The State of Education - March 2009

By Darius Helm

Many commercial flooring producers faced with a slowing market have been relying on the strength of the two most robust sectors, healthcare and education, to help them through this recession. But with state budgets under pressure, funds for education have been cut, and many have been hoping the stimulus package signed into law last month would help support that sector. 

Over the last few years, education has been robust, and it’s a core sector for many carpet and vinyl manufacturers. But despite obsolete facilities and a rising school-age population, school construction and renovation took a hit in the final $787 billion stimulus package.

“At this defining moment in our history, America faces few more urgent challenges than preparing our children to compete in a global economy,” President Barack Obama said during his campaign last September. 

No one disputes the facts—as American children continue to fall behind their counterparts in Europe and Asia in terms of academic knowledge and achievement, there’s more pressure on the education infrastructure than ever before. At the same time, the children of baby boomers are swelling the ranks at high schools and colleges, and the growing immigrant population is impacting all age groups, from kindergarten to university.

Add to that all the schools and universities in desperate need of redesign—according to the U.S. Energy Information Administration, 61% of the nation’s education buildings were constructed before 1980—both in terms of technological necessities and environmental mandates, and top it off with increased competitiveness between universities as they fight to attract students. 

That’s why education represents the single largest non-residential building market—and it translates inevitably into a lot of flooring for the foreseeable future. It’s a strong market with a lot of room to grow.

The good news is that all of this demand will have to be met. Old schools will be renovated and new schools will be built, simply because it’s logistically impossible to school the nation’s growing population of children with our existing facilities. The bad news is that it may not happen with appropriate haste and the momentum will probably slow for a couple of years as the nation—and the world—finds a way to clamber back onto solid ground.

Funding for construction comes from both public and private sources, and while most K-12 funding comes from local and state government, higher education is more heavily dependent on money from the private sector. 

In part due to the different funding profiles, K-12 and higher education are two very distinct sectors. In K-12, budgets are tighter and products like VCT predominate, along with broadloom. In higher education, not only is the budget bigger—in general higher education flooring costs about 50% more per square foot than does K-12 flooring—but design plays a bigger role. Parents are spending vast amounts to send their children to college and they expect the look to match the cost. And because colleges are competing so fiercely these days, they will often go to extraordinary lengths with elements like design to lure students.

Endowments and University Construction
Much of the funding for higher education projects flows from university endowments, and those endowments have suffered significantly since last fall with the slide in stock prices. Wealthier Americans were finally exposed to the economic downturn already being felt by other sectors of society in the last quarter of 2008, and since much of the endowments flow from these top earners, college donations have been rapidly drying up ever since, a trend that will likely continue throughout the course of this year. 

The National Association of College and University Business Officers conducted a survey of 435 institutions that revealed endowments were down nearly 23% between July and November of last year. And Moody’s Investors Service, the ratings and risk analysis agency, predicts a tough year for colleges, due to probable drops in donations, financial aid and grants. Even powerhouses like Harvard and Yale have seen endowments fall, with Harvard’s endowment dropping 23% from June to October to $28.7 billion. Yale’s fell 25% to around $17 billion over the same period.

Many design firms working in the education market report that higher education jobs are slowing faster than publicly funded K-12 projects. Since higher education generally means higher end, the slowdown in college projects is having an impact on pricier floorcoverings like carpet tile, custom broadloom, luxury vinyl tile, linoleum and even hardwood—compared to K-12 where VCT dominates. 

However, according to Market Insights/Torcivia, everything from the Americans With Disabilities Act of 1990 to the Obama administration’s energy conservation regulations will help drive facility upgrades in colleges and universities, so the long term prospects of the sector remain sound.

The Stimulus Package
The first version of the stimulus bill voted on in the House had significant allocations for school and college construction, with funds for modernization, renovation and repair totaling $14 billion for K-12 and $6 billion for higher education. In the Senate, concessions were made to capture enough Republican votes for a filibuster-proof majority, and one of those meant accommodating Senator Susan Collins (R-Maine), who felt that school construction funds should remain outside of the purview of the federal government. Thus both funding programs were eliminated.

Separately, the House had also proposed a $79 billion state fiscal stabilization fund—$39.5 billion for 2009 and $39.5 billion for 2010—to fill gaps left by state education budget cuts, though not for school construction or renovation. The Senate version initially reduced the stabilization fund by 50% ($39.5 billion for 2009 only), but with Senator Collins forcing the elimination of the $20 billion for K-12 and higher education construction, a compromise was struck to increase the state fiscal stabilization fund to $53.6 billion, with funding for school modernization listed as one of its purposes. 

What it all boils down to is that portions of two pieces of that stabilization fund, $8.8 billion under the control of the governors and $39.5 billion going directly to local school districts, can in theory be used for school construction and renovation—though none of the money is mandated for that specific purpose. Some education experts believe that other priorities, like early childhood education and literacy programs, will take precedence and there won’t be much left for building.

However, the final version of the America Recovery and Reinvestment Act did include one more item relevant the flooring industry and other industries involved in school building and renovation—$22 billion in school construction tax credits ($11 billion for 2009 and $11 billion for 2010). It’s essentially $22 billion in interest free bonds.

According to the National Clearinghouse for Educational Facilities, 60% of those bonds will go to states as a whole and 40% will go directly to the largest school districts. The hope is that the zero interest school construction bonds, which Congressman Bob Etheridge from North Carolina says can save school districts $500 for every $1,000 in bonds over the life of the bond, will provide incentives for more school construction. However, it will still be up to schools to come up with the funding itself.

For higher education, there is an allocation of $21.5 billion for federal research and development. Research universities will be competing for that funding, which can be used for new construction and facilities renovation, along with other programs like financial aid and research support. 

Demographic Shifts
By most accounts, the education sector should be strong for at least the next couple of decades. Like the healthcare sector, education is driven by the impact of baby boomers—in this case, the impact is from their children and grandchildren. Add to that the growing immigrant population and what you get are record numbers of children and young adults. 

According to the National Center for Education Statistics (NCES), K-12 enrollment is projected to accelerate over the next five years before reaching a rate of about 1% annual growth. This year about 56 million students will be enrolled in K-12 education, and by 2017 that number will have grown to over 60 million. Higher education is also projected to grow at around a 1% annual rate for the next decade—by 2017 college enrollment should cross the 20 million mark.

We’re also in the middle of big geographical shifts in population. According to the NCES, public K-12 enrollment is projected to grow by 19% in the South between 2005 and 2017, and by 15% in the West. While the Midwest will increase by less than 1%, the Northeast is projected to see a 3% drop.

The picture is even more extreme state by state: the biggest increases are projected to be in Arizona (45%), Nevada (43%), Texas (33%), Florida (29%) and Utah (28%). 

The biggest decreases are expected to be from Louisiana (12%), Vermont (12%), Rhode Island (11%), North Dakota (8%) and Maine (8%). It’s no great leap to assume that demand for education, and therefore education construction and renovation, will be greatest in those states like Arizona and Texas that are heavily driven by population growth, with an emphasis on new construction, while demand in states like Vermont and Maine will be lighter and more driven by issues like obsolescence, and focused more on renovation of existing facilities.

Trends in Education Flooring
VCT has a huge share of the education market, particularly in K-12. It’s mostly because of cost—about $2 a foot installed—but VCT can also take a pounding, which is essential in environments with a lot of young kids running wild, and tiles are easily repaired or replaced. A lot of broadloom also goes into the education sector, though carpet tile is quickly taking share in colleges and universities, and even in K-12—like VCT, single carpet tiles can be replaced.

As universities evolve to offer more and more amenities to students, campuses feature many more environments that require different types of flooring. These days there’s more ceramic and hardwood, along with linoleum, sheet vinyl and rubber.

Two of the biggest trends in education flooring are growing demand for sophistication of design and green floors.

Higher education has become much more style oriented in recent years, largely driven by competition for students. And while color palettes used to be based on school colors, the trend is toward colors that reflect other influences, like the geography or culture of the region.

While other flooring categories have emerged in recent years to compete with VCT in many areas in education, the recession is already starting to reverse that trend. These days vinyl flooring is taking share across both the residential and commercial markets, largely driven by cost, and with funds for education projects in short supply, VCT is for many the most affordable flooring alternative.

It’s worth noting that many K-12 educators throughout the country are more concerned about how easy it is to clean up spills from VCT than about the acoustical benefits of soft surface to a learning environment.

One trend that seems capable of maintaining its momentum through the recession is the greening of the education sector, largely because sustainable building has developed to a point where it is the most cost effective strategy in the long run. This is largely due to the dismantling of one key perception, that the cost of a project is essentially equivalent to the initial cost.

Factors like the high cost of energy (which has fortunately, though temporarily, come back down) or the financial pressures of the recession have finally forced people to take a more comprehensive look at their costs, and factors like operating costs, maintenance, repair and the lifecycle of the product are now central to their calculations. And because going green means energy and material efficiency, it’s a formula that increasingly makes sense.

Add to that the increasingly recognized inherent value of green buildings, legislation and mandates, and rating systems like LEED for Schools, and going green becomes the only viable alternative.

For instance, Armstrong, which does a lot of business in K-12 and higher education, has traditionally supplied these markets mostly with VCT, but these days its linoleum and Migrations non-PVC composition tile are being increasingly specified.

For Forbo, a linoleum specialist, education and healthcare are its two biggest sectors. Its Marmoleum has a growing position in the higher education market, and its Marmoleum Composition Tile has made inroads in K-12. Part of that is due to a growing focus on the health benefits of environments for children, driven by standards like California’s CHPS 1350 environmental requirements standard specification. It’s easier to go green when health concerns are directly tied to environmental issues like indoor air quality.

One of the biggest players in the education market is Tandus, which serves both parts of the education market with carpet tile and six foot goods. The firm’s biggest seller to that sector is its cushioned Powerbond, which combines comfort underfoot with high performance, as well as some other qualities essential to environments overrun with rampaging children, like heat welded seams impervious to moisture.

Nearly two years ago the firm was awarded an $83 million contract for the Los Angeles Community College District, and with three years left on that contract and the funding already secured, that’s one project that should be able to weather the state budget crisis.

Another carpet producer with a strong education business is Milliken, which does most of its business in K-12, though like many mills, its higher education business was until recently growing at a healthy clip. The firm serves both sectors with carpet tile.

Milliken uses its design capabilities to enhance learning environments. Classroom designs, for instance, augmented by the natural noise reduction qualities of carpet, help students stay focused on the teacher, and color and pattern can also be used to draw students through a space, making it more upbeat and positive. Carpet is also heavily used in areas like libraries, where a calm environment is essential.

Bentley Prince Street’s education business has been growing steadily for several years. The firm is based in California, which according to McGraw Hill Construction showed the biggest growth in education construction starts last year, with a 47% gain, followed by Texas, which was up by 36%. The green requirements in California have also helped open doors for Bentley Prince Street.

For instance, University of California requirements mandate certain specifications like solution dyed carpet, post consumer and post industrial recycled content, specialized backings and third party certifications like NSF-140. The firm’s higher education business, which includes both carpet tile and broadloom, grew by 9% last year and now accounts for 11% of the firm’s business, and more growth is expected this year.

The firm’s sister company, LaGrange, Georgia based InterfaceFlor, is another big player in the education market. Most of that business is K-12 and it’s all carpet tile. Education has been the firm’s fastest growing commercial segment.

Mannington sells both vinyl and carpet to the education market, and this year the firm is adding rubber to its offering. Its carpet business is stronger in higher education while VCT dominates in K-12. Its carpet goes into libraries, public spaces and offices, as well as dorm rooms, where vinyl is also used. As schools go more green, demand is growing for its high performance broadloom with 10% post consumer recycled content.

Tarkett serves both sides of the education market, mostly with VCT, but its Achieve and Advance vinyl tiles, which offer lower maintenance costs, are increasingly being specified. About a year ago the firm completed a project for the Science and Technology Magnet School of Southeastern Connecticut that was a grand prize winner of the StarNet Design Awards. The 5,500 square foot job used Azrock’s Cortina Grande commercial resilient tile to meet the costs, maintenance qualities and design requirements of the project.

J&J/Invision, which earlier this month combined its two brands, sells both broadloom and carpet tile to the education market, mostly to colleges and universities. Tile has a stronger position in higher education in part because of its design flexibility. Designs are more utilitarian in K-12, but in higher education, carpet tiles allow designers to really use the floor as a design element with options like quarter turned, ashlar or brick patterns and even border fields.

The firm, which offers PVC backed carpet tile, just introduced its first PVC free tiles, Eko, with thermoplastic polyolefin backings. 

Copyright 2009 Floor Focus 

Related Topics:Armstrong Flooring, Starnet, Tarkett, Coverings, Mannington Mills