Tapping into the Nonprofit Sector
King County, Washington, used an NPP to deliver a medical facility whose construction had stalled under a traditional approach.
Voters approved a bond issuance for construction of the new 9th and Jefferson Building (NJB), part of the county-owned Harborview Medical Center. However, when a cost overrun occurred on the project and another bond project under the original delivery model, the county had to seek alternative options. King County decided to work with the National Development Council (NDC), a national nonprofit focused on community development. NDC proposed to construct the new building using the 63-20 model.
Under this model, the county leased the land to NDC for a nominal fee. The nonprofit created a special purpose nonprofit entity that issued bonds, as permitted under IRS revenue ruling 63-20.The nonprofit then engaged a developer to construct the project, using a contract with performance incentives that might be more difficult to accomplish under a traditional procurement process. Construction was completed on schedule for approximately $188.7 million. The restructured project was able to meet Harborview’s expansion need immediately, without awaiting a future renovation. The county leased the building back from the nonprofit when complete (a lease/leaseback arrangement). The county receives all the lease revenue from the medical tenants from the building, and uses it to pay the lease payments to the NDC. After the bonds are paid off, ownership will revert back to King County.
The county was able to transfer some of the oversight, budget, and schedule risk to the nonprofit, which had overseen construction of many similar medical facilities. The project was delivered with a larger space, at a lower effective cost, than originally anticipated.