There are four primary types of alternative funding for schools: municipal/capital leases, operating leases, service contracts and satellite schools. Building schools with alternative funding sources often allows school buildings to be built with less money and in less time.
A school can be built in a period of 25 years with a municipal/capital lease. A municipal/capital lease requires that a school district first leases a building. The school district can then purchase the building from the leaseholder for a nominal price at the end of the contract agreement period. In 1996, Texas changed its laws, which allowed Rod Paige (Houston superintendent at that time) to negotiate the building of two high schools with a private contractor. The company finished the job in less time than expected, which saved the district and state $20 million.
An operating lease is similar to a municipal/capital lease, except this lease is classified as security for the building developer. With an operating lease, the school district might not be able to buy buildings at a nominal price in the future, so the lease payments simply accumulate until they reach the purchase price instead. Compared to the traditional tax and borrow plan, operating leases save a school district 10 to 15 percent in the long run.
A service contract is an alternative funding model for schools to renovate existing facilities. Through a service contract, a school district temporarily loses property ownership during the period of renovation. The private contractor sustains the school financially during the renovation by taking out a tax-exempt loan for the costs of capital, services allowed by the federal government and interest. An example of this model is Greenville County, South Carolina. School officials planned to spend $1.8 billion to construct and renovate 72 schools in 24 years. By using a service contract, all 72 projects were completed for $780 million, in only four years.
Satellite schools are another form of alternative funding for schools. This model enables nonprofit organizations to create schools in existing facilities, such as airports, malls and corporations. The Miami-Dade County American Bankers Insurance Group was the first corporation to enroll students in school at its headquarters. Simon Corporation's nonprofit arm has created cooperative agreements for public schools to be built in more than 15 of its shopping malls.