Risk Management |
Article by Stacey Freed
From the May/June 2019 Net Assets magazine
On November 8, 2018, Yuri Hronsky, head of school at Ilan Ramon Day School in Agoura, California, got word of a wildfire in Newbury Park, 11 miles west. Later, in Simi Valley, about 20 miles north of the school, another fire broke out. “We’d seen this before,” Hronsky said. “When the Santa Ana winds pick up they’re nasty, and fire danger increases.”
Hronsky decided to close school early. It was a Thursday; the students were heading into a four-day weekend, with staff development on Friday and Monday the Veteran’s Day holiday. Hronsky called the families of the Jewish school’s 154 students and encouraged them to retrieve their children.
Hronsky backed up Quickbooks on a flash drive and took that and the Torah scroll home with him. “I’m not sure why I did that,” he said, “because even though it’s part of our protocol, when we left school, the fires weren’t that bad.”
It turned out that taking home the Torah scroll — a handwritten copy of the holiest book in Judaism — and the flash drive was a fortunate move. “Overnight, the fire [in Simi Valley] seemed to explode and move a huge distance in a short amount of time,” Hronsky said. “By the time we realized what was going on, we weren’t going to be allowed access to go back to the school.” He and the rest of the Ilan Ramon community would soon watch in real time on the TV news as the school’s computer lab and server room, along with several other small structures, succumbed to the fires.
Ilan Ramon was in the path of the Woolsey Fire, one of 7,571 wildfires in California in 2018. (The Camp Fire, the deadliest and most destructive fire in California’s history, began the same day about 25 miles away.) Combined, all of California’s wildfires burned more than 1.6 million acres in the state last year. But fire is not the only disaster that is wreaking havoc on lives, homes, property and businesses across the United States. Amid continuing climate change, all types of weather-related events — snow, wind, hail, hurricanes, tornadoes, flooding, drought, heat waves, extreme cold — have posed a growing threat in recent years. Many have been devastating and caused billions of dollars in damage, and their frequency is increasing. How can independent schools prepare now for more extreme weather and its consequences for business interruptions and capital losses?
An increasingly important discussion among key school stakeholders involves the school’s ability to function during or after a major disruption of any kind. The following questions are a starting point for this discussion, according to Jamie Gershon of Bolton & Company. “This is not a simple process, and there is no one-size-fits-all solution. You have to look at your own school culture, resources and characteristics.”
Another school in the path of California wildfires was the Sonoma Country Day School (SCDS) in Santa Rosa. It escaped the worst of the Tubbs Fire in October 2017, but there was enough physical damage from smoke, ash and debris to keep the preK-8 school closed for six business days, said Jennifer Macias, director of finance and operations.
Macias contacted the school’s insurance company immediately. Among the casualties: $3,500 worth of food in the refrigerator and freezer (for the hot lunch program) and all HVAC filters, which had been overloaded by ash and debris. Add a complete deep-cleaning, inside and out, and the cost came to about $25,000 — against a $50,000 deductible. Instead of using reserves to cover those out-of-pocket expenses, Macias said, “we were able to fundraise the money through a fire relief fund. There was an amazing outpouring of support from across the country.”
SCDS also installed its own air quality monitor. “It gives us the most accurate reading of both indoor and outdoor air quality and levels of pollution,” and that information is shared with parents. “They know their kids will be safe at school,” Macias said. Purchases also included more than 50 strong HEPA filters, one for each classroom. When poor air quality forces other schools to close, “we’re able to open because our school is likely a better spot to be than even the student’s own home in terms of air quality,” Macias said. More improvements are possible. The school, which has two buildings and sits on 19 acres, has long had interior sprinklers and is now considering exterior sprinklers for the rooftops.
A school’s insurance deductible is one variable that can impact its response to weather-related issues. As incidents increase, Paul Pousson, managing director of higher education practice at Gallagher, an insurance and risk management firm, said, more independent schools are changing their deductible structures and increasing their coverage. “But with that comes the need for increased emphasis on risk mitigation and control, and that’s not just with respect to facilities,” he said. “It’s also how [schools] deal with administrative controls around continuity of operations, preplanning and emergency response.”
Ilan Ramon was able to resume educating students just after Thanksgiving, about two weeks after the Woolsey Fire, by holding classes at a local temple. The school remained there for three months. For its part, SCDS was able to return to its own campus “as soon as the power was back on, within six business days,” Macias said. In the spirit of community, SCDS also allowed some small public schools to use its facilities for sporting events and gathering spaces.
Having strong local connections should be part of any continuity strategy, Pousson said. He also recommends a “command structure” — a core operating and financial team that deals with communications, planning and resources. He suggested schools look at the standards developed through FEMA’s National Incident Management System (NIMS) and consider the following:
Chris Joffe, founder and CEO of Joffe Emergency Services, based in Santa Monica, said the command structure should include some adults who stay on campus and others who relocate with students off campus.
Ultimately, any disaster-recovery plan should aim to resume operations on location as quickly as possible, said Joffe. “The benchmark we use is seven days from the time you leave campus until you resume some form of operations,” Joffe said. “If you don’t put people back to work, they’ll leave.” Young employees in particular, who “often don’t have children, own homes or have significant family ties, [find it easier] to walk away,” he noted. “There already are huge retention challenges with faculty and staff. Be aware that will get worse after a crisis.”
The 2017 wildfires that affected SCDS had a tremendous ripple effect. They destroyed more than 5,300 homes, claimed the lives of 43 people and took three weeks to be contained. “Everyone in our school community experienced this tragic event,” Macias said. Nobody from SCDS died, but many lost homes and businesses; families were evacuated, allowed to return and then evacuated again. “The whole community was on guard and scared.”
Nor did the fire lead to any SCDS faculty or staff leaving their jobs. But as part of its command structure, the school took its main secretary off her primary duties and assigned her full time to “fire family support. She did that for a month,” Macias said. This meant coordinating with the insurance companies, and, through a Facebook page, helping families find housing and transportation. The school also had room parents connect with their classroom families to make sure everyone was accounted for and kept in the loop.
Retention was a concern with regard to students as well. Macias worried that families might leave for various reasons, including income loss from damaged or destroyed businesses. She produced three side-by-side comparisons: “Worst-case scenario if every family had lost a home and left, a middle-of-the-road case and a best case to show the board the potential impacts. We talked with our bank and all our stakeholders about what it would mean to dip into our reserves if we weren’t getting our net tuition,” she said.
Only one family left SCDS because of the fire; the child had health concerns that could be exacerbated by future fires. Tuition-refund insurance allowed the school to refund that family.
In 2009, Cornell University in Ithaca, New York, developed an ambitious “climate action plan” with the goal of being carbon neutral by 2035, said Mark Howe, director of utilities distribution and energy management. The 745-acre Ithaca campus includes more than 250 buildings (comprising about 15 million gross square feet) and 30,000 students, faculty and administrators.
The plan comprises several key actions aimed at creating a path to climate neutrality. It was developed soon after students formed a KyotoNow! group, part of a movement that pushes for colleges and universities to reduce carbon dioxide emissions.
Part of the thrust of building sustainably is to help lessen the impact of natural disasters and extreme weather events on operational readiness. To accomplish its goals, Howe said, Cornell needs more resilient efficient facilities and systems. He described university requirements for new facilities to use 30 percent to 50 percent less energy than required by building code as “a key component of ensuring safe, reliable operation of our facilities.”
In 2011, Cornell switched from coal to natural gas-fired combustion turbines for a more efficient way to supply the campus with heat and electricity. The school also adopted a lower-temperature hot water system that reduces the loss of heat into the ground and enables enhanced geothermal systems.
In addition, Cornell has done extensive “straight energy conservation work,” as Howe described it. This includes upgrading building controls and control sequences, installing heat recovery systems, LED lighting on building interiors and exteriors and on street lights, and updated greenhouse lighting and controls. To keep facilities operating as efficiently as possible, the school employs 10 technicians who “continuously recommission space and mechanical systems throughout the university,” Howe said.
The energy conservation work, done between 2010 and 2016, cost about $33 million, “and we reduced energy use by $6.4 million [each year], about a five-year ROI,” Howe said. The interior LED project replaced more than 166,000 fluorescent lamps at a cost of $3.2 million. Its ROI, after more than $1 million in rebates from New York state, was just over three years.
A variety of practical preparations and physical changes can also help campuses stand up to extreme weather. Cranbrook Schools is a 320-acre day and boarding program in Bloomfield Hills, Michigan. Its landscape and many of its buildings are registered as National Historic Landmarks. Earlier this year, cold weather and high winds triggered many more closings than usual — six days in one three-week period, said Dan Williams, director of facilities operations. “Used to be you’d get a snow day, you close the school, plow, clean the walkways and be done,” he said, drawing from his 14 years at the school. “Now there are so many scenarios; you have to look at what event is coming up and plan accordingly.”
To that end, Cranbrook maintains a ready supply of salt and sandbags and doesn’t decommission its snow equipment until late April. Another risk involves flooding (there is a river and a lake on campus), which could damage the landscape and send uprooted trees onto buildings. The school has preventively “taken down 60 trees in the past few years, a good number of them for weather, with the strategic goal of avoiding possible weather-related issues,” Williams said.
SCDS, too, has changed its landscape to deter fires. “We’ve made sure no vegetation or trees are touching or near the buildings,” Macias said. Tree-trimming is ongoing and vigilant.
Pousson encourages schools to pre-negotiate disaster-response contracts for items like salt and sandbags, along with contracts with vendors who perform tasks such as plowing snow, removing water and damaged drywall, and even rebuilding. Pre-negotiating can help you avoid “waiting in line with others that don’t have existing contracts in place. You don’t want to pay a premium or surcharge when costs go up because of demand,” he said.
Preparations should include a plan for distance learning as well. Sherry Krebsbach, director of finance and facilities at St. John’s Prep in Collegeville, Minnesota, said a spike in recent closings — five days in five weeks, three of them in January for extreme cold — has the 1:1 iPad school looking at new ways to keep up with instructional time. It helps only so much that the school uses a learning management system that allows students to see notes from teachers. “Assignments are there, but there’s no real instruction,” Kresbach said. She believes that since the school already has the hardware for distance learning, the biggest challenge involves planning. How do you know when a disaster will strike? Where do you pick up curriculum?
Joffe said that what’s important for distance learning is that schools have some platform in place. Even Google Hangouts could be an option. “Having something in place means you’re less likely to need to reimburse tuition since you’re not losing too many learning days, and you’re paying faculty for the right reasons,” he said. “Eight out of 10 schools pay faculty if school closes, but then end up paying them more at the end of the school year if they have to add days.” Regardless of the distance-learning system you use, practice it frequently so it will work when you need it.
With increased climate-related events, tuition-refund insurance can be part of loss-of-business income and extra-expense coverage, according to Cheryl McDowell, vice president of education practice group at Bolton & Company. She reported an uptick in schools “making more conscientious, careful considerations about the types and amount of insurance they’re purchasing.” This can include coverage to support continued pay and benefits as well as extra expense coverage for needs such as portable classrooms during repairs, temporary rental space, additional computer servers and long-distance learning.
McDowell recommends that schools run best- and worst-case scenarios around potential climate disasters, and not limit planning to the CFO level. “It should be board level,” especially when a school has considerable campus investments. And, she added, look at your policies every year, since board composition may change. “There are different opinions in different years. Make sure the consensus is always the same.”
During the Woolsey Fire, Ilan Ramon's Hronsky worked with a crisis management team at Joffe’s firm, whose services include providing notifications to families, faculty and staff, such as robocalls from the head of school, emails and text messages. “These messages give information about evacuation as well as offering calm and reassurance,” Joffe said. “They are tremendously important to help parents understand the facts and evolution of the crisis. We do them for the kids, too.”
Once Hronsky was allowed back on Ilan Ramon’s 12-acre campus, he walked the property with the school’s insurance agent to assess the damage. No classrooms were lost, and the only other structural losses besides the computer lab and server room involved a handball court, the physical education coach’s shed, the plant manager’s workspace and an electrical shed. While insurance would cover those losses, the school lacked secondary coverage for items in the sheds.
“We lost containers that held emergency supplies for earthquakes [a California requirement]; outdoor play structures, toys in the yard, balls and other sports equipment. You don’t think about how much it costs to replace those things,” he said. “Is the fence covered or not? Is it attached to the building? What coverage line does it go under?” He suggests that schools check how much coverage they have for those items. “The extra money is worth it. Revisit it on an annual basis.”
Any new structures, of course, will have to be built to the most recent codes. You might also need additional structures. Building codes across the nation are getting more stringent as risk increases. In North Texas (and similarly vulnerable areas), new construction for schools, whether public or private, must include a storm shelter, according to Bill Keslar, president and CEO of Building Solutions, a facilities consultancy.
“The most commonly adopted building codes are formulated based on empirical evidence that we’re susceptible to high windstorm events, tornadoes in particular,” Keslar said. “And they require sturdy structures that can withstand winds in excess of 250 miles per hour.” To satisfy that requirement, conventional construction doesn’t work, he noted. “It’s as if you have to build a portion of a building within a building — like something resembling a bank vault. It’s made with concrete or reinforced concrete blocks, and has its own ventilation system and bathrooms that would take care of a population on a short-term basis.” Depending on size and other factors, this kind of construction might add hundreds of thousands of dollars to a project, he said.
Long-term budget forecasting is tricky when it comes to adverse weather, but it’s an effort worth every school’s time in the era of climate change. Atmospheric concentrations of carbon dioxide are at an unprecedented high, according to the World Meteorological Organization, foretelling more climate and weather extremes in the years ahead. Contingency funds are one way to avoid having to scramble to find money for unexpected costs associated with closures, cleanups, rebuilds, and lost revenue (tuition, rentals) and staff productivity.
Just accept that some costs may remain uncertain for months or even years. Consider Ilan Ramon. As of mid-March, four months after the Woolsey Fire, Hronsky still didn’t know the total cost of the disaster to the school, despite having completed an environmental clean-up and remediation and relocating the servers to a different building on campus.
Nor is there a sense of finality at SCDS, although its fire exposure goes back to 2017. This July, for instance, many homeowners from the community will stop receiving insurance payments that have helped them rent housing while they rebuild. There are concerns that with high construction costs, lengthy rebuilding times and a dearth of homes available for purchase, along with additional pressures on families that experienced business losses, more families may struggle with staying in the area.
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