Making the Old New Again

• By Jason Policastro
• 12/01/08

The repercussions of the current economic downturn are being felt far beyond the real estate and financial markets where the problem originated; the school construction industry is certainly no exception. Budget deficits are standing in the way of schools in need of upgrades or new facilities. There is a laundry list of districts across the country that are putting plans for new construction on indefinite hold, or scrapping them altogether in favor of the more affordable option of renovating existing facilities.

President-elect Obama has recently made remarks about committing funding to public school construction and renovation, in order to create jobs and improve learning conditions for students as part of his new economic recovery program. With a new president in place promising to go over the federal budget line by line with a fine toothed comb, surely the cost for renovations will prove a more financially attractive choice than new building construction.

School district administrators are waiting to see how the economy settles out before committing to new projects. Schools are looking to renovation as a more cost effective way to handle their energy cost optimization and student capacity needs. In fact, the average cost per square foot to renovate a school is $110, which is approximately half the cost per square foot for new building construction.

 Here lies the opportunity for our industry to look at the advantages of renovations versus new school construction.

Full-service construction management companies like Phillips Way, based in Maryland, that specialize in fast-track school renovations projects across the state, have felt the impact of school districts’ decisions to shelve their new construction projects and opt to renovate. Usually the reasons for the work include leaky roofs, mold, asbestos, seeping windows, freezing temps, bad air quality, and parent feedback. The company believes that these are some of the reasons that will mandate that schools do something that falls within the allotted budgets. So, construction companies across the country are doing something to meet the renovation goals of the schools while maintaining their bottom lines. “It’s important for the industry to have a clear understanding of where school construction and renovation stands in the current economic climate and how we got in this position, before we can understand how to improve problems like school overcrowding, nonexistent profit margins, and lowered quality standards in construction and renovations,” says Phillip Martien, president of Phillip’s Way.

How Did We Get Here?
In the past few decades, new school construction was being fueled by strong residential growth. New houses were being built at a rapid pace and schools were following the wave of development.

However, state budgets for school improvements were funding the construction of new schools, not being spent adequately on renovations for older buildings. This problem was most clearly evident in urban areas. After many years of neglect, many of these schools were hemorrhaging money due to energy inefficiency.

This deficiency could be seen as recently as in the 2008 Annual School Construction Report, produced by School and Planning Management. In the report, it is shown that in 2008, $19B was allocated for school construction. Of that number, only $3B was set aside for the renovation of existing facilities, despite the need nationwide for a higher commitment.

Enter the shakeups of the financial markets in the fall of this year, and the booming outlook was set to change completely.

School Construction After the Financial Meltdown
A quick search of new school construction across the country yields some sobering results. Officials in Spotsylvania County, VA, are putting the construction of several new schools on hold due to reduced enrollment in the area because of home foreclosures. Renovations to three schools in Worcester County, MD, have been put on hold, with lawmakers blaming reduced tax revenues. New York City is struggling to accommodate an ever-increasing student population and has been forced to slow down the pace of expansion that was originally proposed in their 2005-2009 plans.

There are a number of factors at work here — construction costs have risen sharply, inflation rates are soaring, and residential development has slowed dramatically. Without a growing tax base, state governments lack the revenue necessary to fund new school construction.

Overcrowding has been a problem for many school districts for many years and shows no signs of letting up in the current economic downturn. Because the current economic climate precludes the sort of new school construction that some heavily populated districts need, planners will need to be sure to include facility expansions in their renovation projects to prevent severe overcrowding problems.

Economic Ramifications on School Construction Industry
Some new problems have become more commonplace in the industry because of the economic slump. Because of the shortage of work for contractors, the industry has seen some key negative side effects emerge.

One of these is a greatly reduced ability for contractors and construction managers to turn a profit. Demand for work among contractors is extremely high. The bidding war for construction projects is driving down the price of available construction jobs so dramatically that many jobs are being priced “at cost,” eradicating any potential profit for contractors.

Phillip Martien has seen this market saturation first hand. “Many projects are being awarded at or below the contractor’s breaking point. We recently lost a bid to a company I had never heard of, and at $200,000 below cost,” Martien said. “This gives you an idea of how dramatically things have turned around in the past year.”

How Can Renovation Address School Upgrade Needs?
The industry, as well as the country as a whole, is preparing to enter a time period that has potential for notable change. Whether that is for the better or worse is not only up to political leaders, but also those working in school renovation and construction.

There are hundreds of renovations projects on hold in school districts across the country. In order for renovations to take a larger role in school construction, those active in the industry need to be ready to adapt.

“Contractors and construction managers will need to be prepared to handle more specialized renovation projects,” says Martien. “Project teams will need to be able to move more quickly to tackle the kinds of smaller projects that are becoming more and more common. Retrofittings that enable greater energy efficiency will continue to trend upward. It will also be important that all parties hold cost effectiveness as a high priority.”

Renovation does offer an attractive option for district administrators who are looking to upgrade schools in their jurisdiction. With the right architect and contractor team, it’s possible to make renovations to existing facilities look as comprehensive and dramatic as a new construction.

While it is important for industry insiders to do their part, they also have their eyes trained on the current tax revenue picture in districts throughout the country, which affects local and state governments’ ability to fund new school renovation projects. The only solution is  tax hikes or other revenue sources. This is of greatest concern in the public school space.

“School renovation projects in the public school space are often the most sensitive,” Martien explains, “because every taxpayer has a stake in them. These projects need to be completed as thoroughly as possible, and spending on the project must be judicious. Current economic strains only magnify the scrutiny these projects face.”
 
Looking Ahead
The consensus in school construction is that the decline isn’t yet over, but that 2009 will bring the bottom of the fall. The hard times that the industry has seen could be buoyed by new economic programs, bailouts, and stimulus programs that the incoming administration is proposing. As the tide turns, perception remains a powerful influence.

There are victims on both sides of the school construction fence. School districts will need to compromise and opt for renovations instead of new construction. Many contractors and construction management companies have already fallen victim to bankruptcy, and more will follow.

“When this thing started, it reminded me of that scene in Jaws when Roy Schneider looks back at the shark and says, ‘We’re going to need a bigger boat,’” says Martien. “Now, it is survival of the fittest; contractors must adapt to this changing economic trend. If it’s what needs to happen for this situation to improve on an industry-wide level, so be it.”

Jason Policastro is a freelance writer working with SPIN, a marketing and public relations firm serving the built environment. He can be reached at [email protected] or through www.spinllc.com.