinson consulted with the association’s legal staff before saying via email that “No one feels they have enough expertise in this area to be able to respond adequately.”
PASBO Executive Director Jay Himes said no one at the association he talked to had heard of such an arrangement, but that strictly speaking the law doesn’t seem to bar it.
“If the district is going to receive a building after it’s constructed, there is actually a provision in section 703 of the school code in which you can acquire buildings and sites for school buildings,” Himes said. “I believe there would be an argument that this (law) presumes these were buildings not built specifically for the school district, but rather buildings made for some other purpose acquired by the district.”
In short, it’s more a question of what the law doesn’t say than what it does.
“We can’t find anything that says yes a district can build and purchase a building for a school in this manner,” Himes said. “That’s not to say you can’t do it, but you won’t find anything spelling it out.”
Governor connection?
Sypniewski has repeatedly said the people he represents have “worked for five years” figuring out how to legally provide such investments to public entities. He also said one of the people involved has been in contact with Gov. Tom Wolf.”
But Wolf would not be the sole arbiter in deciding if such an arrangement is legal, much less whether it is the best choice for the school board, Himes said.
For starters, there is the state’s “PlanCon” system, designed to scrutinize such projects for practical need and reasonable cost. Currently, districts only need to run through the extensive PlanCon gauntlet if they want partial state reimbursement for a project.
Though the term is rarely heard these days, in the past PlanCon was also commonly considered a safeguard preventing a school district from undertaking a “Taj Mahal” project, building far more and far fancier than needed. In fact, in the past, the proposal by Sypniewski would have required state approval even if no state money was sought.
“In section 703 there used to be a provision that you had to get Department of Education approval for projects even if you paid for it completely yourself,” Himes said. “That approval process has been taken out.” Which, at first blush, means Sypniewski’s deal is legally viable.
“Let’s say they found some way to do this, and the district didn’t ask for state reimbursement,” Himes said. “Conceptually, at least, they could.”
Other roadblocks
But there are other potential legal roadblocks.
“The other question raised is, does it become a prevailing wage issue?” Himes said. In a nutshell, by state law when a district puts a construction project out to bid that pays a single contractor more than $25,000, the contractor must comply “with state mandated wage payments.”
In theory, because the investors in this proposal would create a private company to manage the entire project, including contracting, they wouldn’t have to bid work and wouldn’t be subject to the prevailing wage law — one way they could keep the cost down and get more bang for the buck.
But that theory may snag in a “quagmire” of regulations, Himes added. Even if the investors are hiring contractors, paying the bill up front and running the construction, rules requiring bidding could theoretically kick in precisely because the district would be paying the investors and owning the building.
“I don’t think the district wants this group of individuals to just build a school for which it has no input,” Himes said. “So the district would have to create specifications saying what they want. And if they develop those specifications, how do they get around the mandate for competitive bidding for a project over $19,000?”
As a side note, Himes said a private company set up by the investors could be exempt from public record laws, meaning taxpayers would have no legal access to contracts awarded or where the money goes even though, because the district repays the investors, it is ultimately taxpayer money.
Asked if construction contracts would be public, Sypniewski said while he believes the investors would have no legal requirement to make them available, they probably would.
‘Off book’ setup
Himes questioned one other claim by Sypniewski, who said the money spent by the investors would be “off book” for the district, meaning it wouldn’t be recorded as one large debt, but rather as a recurring expense. Two factors could derail that effort, Himes said.
First, there is a distinction between the accounting standards the private investors and the school district comply with. Standards for private businesses are set up by the Federal Accounting Standards Board (FASB), while school districts and other government agencies operate under rules promulgated by the Government Accounting Standards Board (GASB).
The boards are independent agencies setting standards that, while lacking the force of law, often have the impact of law. Independent auditors look for compliance to the standards, and government money can hinge on that compliance.
A one-page “overview” of the investment proposal handed out by Sypniewski at Monday’s school board meeting cited the advantage that there would be “no balance sheet recognition under FASB.” But Himes noted the district operates under GASB, and the standards may vary.
A second potential glitch in claiming the money owed to the investors would be “off book,” Himes said, is that the decision about what is or isn’t district debt would fall to the state Department of Community and Economic Development, not the district or the investors.
“It would not surprise me if the Department of Community and Economic Development would consider this to be debt,” Himes said. “The school district owes whoever builds this X amount of dollars. It seems that could at least be considered debt. And if so, they would have to go do DCED to get that debt approved.”
State aid at risk
As the school board mulls any proposal, the bottom line likely will become total cost, and a key part of that would be whether the board is willing to forego state reimbursement, something that likely would happen if the project were handed over to private investors, Himes said.
If the district does that and the investors bypass the PlanCon process, the district could be out 15 to 20 percent of the cost the state potentially would pay through PlanCon. Put another way, to make Sypniewski’s proposal worth accepting, the final bill from the investors would have cost less without state reimbursement than the district would spend doing it with reimbursement.
The state PlanCon system has been less than stellar in recent years.
Former Gov. Tom Corbett declared a moratorium on the whole thing, which Wolf lifted. But Wolf has called for renewing the moratorium. In fact, the school board may decide to adopt the consolidation idea in time to submit the first PlanCon paperwork — PlanCon A — by July 1 specifically to be sure it had a crack at any money even if a moratorium is put in place.
Another meeting
Superintendent Bernard Prevuznak said the school board will likely meet with Sypniewski next week to learn more details. But Prevuznak also said the district will proceed with current plans, moving the consolidation project ahead.
Himes said the district can drop out of the PlanCon system any time with no state consequences, other than losing its place in line for state money. The only cost to the district is whatever is spent complying with PlanCon rules and filing paperwork.
The point of no return would likely come when the district reached PlanCon G, paperwork based on project bids, which means the district has started committing to contractors — incurring a potential cost if the project is stopped.
The good news: The state sets no time limit on how long a board can take in getting from PlanCon A, which Wilkes-Barre Area has filed, to PlanCon G, Himes said. So, theoretically the school board can slow the process long enough to give serious consideration to Sypniewski’s proposal — assuming board members feel the existing buildings will remain safe for students. Concern over possible falling brick or masonry work has driven much of the board’s decisions in recent months.
