BUILD TO SUIT: The Basic Concept - Comments and Answers

BUILD TO SUIT: The Basic Concept Comments and Answers

The following is the presentation outline used by District 12 Board members Valerie Anderson, David Baron and Alan Brown. They prepared and delivered an excellent program describing the Build to Suit Option for renovating the Town Elementary Schools.

Additional comments and answers have been added in “Bold Dark Blue” by the Build to Suit Committees of Bridgewater and Roxbury where clarification is necessary.


BUILD TO SUIT: The Basic Concept Meeting January 8, 2007

We must get the elementary school project back on track in a way that:

1. Allows Region 12 to continue to provide a quality education as a regional school district -- our most important priority;
2. Deals with the financial concerns of our taxpayers; and
3. Addresses the wants and needs of our unique three-town dynamic.

We need to approach a compromise solution that will work. We have the BOE’s Educational Specifications, we have feasibility designs, but we don’t have a final price tag. We have the voters’ clearly voiced preference to renovate three town-owned schools, but not the financial support for the proposals posed in the past. We have local state legislators poised to help us with our plan, if they can … once we agree on a plan.

Definition of “Build to Suit”:

“An offer by a landowner to develop land in a manner dictated by a potential tenant in return for a long-term lease.”

In a Build-to-Suit scenario, as first proposed by members of the three towns’ Boards of Finance, the unique town ownership of the schools would drive this project. Educationally we stay a region and the towns lease the buildings to the region, but each town, using the BOE’s Ed Specs as essential requirements, renovates and pays for its own school. New, comprehensive leases with Region 12 would be drawn up to protect all interests. We need to think of Build to Suit as a strictly commercial real estate project, with the landlord providing space per the lessee's need.

Some state grants might offset each town’s cost as they renovate according to Ed Specs, if our local legislators are successful. The town of Kent received such grants, but it has its own K-5 Board of Education, so the circumstances of a state grant to offset town financed school improvements (or in that case, a new school) were specific and might not apply to our situation, especially without the existence of individual towns’ K-5 Boards of Education. It would be more realistic to assume no state reimbursement when calculating the total bond cost to each individual town project. Our legislators will help us with new ways to pursue reimbursement, but currently there is no precedent for state reimbursement of town renovations built to comply with
a Regional Board’s Ed Specs.

Comment:
The Kent School actually had some new construction and some renovation and parts of the school were not renovated. Our Region would need to apply for a State Aid Grant application number for each school, after voter approval of a Town referendum. As they did for the town of Kent three years ago, our state legislators would have to get state aid outside the normal process.

Is Build to Suit legal?

Yes. In an attorney’s opinion letter prepared by Robert M DeCrescenzo of Updike, Kelly, and Spellacy of Hartford for the town of Washington, July 17, 2006, it is stated:

“As a threshold matter, we agree…that authority for determining what, if any renovations, repairs and/or maintenance are appropriate rests with the Regional District Board of Education, and that such authority may not be delegated to a third party. That does not mean, however, that the Regional District Board of Education cannot enter into a lease that requires the landlord, in this case the Town, to perform specific renovations or repairs that the Regional Board of Education deems appropriate. Nor does it mean that the Regional Board of Education cannot enter into a lease that requires the landlord, in the case the Town, to maintain the leased property in accordance with standards specified in the lease.”

(A full copy of the letter is available through the Region 12 Board of Education.)

What are the advantages of Build to Suit?

- Each town pays for and is responsible for its own building so that our towns can maintain three neighborhood schools and not have the possible financial disparity that might have contributed to the failure of the two previous bonding referenda. Drastic measures such as breaking the elementary schools away from Region 12 can be avoided.

- A restrictive legislative timeline imposed on usual Regional construction efforts (June 30th cycle to submit plans to the state delays the project and therefore increases costs) might be avoided and work could start sooner rather than later. Certain state construction caveats might be avoided to save costs if the integrity of the project remains high and acceptable to all parties. However staying within these caveats would insure an educationally acceptable and uniform design that will assuage the concerns of the Region 12 administration for all three buildings and will enable possible future grant monies that will inevitably require these guidelines.

- Built to Suit respects the outcome of the first advisory referendum (March 7, 2006) that favored keeping the neighborhood schools.

- Build to Suit makes each town responsible for its own building and enables each town to present a bonding amount to its taxpayers that represents only the cost for that town’s school.
- Build to Suit will provide the quality educational environment that Region 12 mandates. Each town MUST follow the BOE’s Ed Specs that are in place, and each town MUST build according to the lessee’s (Region 12’s) requirements. A landlord would not ignore the specifications of a lease when investing millions of dollars on specialized building renovations. Furthermore, if there is any chance of state reimbursement, a landlord would not fail to satisfy all the building requirements that would make the school potentially eligible to receive state reimbursement.

Comment:
Build to suit removes the mandate of one town investing in a school located and owned by another town. This would eliminate the $3.5 million cost transfer from Washington to Bridgewater and Roxbury that was required in the June 2006 referendum. It also eliminates the sharing of major repair costs on a per pupil basis where Washington pays 44%, Roxbury pays 31% and Bridgewater pays 25%.
Each town would pay for its own elementary school repairs only.

What are the disadvantages of build to suit?

- Reimbursement for building projects that are not directly under the auspices of the regional board of education will be ineligible for reimbursement. Thus, the district would lose approximately $7-8,000,000 in state funding. A special legislative act would have to be passed for the towns to receive any grant money. There is no provision in the Connecticut General Statutes that allows for “build to suit” as a method of financing public school projects.
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Comment:
Pursuing State Aid with our state representatives should be done concurrently, but not be an obstacle to renovating the Schools. This was done successfully by the town of Kent three years ago.

-The Region’s difficulty in obtaining majority approval for renovation and expansion of the three elementary schools reflects deep divisions among the towns as to how we should improve our elementary schools. The unanimity required for Build to Suit will be difficult to achieve and the process cannot survive without it.
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Comment:
Each Town can choose to renovate or do nothing. The new lease would be the same for each town, requiring future Major Repairs and Leasehold Improvements be paid for by the town where the school is located.

- The primary impetus behind Build to Suit was that it allows each town to build what it can afford without having to gain the acceptance of the other two towns. However, leases for the three schools expire in 2007. (Currently the school district pays $1.00 per year to each town for use of the buildings).Negotiations over successor leases have been unsuccessful thus far. No meetings have been held since May of 2006. A range of lease criteria must be met with unanimity of the three towns and the region.
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Comment:
It is better to do what each town can afford than continue with the current stalemate that yields no improvements. The rent should remain at $1.00 per year. The current lease is a Landlord/Tenant agreement that should continue after modifications are made.

- The region must be able to set repair and maintenance priorities based on educational need and at times, be able to act with speed. This may be at odds with a town’s financial priorities, but such requirements would have to be established in the leases. Furthermore, costs currently budgeted by the region would be transferred to the individual towns. Bulk purchasing cost efficiencies may be affected.

Comment:
The Towns are equally interested in protecting the children. Accounting procedures can prevent any such bulk purchase loss. The region will always opt to fund educational projects over significant repairs to schools owned by the towns. The towns can establish their own school capital improvement fund to do major repairs on a timely basis in the future.

The Build to Suit process involves many variables and decisions that have never been encountered before. Approaching the process in anything but the most focused and timeliest of manners could cause delays and escalate the costs to the three towns.

Comment:
The process should be kept simple and only involve major items. Proceeding with three smaller independent projects should improve the chances of making decisions on a timely basis. Dealing with a large centralized building committee that is tracking three projects and trying to manage them is a daunting task. This makes the decision process more difficult and time consuming. It is more cost effective to have three smaller independent projects run by each town.


Next Steps – Organization – Suggested Timeline

A tight timeline must be agreed to by Washington, Roxbury, Bridgewater, and the Region 12 Board of Education to minimize delay and the cost escalations incurred by delay.

1. The region and town leadership must draw up a basic agreement to begin the process of Build to Suit for three different school projects. This would be four-party Intermunicipal Agreement outlining the concept and criteria. This Agreement would be a binding commitment on the four parties and would prevent any party from unilaterally abandoning the Build-to-Suit process. A suggested deadline for this agreement to be presented to the Board of Education for approval might be February 26, 2007.


Comment:
A Town could choose not to participate in any renovation of their school but would be required to pay for Major Repairs and Leasehold improvements in the future as outlined in a new lease. There is really no need for an Intermunicipal Agreement. If a town chose to build its own new elementary school with state aid, this would be a town decision and should not impact on what decisions are made in other towns.

2. Each town will then have a series of individual town meetings to agree on the concept and approve the Intermunicipal Agreement and form a committee to oversee designs that will lead to bid packages and projected final costs.

3. Three identical leases between each town and the BOE must be negotiated to take the place of the present, soon-to-expire leases. These leases will include clauses to guarantee compliance with Ed Specs, set time frames, and delineate costs. Discussion of where to house Reach and the final approval of all specifics of the lease will be decided by the Board of Education.

Comment:
Leases should not include time frames or costs of renovations. No rental fee, major repair or leasehold improvement cost can be included in operating expenses of the District for a Town Elementary School since that expense would then be shared by the other two towns.

4. Voter approval for funding via informational town meetings and then three separate successful town referenda will be required on a near simultaneous time frame. Funding for all three town projects must be obtained as soon as possible before the lease agreement is finalized. A suggested timeline might be funding approval by April 30, 2007.

Comment:
The referenda don’t need to be simultaneous if an IMA has already been approved by each town. One town may require a longer period of time to obtain funding approval. The leases should be finalized now since it is better to have this issue resolved.


When:

1. All three towns’ building plans and leases are in compliance with Ed Specs;
2. All three towns’ building plans and leases are approved by the State Department of Education;
3. Each town’s building plan has been accepted and funded by each town’s citizenry; and
4. All three leases have been executed,

then we can begin construction.

Comment:
The Proposals can be put out for construction bid as they become ready.



PRACTICAL CONSIDERATIONS FOR BUILD TO SUIT:

The Build to Suit concept requires a great deal of cooperation and mutual decision-making by all four partners in the enterprise. Many issues must be harmoniously resolved and many questions must be thoroughly discussed to get to the first level of the Intermunicipal Agreement, which, in turn, will engender a region-wide building project, and long term leases.

Comment:
Each project will be a separate Town project that should go forward on its own optimal timing. Time constraints should not be placed on any town. Requiring all towns in the region to agree on every decision is unnecessary, time consuming, and costly. It makes no practical sense for a town to participate in the decision process of a building project in another town.

I. SOME QUESTIONS FOR THE TOWNS TO CONSIDER:

CONSTRUCTION
What is the plan, if there are construction cost over-runs?

Answer:
The plan for the town is no different than a plan at the region when there are cost overruns. There are two alternatives, reduce the cost to fit the budget by doing less or go to the public for more money. The budget will, however, be monitored closely.

Who will be responsible for managing the construction site?

Answer:
The Town Building Committee will decide this issue.

Where do the children go to (school) during construction/renovation?

Answer:
The children should remain at their own school with new construction occurring first and then renovation. This would be planned and coordinated with the District.

What is the plan if anything delays or holds up the construction process?

Answer:
Appropriate adjustment would be made to the planning in collaboration with the District.


REFERENDA

When do the towns hold the referenda to establish if the people want B2S?

Answer:
Voters in Roxbury (56%) and Bridgewater (63%) favored the June referendum. As soon as the towns have a signed new lease with the region and has an approved project, it should proceed with it’s referendum to have the voters approve the funds.

Will those elections be simultaneously held in the three towns?

Answer:
This could be an optional step decided by the Town, but this type of election is unnecessary and would not be simultaneous.

How soon would each town get started after the successful passage of the referenda?

Answer:
Whenever each town is ready and the region is sure it does not interfere with education.

THE COMPLETED STRUCTURE
After construction, what person at the town level becomes the town’s liaison to the Region for the building and its needs?

Answer:
The same person that does this now. It remains the same.

OPERATING COSTS

Who pays school operating costs, the region or the towns?

Answer:
The Region pays all operating costs. This remains the same except as outlined in the Lease. Teaching salaries and benefits being the largest potion of operating costs must remain in the district budget.

MAINTENANCE

What (specific) level of building maintenance should still be in the hands of the towns?

Answer:
Major Items requiring contract purchase from outside vendors.


Will the towns provide any maintenance personnel?

Answer:
No.

What union will they belong to?

Answer:
Not applicable.

Who will negotiate with the unions associated with new personnel?

Answer:
There will be none.

Who will perform the exterior maintenance? Grass cutting, snow removal, etc…

Answer:
This will remain with the region, unless outlined otherwise in the Lease.



INSURANCE

What level of insurance on each building is appropriate for the landlord?

Answer:
The Insurance is currently outlined in the lease and paid by the District. The Town will be named as an additional insured, but the rest remains the same.

FUTURE BUDGETS

Will future town budgets be harder to pass, when all the costs and needs of the elementary facilities are added to them?

Answer:
With the exception of the renovation bonding, all other expenses are already in the Town budgets under the education line. Anything added to the Town budget would be removed from the District budget. District budgets could be easier to pass since they will not include the elementary school debt service that has been transferred to the town budget.

II. SOME Questions For the BOE and RegION 12 Administration TO CONSIDER:

ED SPECS
Are changes to the Ed Specs required by the unique B2S scenario?

Answer:
They should not need any significant change now. Every effort should be made to meet the September 2005 education specifications.

When can these new Ed Specs be ready for the towns?

Answer:
Since new specifications are not necessary, changes may be made if problems become evident.

CODE, PLANS AND COSTS

Should the BOE require all of the projects to have the same contingency fund?

Answer:
Contingency funds will be a town problem since any cost overrun is a town problem.

Should the BOE require that the plans are all costed by the same qualified person or company, to assure the consistency and adequacy of the funding?

Answer:
No. The board could hire its own company to verify costs, if that was deemed necessary.

Should the three town-built schools be identical in durability? (The buildings and the systems all must last for the duration of the leases.)

Answer:
Materials used and workmanship should be planned to last 20 years or more.

Should the three town schools be identical in quality?

Answer:
This was answered under durability.

Should the three town schools be identical in efficiency? (Fuel/energy costs are dramatically rising, and are a burden on the whole region.)

Answer:
Any requirement for identical efficiency is unrealistic since each of the towns buildings are of different configurations and size. New construction and renovation will be more efficient than the current situation. The equality standard creates requirements that can’t be met and this could result in significant and unjustified expenditure and more delay.

DEALING WITH POTENTIAL PROBLEMS

What is the plan if anything delays or holds up the construction process?


Answer:
There would be no delay difference between a town managed project and a region managed project. Delays must be dealt with when and if they happen.

How does the district deal with the education of the children during construction?

Answer:
Develop a plan and adjust to the conditions at each school. It might include arranging the use of other space in town for classrooms. Room may be located in a church hall, senior center, grange or town hall depending on the duration of the relocation.

What does the district do if a future town budget does not pass that is necessary to accommodate growth in one of the regions elementary schools?

Answer:
Establish a comprehensive plan to deal with the situation. This might include busing children from one town to another town’s school. It might require a town to expand its building or purchase modular classrooms. If a town experiences significant growth, it should also have increased tax revenue to support the expansion required.

What other issues need to be addressed if one of the projects is delayed?

Answer:
Identify the issue and make a plan to address the problem.

CONSTRUCTION

Will the Region have any oversight authority during construction?

Answer:
The Town Building Committees should include board and administrative members.

MAINTENANCE

What (specific) level of maintenance should still be in the hands of the Region?

Answer:
All custodial and minor repair functions.

INSURANCE

What level of insurance on each building is appropriate for the tenant?

Answer:
This should be outlined in the lease and reviewed annually with the landlord.

LEASES

Do we need “bridge” leases that will carry us to the point of future project completion?
How will the leases be dated, if there is little chance of the projects being completed at the same time?

Answer:
The leases should be changed now and should be for 20 years.

GRANTS

What if the towns aren’t eligible for State grants, but the Region could be eligible for grants to offset the cost of its building leases?

Answer:
This should not be an issue. The region should apply for the grants and distribute them, when received, to the town where the renovation was done. Each town school would have a separate grant. This would be the same if a major fire happened in one town school and the region applied for a grant to help with the repair.

Would it be beneficial to raise the lease amount from $1 per year?

Answer:
No. That rent amount would be billed back to the Towns on a per pupil basis and would create a problem with the other two Towns.

How would the Region disburse the grant money?

Answer:
Each project would be separate and the state aid would be the amount calculated for that project only and due to the Town.



A Sample LEASE SuMMARY PROPOSING Answers TO Some Questions

This is only an example. The leases need to provide assurances for all the concerns of the towns and the Region and comply with State statutes. Like the questions above, this proposal is a starting point for deliberations.

Rent = $1 per year for # years.

Insurance: (District Operating Expense)
Region pays fire insurance,
Periodic review of amount of coverage every 5 years,
Region pays for liability and bodily injury insurance,
Periodic review of the amount of coverage
Town notice of possible liability issue when it happens
Town named as additional insured in policy

Damage and destruction
Region pays for minor repairs,
Town will make major repairs with insurance payment in collaboration with the Region,
Town will hold excess funds from insurance for future repairs,
Town appointed building inspector must inspect all work.

Improvements and alterations
Town pays,
Must be good quality and completed with agreed to specifications of the Region and
compliant with State statutes,
Town appointed building inspector must inspect all work.

Maintenance, major repairs and leasehold improvements completed with collaboration of Region.
Town pays,
Must be good quality,
Town appointed building inspector must inspect all work,
There will be an annual review of the property.

Performance of region covenants
Insurance paid by region,
If the insurance is insufficient, the town may insure at region cost.

Mortgage and assignments
Region has no obligation for debt service of the town elementary school.
Town has no obligation for the other two Town Elementary School costs for:
Debt service on renovations and expansions, or
Maintenance, major repairs and leasehold Improvements.

Arbitration
Any disputes regarding the lease between town and region must be submitted to arbitration in a timely manner.

Normal Custodial Services and minor maintenance will be provided by the Region including a full time Custodian. These expenses will be included in the Region operating expense. The Region will remove the budget items related to major repair and maintenance for the elementary schools.

Initial Post

The purpose of this blog is keep residents of the Shepaug School District #12 up-to-date (daily and weekly) on what's happening with the Build To Suit projects in our towns. For more in-depth news please consult the website www.BuildToSuitNow.com