Over $700 million in New Market Tax Credits awarded to groups supporting charter schools this fall

The Treasury Department just awarded $5 billion in New Market Tax Credits (NMTCs) to 100 recipients. Not all of them support charter schools, but 13 of the recipients have previous charter school experience. These 13 groups received $710 million in tax credits. For details or more information on New Market Tax Credits, check out our earlier blog posts here and here.  Over 300 charter schools have benefitted from NMTCs since 2001 when the program was created. You can find the full list of recipients on the CDFI’s website here.  Since 2001, $60 billion in tax credits have been awarded to over 120 CDEs. In an ideal world, a school would have contacted one of these groups back in the application stage. But it’s never too late to ask. Here are the 13 groups:

  • BlueHub Capital
  • Capital Impact Partners
  • Chase
  • Community Loan Fund of New Jersey
  • Florida Community Loan Fund
  • Hope Enterprise
  • IFF
  • LISC
  • LIIF
  • PNC
  • Raza Development Fund
  • Reinvestment Fund
  • US Bank

Financing a Facility and Realizing a Dream: How LIFE Academy is Opening Doors in Alabama

This month, LIFE Academy will open to eager students in Montgomery, Alabama. The charter school – among the first in its state, will prepare students grades K-8 for successful futures in college, trades, and entrepreneurship. The doors students will walk through are on the renovated campus of the historic St. Jude Educational Institute, part of the Selma to Montgomery National Historic Trail. With a culturally relevant and equitable lens, LIFE Academy is designed to meet the needs of students and their families. The project is the vision of LIFE Academy board chair Norma Chism, who recently spoke with Michael Alles of Nonprofit Finance Fund (NFF), the Community Development Financial Institution that led the financing used to purchase the facility.

This is the third in a series of blogs on charter school finance contributed by Nonprofit Finance Fund. The conversation captured here has been edited for length and clarity.

Michael Alles: LIFE Academy is among the first charter schools in Alabama. This is a new market for NFF, as well as for you. How did entering a new charter market – where charter infrastructure is still developing capacity – shape your journey?  

Norma Chism: I’ve been working on this project for the past 5-7 years, making connections in the community, and making sure this is something that the community would like.

In working to understand community needs, I followed the advice of mentors to network and join organizations. I became connected to the leaders of the City of Montgomery and was able to share with them my vision. Through networks and introductions from people who believed that my dream would help revitalize our community, I built relationships with the Mayor – who was the first to tell me about the availability of the St. Jude campus – as well as well as with the Archdiocese of Alabama, the local priest whose support we needed, the school district, and others.

I drew on my military background to create effective presentations and approach people as part of a team to gain their support. And my military leadership experience, showing honor and respect to all of our partners in this process – from our families to our authorizer – helped.

I found people who were crazy enough to believe in the power of my dream even when they didn’t understand the weight of what I was trying to do.

MA: How did connecting with the community, and understanding what families wanted, tie in with the purchase of this particular building? The St. Jude campus is historically significant, and I understand there was a lot of community support for having it repurposed in this way.

NC: I knew that financing a building would be one of my greatest challenges in starting a charter school. I was terrified. But a permanent home – the right home – was a make-or-break part of my dream. Many lenders wouldn’t touch us because we are brand new. It is rare that someone would fund a project for the amount we were asking for. I experienced a lot of stress and anxiety thinking, “If you can’t get someone to fund you, Norma, it doesn’t matter how amazing your vision is.”

A lot of schools choose to lease first, but the owner of our building wasn’t interested in the leasing.  I had people with 10 or 15 years of experience telling me I needed to stop dreaming so big, and that I had to crawl before I could walk, and should find a building to lease instead of trying to buy. 

I felt that if we didn’t buy this building at this time, we would lose out on a major investment. When we are done paying this loan, we will own the building, and be able to do other things with that money. My dreams are so big and so wide. You have no idea what we’re going to do with those funds to change the community that we live in.

MA: You’ve held this dream for a long time. What was the opportunity you saw? What space do you see LIFE filling in Alabama?  

NC: LIFE Academy is built on the concept that we have to create an environment conducive to learning. So for us, we have to respect the trauma-sensitive environment our students are coming from.

We understand the behavior considerations for the students who will attend. We’re not targeting kids who are top academic performers. We are most concerned with serving children who are dealing with tough circumstances.

That commitment has led to a lot of support from our school district. The Superintendent is excited that we’re bringing something different to the community, and has offered to help with food, transportation, even with supporting teachers leaving other district schools to teach at LIFE Academy.

MA: You’ve had incredible support from local leadership. How did you nurture relationships with local families?

NC: One of my mentors suggested going to where people eat, sleep, and pray. I went to local churches. I posted flyers in restaurants. I went into homes. I even went to the Walmart parking lot and heard about what people were interested in, and shared what we were trying to do. If they were 92, I’d ask if they had grandkids or great-grandkids who might be interested. My efforts were described as a guerilla operation, but hey, everybody goes to Walmart!

It also worked in my favor that St. Jude was active until 2014, so I made a connection with the alumni, and they were supportive, connecting me with families in their networks.

This wasn’t a “build it and they will come” situation. We had families that were interested, but didn’t have a car. Or weren’t able to drop off records. My amazing team goes inside homes, enrolls children where they live, has figured out how to securely get records and administer reading tests, sometimes under difficult circumstances.

MA: After working for years to get here, what would you tell others who are thinking of launching a school?

NC: I would tell them that patience is key. Starting a charter school is one of those dreams that really needs to be nurtured, and the right relationships and partnerships need to be in place.

One of the most important things for me was hiring an amazing executive director. She’s another fighter, and very strong on the educational background that I don’t have.

It’s also important to be honest about our challenges – especially as we come out of the pandemic where many of our children didn’t receive the level of education they otherwise would have. The more we are vulnerable and honest about the scope of the challenges, the more people trust us.

In this field, you need to have a true servant’s heart. It can’t be about money, about fame, or personal gain in any area. It has to be about the children, and you need to align your budget accordingly, and demonstrate that to the community.

Starting a charter school is a heavy lift. It tests your beliefs and your character. As long as people with the right hearts are in it for the right reasons, they’re going to be successful. It just might take a while. It took a while for us, but here we are.

Facility Advocacy Efforts Win Over $100 Million for Charter Schools

This year, advocates across the country secured critical funding and regulatory changes at the state level to improve the charter school facility landscape. These efforts brought over $100 million in public funds to help offset the costs of charter school facilities.

Check out these eleven states where we saw positive legislation for charter schools and facilities:

  1. Colorado – Legislators increased the cap on moral obligation bonds for charter schools from $500-750 million. The State Treasurer announced the moral obligation program has already saved charter schools over $100 million in interest payments. The increase in the moral obligation program should result in significantly more savings.
  2. Florida – New charter schools authorized by a state university or Florida College System institution are now eligible for funds from each school district’s current operating discretionary millage levy. This can provide more equitable funding for facilities by accessing some of the same facility funding tax base that the district uses.  
  3. Georgia – Legislators increased state funding for district-authorized charter schools and ensured districts allocate a proportionate share of federal funding to district-authorized charter schools. These funds have the same eligible uses, including facility expenses.  
  4. Indiana – The state increased its per-pupil charter school facilities allotment from $500 to $1,000 per-pupil in the first year of the budget and $1,250 per-pupil in the second year.  
  5. Nevada – The legislative session ended with a big win for Silver State students. Not only did the legislature protect operations funding for Nevada's successful charter school sector, they also provided $15 million in COVID relief funding to Title I charter schools, which serve many of the state's underserved students and families. This dedicated funding can support unique learning opportunities and be used for facilities to support the teachers and leaders that serve more than 16,000 students from low-income backgrounds.    
  6. New Jersey- For the first time ever, NJ charter schools will receive facilities aid now that $5 million of charter schools facilities improvement funding has been signed into law as part of the Governor's FY22 budget.
  7. New Hampshire – The legislature passed a bill that would provide charter schools the right of first refusal to acquire or lease excess school district space. Additionally, the state increased the amount of lease aid from $30,000 to $50,000 per year to help offset the cost of a facility lease.  
  8. Ohio-The state doubled its per-pupil charter school facilites allotment from $250 to $500 per-pupil. They also modified the definition of unused facilities to help charter schools access more unused district buildings. 
  9. Oklahoma – A bill passed that will provide charter schools with additional funding for facilities with access to the Building Equalization Fund. This could result in $350 per student each year starting next year. The legislators themselves will deliver the checks to the schools and hopefully meet parents, teachers, and students. Have your cameras ready!  
  10. Tennessee – The state legislature passed a budget that included $6 million in recurring funding and $18 million in non-recurring funds for charter school facilities, totaling $24 million for charter school facilities.  
  11. Texas – House Bill 3610 recently passed to remedy scenarios in which charter schools must pay property taxes on purchased or leased property. The legislation amends the Texas Education Code to classify open-enrollment charter schools as political subdivisions for the purposes of exempting from property taxation any public property “purchased, leased, constructed, renovated, or improved with state funds after September 1, 2001.” Rep. Dan Huberty (R-Houston) said the Supreme Court had ruled that buildings owned by public schools or businesses but used for a “public purpose” could be exempt from property taxes. Huberty also pointed out that as public schools, charter schools were using state education funds to pay the property taxes. 

Thanks to all of the state advocacy groups and their financial supporters!

After this year, we expect to see more organizations realize the benefit of advocacy and increase their support for this important role in helping charters thrive in a friendlier environment. We also know the opposition will increase their efforts to hamper the growth of charter schools by denying them facilities.

We hope to see many other states pursue facility-related legislation in the next session as well.

Will Your Charter School Get a Loan? How a Credit Committee Decides and What You Can Do to Support a ‘yes’!

Applying for a loan can be a stressful process. Who decides whether a charter school loan will be approved? And how can a charter school bolster its application?

Many charter schools rely on Community Development Financial Institutions (CDFIs) for loans. CDFIs are mission-driven lenders who consider community benefit as well as financial factors when making loans. There are also commercial banks and private investment funds, both for-profit and non-profit.

Most lenders have a credit committee, a group of 3-5 people who review each transaction and decide whether it is a god fit for the lender. The credit committee is typically comprised of staff, board members, and/or others with finance, legal, and community development experience.  When making a decision to approve a loan, the credit committee looks for a comprehensive picture of the charter school’s mission, academic performance, governance, financial strength, and community engagement in addition to the school’s financial story. Here are three things you can do to best advocate for a loan.

1. Help Your Advocate Help You 

The loan officer or loan underwriter works closely with the charter school to understand the organization’s mission, assess its capital needs, and advocate for the school at the credit committee. It is their job to synthesize all your conversations and due diligence items into a credit memo that they present to the committee.

Sharing your school’s story with the underwriter – both the successes and the challenges – is the best way to equip them to present the full picture of your organization. It might feel uncomfortable to talk about past financial struggles or leadership transitions; charter schools often fear that discussing hardships will reflect poorly on the school and jeopardize financing. Rest assured, mission-driven credit committees are eager to understand the backstory and context for any negative results or incidents and shouldn't reject a loan solely because an organization had one bad year or a leader who was not the right fit. Mission-oriented lenders seek to partner with a school for the long term – and invest in a community’s future. If a credit committee finds there are issues that aren’t fully explained, they might hesitate to sign off on a loan.  

2. Help Prepare the Presentation  

Prior to the credit committee meeting, the underwriter will circulate a copy of their credit memo, which lays out in writing your school’s request for financing. The credit memo highlights the assets of the school and strengths of its financing request. It also identifies the possible risks to repayment – and the mitigants to those risks. This credit memo can be 20-30 pages and includes much of the information that was requested of the school during the loan application or due diligence. This is why it is important to provide the school’s information in a clear manner – all of that information goes into the story being presented to the credit committee. The school can share its written story and that can help the underwriter prepare the credit memo. Sharing full information will allow the credit committee to make an informed decision.

The credit memo is a proprietary document that is not available for the school to review it.

Committee members will read the memo and come to the meeting with questions. As your advocate, the underwriter will address any concerns and share additional insights that might not have made it into the memo. The school does not present at the credit committee, unlike a credit rating agency interview.

3. Overcommunicate about all of the Common Charter School Factors

All credit committee meetings – for any type of loan – include deep dives into the financial strengths, and management and governance of applicants. When discussing charter schools in particular, conversation also centers around factors that influence the school’s ability to repay the loan. These might include:  

Charter Term and Authorizer

Lenders assess the school’s charter status, the timing of its renewal, and its renewal history. If the charter is up for renewal during the term of the loan, the lender will want to know whether the school is in good standing with the authorizer. If a school is under a corrective action plan with the authorizer, the lender will want to understand the school’s path towards compliance and renewal.

Enrollment

Lenders want to understand the school’s ability to reach and maintain enrollment targets. To assess this, they review historical and projected student enrollment numbers. Has the school met its enrollment projections – and, if not, is there a clear plan to increase enrollment? If your school saw a decline in enrollment one year, you’ll want to share additional context with your underwriter to give them a full picture. Enrollment levels are important to a lender because they translate both to revenue that keeps the school’s operations healthy and to impact measured by number of students served. One school we lent to experienced a precipitous drop in enrollment from one year to the next; when we looked into why that occurred, we learned that a pilot curriculum was not well-received by the students and their families. When the school brought back its old curriculum, it saw full enrollment return.

Academic Performance

Academic performance impacts enrollment and charter renewal.  Does your school consistently outperform state and district schools and your peer charter schools on academic performance? Fantastic. If not, that’s OK too. We understand that measuring and interpreting academic performance isn’t easy. There are many reasons why results don’t always show steady upward progress: tests change, teacher turnover, student mobility, etc. We’ve approved loans to top-performing schools; we’ve also approved loans to schools that underperform their peers but that have reliable management and a clear plan for improvement. Lenders generally just want to understand how the school performs academically compared to other charter schools in the area – and if their trends in scores are stable or improving.

School Culture

Do students and families love your charter school? Student retention rates are one metric lenders use to understand the school culture. Student retention rates between 85-90% are ideal; such a high rate signals to lenders that there is consistent parent engagement and a well-functioning feedback loop between students, families, and the school’s leadership. One memorable credit memo included statistics on how many families sent siblings to a charter school that one child had attended. The school focused on small, personalized learning environments that enabled students to develop close relationships with teachers and peers – and built trust between the school and the families it serves.

Racial Equity

Many CDFIs increasingly view their lending through a racial equity lens, seeking to expand their work with organizations led by and serving Black people, Indigenous people, and people of color (BIPOC). As part of this process, CDFIs want to learn more about how their borrowers support BIPOC communities. Some CDFIs, including NFF, are piloting a racial equity matrix: a research-based assessment designed to evaluate a school’s institutional commitment to equitable learning environments. Knowing that structural racism too often restrains children’s potential, CDFIs seek partnerships with schools that demonstrate commitments to high-quality education for BIPOC students. The matrix addresses qualitative measures of how well a school’s leadership and policies address equity issues as they build a learning community.

The Vote and Approval

Once the credit committee has considered the request and had the opportunity to ask questions, it is time for committee members to vote. At NFF and many other CDFIs and lenders, each committee member’s vote has equal weight, and a certain number of votes are needed to make a quorum. In rare occasions, the underwriter may not have the answer to a question or concern that is raised and will need to go back to the school for additional context.

If the committee approves the loan, it will move to closing, the stage where documentation, terms, and logistics are finalized.

 

CDFI financing is more than just capital; it is a signal of partnership with your school and the community. You can support your financing goals by treating this as a partnership rather than just another application for resources.

 

This guest blog post is the second in a series from Nonprofit Finance Fund. Dana Stranz is the Manager of Portfolio Management.

 

Planning a School Facility? The 3-Step Checklist - Before You Get Started

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Checklist

So you have an idea for a school facility, or maybe you’ve heard of an opportunity?  You have a gut sense that a facility project would be transformational and exciting, as well as daunting and risky.  Do you feel confident in how to get started, and how to engage with your Board about it?

Here is a checklist of the first three things to do as you and your Board take initial steps exploring a new school facility project.

1. Gather information from peers

When you buy a house, you go to open houses, watch sale prices, and ask friends and family for information of their experiences and referrals to agents and lenders.  This is all to get a sense of what decisions lie ahead for you as you start down that path. You can learn a lot from engaging with others, versus solely reading and studying information.

 

How do I make the most of talking with a peer?

A productive interview mixes the two lenses of planning and curiosity.

Planning: When you reach out, share your intent for learning more about facility projects, and share your interview questions.  By sharing your questions you give your peer some time to check on details and consider their answers.  You also give them a chance to consider other people to join the conversation for certain topics.  You will ideally be talking with the person who made most of the decisions, signed the contracts, signed any loan documents, gave direction to the partners, and/or is operating the facility right now.

Curiosity:  As you gather data and answers to your questions, keep listening for behind-the-scenes stories.  If possible, have the discussion while actively touring the facility as this can spark your host’s memories and allow you to ask about what catches your eye. As you wrap up, ask for an introduction to someone else who’s been in your shoes.

 

How do I organize what I learn?

Your interviews with peers are a type of benchmarking.  Using the interview questions form will help you remember all of the questions you want to ask and keep all of the answers in a consistent place.

When you have information about a handful of facilities, then you can generally compare them in specific criteria, like cost and size.  This provides the context to know what is average, what the high bar is, and what would be distinctly unique. What you’ll learn from your peers will fall in three buckets:

  • Facility description
  • Facility partners
  • Lessons learned

 

2. Outline your vision

As you learn from your peers, you can start to rough out your ideas for your facility. You can use the same interview questions that were used for benchmarking. They can help prompt you to think about some specifics, allow you to capture bits and pieces as they come, and let the vision start to take shape.

Areas in the template that you aren’t sure about or you want to further challenge, can be the emphasis for further peer conversations.  The template can also be a great foundation for talking with potential partners, asking for their opinions and perspectives on trends and things to consider about what you’ve filled out and what you haven’t yet.

Remember that the vision will be dynamically changing as you continue to engage with it, so don’t worry about it being thorough and perfect with your first draft. When you have a preliminary vision for a facility project, as well as some context, it’s a good time to start engaging with your Board.

Being upfront with what you know and don’t know yet, shows your humility and respect for the complexity of the process, which can actually build trust.  You can use this fun 12-question true/false quiz to see how much you know. Framing your vision for what is “average”, what is “raising the bar”, and what would be a “unique identifier”, is a great way to open conversations and awareness of both opportunity and risk in the project idea.

One way you can engage with your Board is to circulate the latest versions of the interview forms and your vision template.  These can help Board members think about your ideas and gather their questions as well as their advice.  Potentially they can offer additional introductions and input on key aspects of the vision.

Getting your Board engaged at the very early stages will also let you identify the Board member(s) who will partner with you and help you navigate the long series of mandates and approvals that lie ahead.

 

3. Next Steps

Your next steps to keep moving forward with your facility vision may require some financial resources and may start increasing public awareness of your idea.  You want your Board’s support and you do not want to catch them off-guard with any surprises when they get questions from the community or see financial statements.

Ideally, your Board offers you a mandate to proceed with a range of actions, within a specific budget and timeline.  They might set-up a committee to support you, and they might be curious to visit some facilities to increase their own knowledge to face the challenges and opportunities ahead.

Here are some prompts for framing an initial mandate:

  • What do you want to spend money on over the next six months?
  • Where might the funds come from?
  • Who do you want to more formally be talking with in the next six months?
  • Who might join you in those conversations?
  • What might the first risk point be that the Board will need to address, and when?
  • What might the Board need to approve next, and when?

The scale of your next steps may depend on the culture of your Board, its priorities, its frequency of meeting, and its comfort with risk.  It may also depend on external factors like land availability, grant deadlines, and development initiatives.

Even with robust mandates, regular and consistent updates with your Board will be invaluable for strengthening the partnership you’ll need as the project only gets more complex going forward.

With these first three initial steps, you will be well-positioned on the path to a school facility project.  These initial steps likely won’t relieve your gut instinct that it will be a daunting and risky venture, but they will help you be better prepared and confident to navigate the risks as you make the most of opportunities, toward a project that meets your goals for success. From here, we recommend you visit SchoolBuild, a free resource from LISC and Capital Impact Partners that goes further into the details of charter school facility planning.

 

How to Tell Your Charter School’s Financial Story

Every charter school has a story. Many school leaders believe in the power of storytelling as a compelling way to share their mission, highlight accomplishments, and inspire support. Although it may seem unusual to center a narrative around numbers, storytelling can be equally compelling in finance.  

A financial story uses your numbers to explain where you are today, how you got there, and where you want to go. It allows you to build trust and credibility and advocate for the resources you need to fulfill your mission.  

A financial story also protects against misinterpretation of your numbers. Without context, an operating deficit is a red flag. However, a planned deficit in one fiscal year to invest in additional social workers to support your mission of providing students with wraparound services provides an explanation that would not be apparent by reading your financial audit. 

As COVID-19 has exacerbated the complexity of the charter school operating environment, many charter school leaders find themselves in even more need of flexible financing to support operations and facility projects. They may have debt, be seeking debt, or embarking on new fundraising efforts. Here are three tips for telling a compelling financial story:  

 

Connect past, present, and future  

Write a brief narrative (1-2 pages) that tells the story of your school’s financial life. Refresh the narrative during your budgeting process to determine your school’s situation, priorities, and needs. You can pull from this narrative to accompany a loan application or financial reporting to your lender, when writing grant applications, and even to train new staff and board members. 

Consider: What are your school’s major milestones? How has your operating environment changed, and how has your school adapted? How do you anticipate your school will meet community needs, now and in the future?  

 

Connect numbers to mission, actions, and needs  

Connecting the dots between financial data and mission needs can help rally support.  

For example, perhaps your charter school has been able to secure operating reserves of one month, and, on paper, looks financially stable. What if the story behind the numbers reveals that your school consistently needs to use reserves to cover increased costs for technology, food distribution, and cleaning as a result of COVID-19? And then can’t invest in extracurricular programs and wrap-around services? And that school leadership is so focused on cash flow management it impedes the ability to innovate and meet evolving community needs? 

By connecting COVID-19 response to the impact on staff, students, and families, your school is better poised to seek additional funding to support its mission.  

 

Communicate early and often with lenders  

Stay in front of your lender by telling your financial story regularly and sharing impact updates. Establishing an open dialogue and feedback loop beyond scheduled reporting and compliance due dates keeps lenders informed of and excited about your work and fosters a positive and flexible relationship.  

Imagine you are considering applying for a government capital grant to support a facility project. If awarded, grant funds will be reimbursed periodically only after eligible construction costs have been incurred. Though receiving the award would limit the amount you would need to fundraise from individuals or foundations, it would cause a strain on your cash flow. Speaking with a lender early on can help shed light on the best way to pay for the project – with and without the award - and could potentially bolster your grant application if your lender is able to provide a letter of support to bridge the funds. 

Understanding and sharing your financial story is an opportunity to advance your school’s mission and build a stable future.

 

This guest blog post is the first in a series from Nonprofit Finance Fund. Olivia Pipitone is Associate Director of Business Development.

Springtime is here: Tulips and Tax Credits

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tulips

New Market Tax Credit deadline approaching for 2022 projects

Are you anticipating a school construction or acquisition project next year? Have you heard about the elusive and complex, but money-saving New Market Tax Credits? Did you ever wonder how your school can get these tax credits?  If you don’t know what these tax credits are, they are a seven-year financing tool that can save your school about 20% of the cost of the project. For details or more information, check out our earlier NMTC blog post.  Over 300 charter schools have benefitted from NMTCs since 2001 when the program was created.

1. Where do NMTCs come from?

The NMTC program is administered by the US Department of Treasury. Treasury allocates $5 billion of these tax credits each year to Community Development Entities (CDEs). Most of the popular CDEs are community development arms of big banks and Community Development Financial Institutions (CDFIs), though there are also lots of smaller recipient groups. You can find the list of CDEs on the CDFI’s website  here.  Since 2001, $60 billion in tax credits have been awarded to over 120 CDEs.

2. Who has NMTCs?

If your school wants to benefit from the tax credits, the best way is to contact and begin to develop a relationship with one or more of the CDEs that are likely to be applying to Treasury. The application period to Treasury typically happens in the spring of each year.  In other words, the process for 2022 awards may be starting soon! 

NMTC awards are generally based on projects included and described in CDE applications.  If you wait to contact one or more CDEs until you are ready to seek financing, it’s often too late. That’s because available NMTCs will already be allocated and/or earmarked to projects that were identified in each CDE’s original application. While not all projects included in CDE applications actually go forward; CDEs will generally deploy their NMTC awards to projects that were in their application submitted to Treasury.  Obtaining NMTC financing isn’t like getting a bank loan or pursuing financing through the bond market where there will always be funds available. The key to benefit from NMTC-stimulated financing is to get in line early and be in line at the right moment. They are hard to secure so you should have a backup plan in place.

3. Preparing to ask for NMTCs

How do you contact 120 CDEs and ask to be included in their applications? The first thing to do is make sure you have a compelling story to tell about how your project will lead to economic growth, job creation, and social benefits. This means preparing answers to the following three questions.

 

A. Are you eligible?

  • Is your school in in a “qualified census tract”? NMTCs must be invested in “low-income communities” and the CDEs prefer projects located in “severely distressed” census tracts. You can determine the eligibility of your community with a mapping tool. One example is located at the bottom of this page: https://www.novoco.com/resource-centers/new-markets-tax-credits/data-tools/nmtc-mapping-tool
  • Are you undertaking a sizeable real estate development project? NMTCs can be used for real estate development costs – acquisition, new construction, renovation, and associated soft costs (architects and engineers fees, legal, transaction and other financing costs, etc.). One thing to keep in mind: the NMTC application and award processes are complicated and involve concerted amounts of time and legal costs to navigate and execute. As a rule of thumb, NMTCs are only worth pursuing if you are undertaking a project with a financing need greater than $5 million. Also, CDEs like to spread their awards among many projects so they may not allocate enough tax credits if you are pursuing a $25 million project.

 

B. Is the timing right?

  • When do you plan on starting construction or renovation? CDEs will want to see a well thought out, if not very detailed project plan and timeline, project cost estimate, and a preliminary sources-and-uses summary, specifically identifying other confirmed or likely project funding sources. Keep in mind that CDEs will want to have some assurance that you will be in a position within the next 12 months to start construction – (i.e., architectural plans will be complete, building permits in hand, contractor working on a fixed-price construction contract).  If your timeline slips, your CDE partner will have to find another qualifying project.
  • Do you have a plan for the rest of your financing yet? The tax credit equity investor may finance around 30% of your project’s total cost. You will need to secure other sources – typically loans – for the balance of the project. You don’t need to have the financing in place yet, but you should have a strategy to find it. The strategy could include asking the CDE to help – sometimes they have working relationships with other lenders or they are lenders themselves.

C. Are you an attractive school?

  • How is your academic performance? CDEs typically prefer to fund charter schools whose performance exceeds that of the local school district.
  • What is your student population like? CDEs typically prefer to fund charter schools whose student body is socioeconomically and demographically underrepresented compared to the local school district.
  • Is your enrollment growing and does the proposed real estate project accommodate the growth? CDEs want to fund projects that allow your school to grow.

4. How to find NMTCs

Once you put together the answers to these questions, you can do one of three things:

1. Find the right CDEs yourself. You can look up the CDEs that cover your community (they call it a ‘service area’). CDEs have national, multi-state, state, or local service areas and are limited to investing in the service area they designate. As previously mentioned, you can find a list of 120+ CDEs with NMTC Allocations by downloading the most recent “QEI Issuance Report” located at: https://www.cdfifund.gov/programs-training/programs/new-markets-tax-credit. Downloading and examining the list of recipients is not all that arduous.  However, once you find CDEs covering your service area, you can or will have to reach out to them individually. This can be quite time consuming and/or be a rather inefficient undertaking. You want to be included in multiple CDE applications because not every CDE application is awarded funds from Treasury.

2. Use a service to find the right CDE. The national accounting and tax firm of Plante Moran provides a free service to match CDEs and qualifying projects. They have a questionnaire that determines your fit for NMTCs and then they send out a list of potential projects to many of the CDEs. (Contact Gordon Goldie at Gordon.Goldie@plantemoran.com). It’s not quite a dating service, but it’s more efficient than meeting a NMTC allocatee at a bar. If you like bars, you can attend one of the popular conferences hosted by the national tax credit firm, Novogradac, and see who you meet in the lobby.

3. Use a reputable consultant. If everything NMTC sounds complicated, you are right, it is. Sometimes it is easier, less stressful or time consuming, much more efficient, financially prudent, and/or the prospects for benefitting from NMTC’s are higher by contacting and working with a NMTC consultant that has charter school financing experience and relationships with NMTC CDE recipients. Reputable consultants should take an introductory call and help you determine pro bono if NMTC’s are a good fit for you. If so, then they will help you identify CDEs and act as your financial consultant through the transaction from beginning to end.

 

A few consultants are listed in the Comments section below – these are not recommendations but are a place to start. Feel free to add others in the Comments section or send in other tips by email and I will update this blog post. Mark@publiccharters.com (a Dutchman who loves tulips).

 

Comments

On Thu, 04/29/2021 - 10:15, Mark Medema (not verified) commented
Here’s one consultant:
Dave Scheltz | NMTC Program Director/Principal
AFFIRMATIVE INVESTMENTS, INC.
33 Union Street | Boston, MA 02018 | o: 617.367.4300 x 3 | c: 617.816.7874
www.affirmativeinvestments.com
DScheltz@affirmativeinvestments.com
On Wed, 05/05/2021 - 13:27, Mark Medema (not verified) commented
Here's another consultant:
Dwight Berg
Public Economics
pub-econ.com
dwight@dwightberg.com
On Wed, 05/05/2021 - 13:29, Mark Medema (not verified) commented
Here is more information for Plante Moran and their free matching program:
Gordon Goldie | Partner | Housing and Community Development Solutions
Plante Moran, PLLC, 2601 Cambridge Court, Suite 500, Auburn Hills, MI 48326
Direct Dial: 248.375.7430 | Mobile: 586.202.7146 | Fax: 248.603.5654 | email: gordon.goldie@plantemoran.com

A Focus on the Future

Image
future school layout

We will be learning many lessons from the massive disruption caused by COVID-19 this past year. There will be opportunities to reshape how we teach and learn, and there will be design implications for school facilities to better serve kids long into the future.

We already learned some short-term lessons last October when we shared highlights from LISC’s webinar featuring Brooklyn Lab’s Open Shareable Playbook for Returning to School. This session included several implications for facility design, such as increasing air flow and creating spaces for welcoming students and cool down areas.

To help us look further into the future, the Charter School Facility Center released a brief called School Buildings of the Future: Lessons from the Pandemic to explore how innovative approaches adopted during the pandemic will impact the future of school facilities. This issue brief features blended learning experts, representatives from charter school management organizations and firms that support the design and construction of charter schools. The issue brief highlights four key themes: 1) flexibility, 2) community connectivity, 3) efficiency, and 4) technology.

In addition to the issue brief, LISC held another informative webinar last month focused more generally on the future of facilities called  What Will Charter School Facilities Look Like in 2040?Featuring several notable school architects, the webinar focused on several trends that predated the pandemic but are likely to be more of a focus post-COVID. Similar to the results found in the issue brief, there may be a continued movement to integrate the outdoor environment as a learning tool which can also have improved health and safety side effects. This might include designing a large movable exterior wall to allow a classroom to open to the outdoors or thoughtfully allocating gardens and other natural materials.  Besides the general benefits of increasing green space, such as opening up grant opportunities and being more aesthetically pleasing, outdoor classrooms have been shown to have a positive effect on student performance and motivation.

Because charter schools grapple with limited funding, another trend that may continue is the need to have spaces that are flexible and serve many purposes. While traditional public school continue to increase the allocation of feet per student (currently at 125 feet per student and climbing), the charter school allocation continues to trend downward, and is currently at roughly 100 feet per student.  This continues to force charter schools to utilize every space possible in multiple ways. This will change the traditional layouts with hallways separating rows of classrooms on each side and move toward more open, flexible spaces that are less constrained by structure and provide increased airflow. The pandemic has taught us that connections are more important than structures.  To best prepare for the future, facilities professionals should emphasize flexible and adaptable learning spaces and create a variety of spaces for collaboration like shown in the photo-this charter school’s entry area also serves as an auditorium, waiting area and a seated breakout area.  

A recording of the webinar, along with a download of the presentation can be accessed here.

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Charter Schools and District Bond Elections and other Local Revenue Streams

Charter schools have plenty of battles to face to receive adequate resources. If the fight for equal funding and access to empty buildings was not enough to keep charter advocates busy, charter supporters are increasingly aware of the importance and opportunity involved in accessing local revenue streams that districts rely upon for most of their facility funding and certain operating funds.

This may seem like a long shot and in many states, and some districts, the politics are too difficult to imagine charters accessing revenues traditionally directed to school districts.  But as this past election demonstrates, there are too many examples where charters have accessed local revenue to ignore. For example, this past November saw success in Durango, CO where three charters were included in the local District’s bond election, even through two of those charters are not even authorized by the district. 

Thanks to a law passed in 2018, Michigan charter schools are able to access their share of county-wide millage tax revenue. Voters approved one in Wayne County (Detroit) that will provide about $90 million per year to both school districts and charter schools in Wayne County beginning in 2022.

Also, in Arizona, voters passed Proposition 208, which will enact an additional income tax for Arizona’s high-earners. All of the money will go to public and charter schools. Creators of the initiative estimated that it could bring in $940 million for schools every year.

What is so surprising is that neither Arizona nor Michigan required the districts to share these funds. These were voluntary initiatives.

The legislative route can help - a handful of state statutes address charter schools and local bond elections. Four states (AK, CO, GA, NM) have regulations although they are not as effective as anticipated. Generally, charter schools fare better where charter school families vote.

For example, California charter schools have accessed significantly more bond funding than anywhere else, over $1 billion dollars as of 2019. It’s ironic because the state has no statutory provision supporting charter school access to bond questions. Advocacy efforts and the power of the vote make up for the lack of regulations.  In California local school district bond elections need 55% voter approval to raise taxes – and in many districts the charter school share of the voting population is enough to make a difference and districts understand that if they want their bond passed it’s in their interest to include charters.   

There are no state statutes that mandate inclusion of charters in bond elections. Georgia, New Mexico, and Colorado have some requirements for districts to inform or include charters of upcoming bond questions. As a result, these states have produced funding for charter facilities through bond elections, ranging from a few instances in Georgia, to dozens of schools benefitting from hundreds of millions of dollars in Colorado.  We estimate about 35 elections and over 200 schools that have resulted in more than $1.2 billion in bond proceeds being shared with charter schools. The vast majority of that (over 100 schools and $1 billion) is in California.

This battle can be won, although it takes a lot of advocacy and it requires charter schools to show they can impact elections.

We’ve learned that sweeping state mandates requiring charter inclusion are challenging to pass and implement. However, modest directives and language, including relatively simple enabling and transparency provisions, are much more viable and surprisingly useful. In an upcoming report, we lay out 5 strategies to begin the process of receiving bond and mill levy proceeds:

  1. Simply saying it is possible to share bond proceeds and mill levies opens doors in a practical sense, while also opening eyes to options not previously considered;
  2. Requiring charters to submit a facilities plan that meets statutory or local district expectations or standards implicitly requires the district to put its standards into writing;
  3. Requiring districts to notify charters of upcoming ballot questions by a set date (explicit in the statute language) or number of days prior to the deadline for filing the language gives times to get their facility plan together
  4. Requiring districts to include local charters in whatever form their facilities planning efforts take (e.g. long-range planning committees) also provides time and a forum for charters to be part of the process and mobilize their efforts; and
  5. Requiring districts to provide written explanation for their reasons of charter exclusion, if a district chooses not to include local charters in the bond or mill levy question, adds more transparency to the issue and holds officials accountable.

These five provisions are hard for opponents to argue against in policy conversations.  Each provision is a variation on a common “good neighbor” or “good government” measure that sells well, especially in the context of asking voters to increase taxes. These minor revisions are a commonsense way to enhance district transparency and voter confidence, while simultaneously increasing the likelihood of charter inclusion.

They may not be the silver bullet to force districts to share bond proceeds, but they provide charter schools a seat at the table and a chance to flex their advocacy and voting muscles.

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Colorado School District and Charter Schools Pulling in the Same Direction on $90 Million Bond Referendum

Shakespeare coined the phrase, “Politics make strange bedfellows,” and in one small Colorado community, charter school and district leaders are demonstrating how collaboration does not have to be so strange.  Durango School District 9-R (DSD 9-R) is asking voters to approve $90 million in bonds for school construction and long-deferred maintenance and repairs. It’s not completely unusual that DSD 9R has committed to sharing the proceeds of the bonds with local charter schools, but it’s laudable.

Charters themselves are public schools. The main difference is that they are operated independently of local school districts, with more freedom to design their programs and choose their teachers, but also more accountability. If charters fail—if their students fall too far behind—they are usually closed.

Another significant difference is that traditional district schools operate in buildings owned by the local school district, while charter schools have to find (and usually pay for) their own facilities. Every dollar that a charter spends on construction, or on interest on construction loans is a dollar that cannot go into the classroom to fund teaching and learning.

That’s why what’s happening in Durango this election season is such a big deal. Too often, districts view charter schools with hostility. For a hundred years, with exception of a few private or faith-based schools, school districts were monopolies. They were often the biggest consumer of local taxes and often the largest, or one of the largest, employers in town. Too many don’t take kindly to the entrepreneurial competition that charters schools represent, and neither do teachers unions that rely on dues-paying members to keep union bank accounts full.

Too often, school districts fight anything that would help a charter school, including letting them occupy unneeded or unwanted school buildings, even when the law requires them to do so.

But DSD 9-R is showing how positive collaboration can be for all involved.  When Colorado passed its charter statute in 1993 only school districts were able to authorize charter schools and over the years many of them have been increasingly accepted as part of their district.  That acceptance along with a combination of the schools’ popularity, performance, and overall enrollment of local students has made it increasingly likely for them to be included in district bond issuances.  After all, their students are just as much a part of the community supporting those bonds as is every other student.

But when Colorado later amended its statute to create a statewide authorizer (Charter School Institute or CSI), the acceptance of charter district collaboration on bond elections changed and relationships between charters and CSI authorized districts were much less likely to be positive.  While not hostile, they are usually like “ships in the night” having little to do with one another.

All of which makes Durango’s story all the more remarkable – there are three charter schools in town, two authorized by CSI and one by the district, and all three are included in the DSD 9-R bond proposal. Maybe that’s because the DSD 9-R leadership is exceptionally fair minded or altruistic. Maybe it’s because it’s a relatively small community of just 4,700 students total. Or maybe it is because the Durango’s charter school parents could be counted on to do their part, and more, to campaign for its passage.

Over many months, and in the immediate run up to Election Tuesday, charter school parents are involved in planning committees and other volunteer efforts supporting the ballot question.  Many have eagerly campaigned, knocking on doors and distributing leaflets. Even if solely motivated by the desire to ensure their kids do not miss out on any new funding, there is no doubt that charter school parents have embraced their partnership with the district. The district has embraced them back because they have worked hard to promote the district’s bond proposal to taxpayers.

We won’t know if this partnership bears fruit until the votes are counted next week. Win or lose, there are lessons to learn. Competition doesn’t have to create a hostile relationship. Even in competition, you can find a win-win if you look hard enough. A student is a student, no matter the model of school they attend. All students are entitled to a safe, healthy and secure schoolhouse.

Nationwide, the charter school community has spent years and millions of dollars trying to help charter schools access affordable capital and low interest rates to build and improve their facilities. But debt is still debt. Servicing debt always takes resources away from children and the charter community needs to continue looking for opportunities to ensure tax dollars designated for public school facilities makes are benefitting both charter and district schools.

For these reasons, more districts and charters should explore ways that collaboration can strengthen opportunities for all students.  

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