BL2026-1436: The PENCIL Lease Deserves More Scrutiny

This discussion topic was requested by Council Member Johnston, relative to the proposed lease between Metro Nashville Public Schools and the PENCIL Foundation.

From CM Johnston:

This is not about whether PENCIL does good work.  PENCIL Foundation supports Metro Nashville Public Schools by helping provide supplies, resources, volunteers, and support for teachers and students. That mission is worthwhile.  But good intentions do not exempt a public agreement from scrutiny.

Council is being asked to approve a lease between MNPS and PENCIL for approximately 35,733 square feet of the former Lillard Elementary School, along with a portion of the surrounding grounds. On the surface, this has been presented as a market-rate lease with PENCIL also making roughly $5 million in capital improvements.

But the actual structure deserves a much closer look.

The lease begins at $324,302 per year, increasing annually by 3%. Over the first 10-year term, that is roughly $3.7 million in potential rent. If all three 10-year renewal options are exercised, this agreement could run for up to 40 years, with a nominal rent value exceeding $24 million, without having to come back before this legislative body.

Yet under the lease, and what I believe many people are missing, PENCIL may apply credits against up to 100% of the rental rate.  Those credits may include goods, services, school supplies, volunteer hours, fiscal sponsorships, and capital improvements — including design, engineering, architectural, and other soft costs.  That means the public may be told this is a market-rate lease, while the actual cash rent paid could be little to nothing.

That is not a small detail. That is the deal.

The rental-credit structure is broad, difficult to evaluate, and fraught with risk. Who determines the value of the goods and services? How are volunteer hours documented? Are paid employee hours excluded? What prevents ordinary nonprofit operations from being reclassified as activities resulting in rent payment credits? What documentation will Council and the public receive?

These are not hostile questions. They are basic financial oversight questions.

The capital improvement issue is just as important. PENCIL’s planned improvements have been presented as an additional public benefit. But if those same improvements are credited back against rent, then the public may not be receiving both rent and improvements. We may be receiving improvements in place of rent.

At the same time, MNPS remains responsible for capital repairs, grounds maintenance, refuse collection, and utilities — costs that are often borne by a tenant in a more typical lease arrangement.

So the real question is not whether PENCIL is a worthy organization. The question is whether this agreement is transparent, financially sound, and fair to taxpayers.

The length of the lease makes this even more concerning. A 10-year lease is significant. A potential 40-year structure is extraordinary. This agreement could control a public school asset for decades, long after most current elected officials are gone.

Council routinely debates much smaller expenditures with more scrutiny. We question grants, contracts, capital spending, and one-time appropriations. But here, we are being asked to approve what could function as a decades-long, zero-dollar lease of public school property with broad rent credits and limited future legislative oversight.

That should give every Councilmember pause.

Again, this is not anti-PENCIL. It is pro-accountability.

If Metro wants to financially support PENCIL, we can have that conversation openly. If MNPS wants to provide subsidized space because of the value PENCIL provides to schools, then make that case plainly.

But do not present this as a straightforward market-rate lease if the agreement allows the rent to be wiped out through credits. Do not present capital improvements as an added benefit if those improvements are also used to reduce rent. And do not set a precedent that any nonprofit with a good mission can receive long-term control of public property while offsetting rent through self-reported goods, services, and improvements.

Before approving this lease, Council should require real safeguards.

1. Require annual public reporting of all rent credits. MNPS and PENCIL should report the stated rent, cash rent actually paid, every credit claimed, the category of each credit, the value assigned, and the documentation supporting that value.

2. Limit and clearly define eligible credits. Volunteer hours should exclude paid employee work and ordinary nonprofit operations. Capital improvement credits should require prior approval, independent valuation, and a clear cap.

3. Require Council approval before each renewal term. Before any 10-year renewal takes effect, MNPS should return to Council with a full accounting of rent paid, credits claimed, improvements made, public benefit delivered, and remaining public obligations.

These amendments would not stop PENCIL from serving schools. They would not prevent MNPS from partnering with a nonprofit. They would simply ensure that public property is not committed for decades under a structure that lacks transparency and sets a terrible precedent.

PENCIL is a worthy partner.

But a worthy partner does not automatically make this a good deal.

Public property belongs to the public. Council should not approve a lease this long, this favorable, and this vulnerable to abuse without full transparency, enforceable safeguards, and real legislative oversight.

That is not anti-PENCIL.  That is pro-taxpayer.  That is our job.