Spooky Buildings

Spooky buildings!  A search for a new home and why you should never go in alone!

By James Heugas, Executive Director, Washington Charter School Development (WCSD)

In the spring of 2020, just as our world was about to be turned upside down by a new and terrifying virus spreading quickly through the Washington State, I emerged from the cold dark basement of an old church building located in Bellingham, a city on the US side of the border with Canada. I had met with a new school leader and her project architect and together we had just toured a space with an eye to making it a potential home for her new charter school. As with many such tours, the proposition of creating a safe, vibrant and modern learning environment in this building seemed daunting… but, on the plus side, rent was going to be cheap.

The church building had not seen any significant investment for more than a decade when it was sold to a private owner who now rented it out for weddings and other private events. The school leader who was from the local area had been referred to the space by her real estate broker and based on a brief desktop study it seemed promising. It was zoned such that the proposed school use was permitted outright. It was on a main bus line which would provide easy access for future high school students. Finally, it was close to many of the other community groups that the school aimed to partner with in order to deliver additional services to its student body.

However, when we got there a quick perimeter walk around the building and tour through the spaces revealed significant challenges. There was no parking and only very limited curb space for student pick-up and drop-off. The building’s mechanical and HVAC system was older than Bon Jovi’s first album, the electrical panel and service was too small, access to and through the building failed to meet even the most basic access requirements, and the bathrooms, well, let’s just say they were their own horror story.

Beyond these issues, the building had no fire or life safety systems typically seen in a modern school including a fire alarm and sprinkler system (something that I know from a decade spent building and renovating spaces for charter schools can be a major cost component of any tenant improvement). After a brief discussion with the project architect, the conclusion was clear and I broke the bad news to the school founder; the level of work needed to transform this space into a school would likely be beyond her budget and we strongly advised continuing the search. This was the third such property that she had looked at and so unsurprisingly it was a disappointing way to conclude the afternoon.

Several months later, I checked back in with the same school leader. As her search had continued, a member of her board had connected her to a local regional mall operator that had seen a precipitous decline in visitation and sales since the start of the pandemic. Many of the smaller stores had closed, leaving vacant spaces between the more established anchor tenants. On hearing of this new development, I had some immediate misgivings about the potential of this tenancy. Would the space we were looking at with one external facing wall allow enough natural light to come in? Could we create a secure and safe entrance for school during arrival and dismissal? Would the mall recognize and accommodate the unique needs of a high school? Would the City even permit this non-profit use inside a large regional commercial hub?

Again, we brought in the school’s architect and we began looking at each of these challenges. Despite there being only one external facing wall, the single-story nature of this mall allowed us to use existing skylights in the leased spaces along with light from a large atrium immediately outside, increasing natural light into the learning spaces. The mall’s underutilized and oversized parking lot provided ample opportunity for safe and efficient arrival and dismissal, and a preliminary conversation with the City planning staff revealed significant support to allow a school to operate in this space. The vacant mall space naturally lent itself to being demised into discrete classrooms, commons area, reception and admin space. Adjusting the existing fire suppression system to meet current codes for school use proved to be simple and straight forward.  Finally, working with the school to negotiate and establish a lease with the mall resulted in a steeply discounted lease rate for the first five years which helped them achieve their sustainable ops budget goals.

The moral of this site search is that it always pays to bring in the design experts from the start. Identification of key risk areas will let you establish realistic budgets for buildings/sites that work or, alternatively, make the tough decisions to pass on projects that would otherwise hamper goals for growth and school success.

Bringing the experts in early need not be expensive and it should rarely involve long-term contractual commitments. When looking for a trusted design/development professional, reach out to other schools (locally or regional, charter or other) who have recently gone through a capital development program and who might be willing to provide a reference. Connect with that design professional and explain your organization’s goals. More than likely they will spare you an afternoon pro bono to look at several potential properties, both to satisfy their personal interest in local real estate and as part of developing new business. A quick note of caution: don’t be tempted to take advantage of this willingness to provide early free/low-cost support and tour properties with multiple different architects or general contractors – it’s a sure fire way to cause your pool of potential design and construction professionals to shrink. Just remember searching for a new school home doesn’t need to be a horrifying experience, just so long as you don’t go in alone!

Choosing a Lender

Blog Post

How to Choose a Lender for Your Charter School (Hint: It's a Lot Like Being in a Relationship!) Dominique Fortune, Director, Charter School Lending, NFF

A loan from a community development finance institution (CDFI) can finance a new facility, allow you to hire new staff, or ensure you have enough cash on hand to run your school effectively while you wait for reimbursement from a government grant. But not all loans are created equal, and choosing which lender to work with can be daunting. How do you decide which CDFI is right for your school?

As it turns out, finding the right CDFI to partner with can feel a lot like the beginning of a relationship. You might ask yourself similar questions: “Can I see myself spending a lot of time together? Will they get along with my friends – partners and other people in my organization's network?”

If you're seeking a lender for your school, here are three questions to ask yourself to make sure you end up in a healthy relationship.

  1. Do you trust each other? Relationships are built on trust – and a financial relationship is a relationship like any other. Many charter schools I’ve worked with share experiences of compiling seemingly endless documentation for lenders – documentation those lenders could easily have found on those schools’ websites. Demanding documentation without a clear purpose demonstrates that the lender doesn't trust the charter school to do its job. Many charter school leaders – especially those who are people of color – understandably distrust lenders who request massive amounts of documentation, require validation from other partners in the charter school space, and demand valuable time from charter school staff. If your lender starts off the relationship by failing to take a client-centric approach, it might be a sign of trouble to come! When you can, seek out CDFIs that do due diligence themselves (instead of asking you to do it for them), ask for only what they need, and advocate for you throughout your credit application and review process. These are all signs that the CDFI trusts you and believes in your organization. Remember, you and your lender should share a common goal: bringing a high-quality education to the young people in your community.  
  2. Do you like their friends? Meeting your partner’s friends is a big step; it tells you whether the person you’re in a relationship with is the person you thought they were! It’s no different with a lender. Lenders – especially mission-driven ones like CDFIs – work with dozens of funders, partners, businesses and community organizations. Seeing who your lender chooses to partner with can tell you a lot about what they value. Need an architect to design your school’s new building? A connection with a grantor who could fund a program? Depending on who your CDFI partner is, they may also be able to facilitate connections with new partners who can help you achieve your mission.  
  3. Do you share the same values? Arguably, this is the most important thing to consider when starting a relationship... or finding a lender for your charter school. Like I said above, your mission is clear: to create opportunities for the young people in your community. Your lender should share this goal, recognizing that investing in your operations is a key part of making it happen. Beyond simple mission alignment, any CDFI you partner with needs to understand the specific priorities of your organization – and support them! Do you care about social and emotional learning opportunities for your students? Do you have explicit targets around anti-racist practices? Your lender must understand why that’s important. Don’t be afraid to ask questions (and do your own research) to get to the bottom of what your lender values early on; it’ll help you determine whether that lender is right for you.

A partnership between your charter school and the CDFI you choose is far more than a simple exchange of money. Ideally, it’s a long-term engagement built on trust, relationships, and shared purpose. Finding the right lender can be challenging, but it’s worth it: a financial institution that truly has your best interest in mind and recognizes your contributions can unlock massive opportunities both for your school and the families you serve.

If you are looking for a lender, click here

Sharing is Caring for Public School Children

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Average Facilities Expenditures as a Percentage of PPR, by Ownership Type

Charters and Districts Sharing Space

Since the first charter law was adopted in 1991, charter schools have struggled to find adequate, affordable facilities. Surplus and underutilized district facilities have always seemed a logical answer for charter school facility needs and, in some cases, they provide a valuable option with significant financial benefits to the school.

In coming months, the Charter School Facility Center at the National Alliance for Public Charter Schools and Momentum Strategy & Research will release key findings leading to a final report summarizing the landscape of charter schools in district facilities, and the impact state policy has on that experience. 

Background

The Charter School Facility Initiative (CSFI) led an extensive survey of charter school facilities across 20 states and 1,960 charter schools between 2008 and 2018. According to an earlier 2013 report CSFI: Initial Findings from Twelve States, charter schools in district owned facilities pay an average of 1.8% of per pupil revenue on their facilities, while charter schools in non-district facilities pay 9% to 10%.

According to data from a follow-up 2015 report Finding Space, summarizing 14 states, 22% of the charter schools surveyed were in district-owned facilities which are relatively concentrated either in states or specific cities. Across the 14 surveyed states, 65% of the charter schools in district facilities are in California and 16% are in New York City. By contrast, the percentage was under 5% for Indiana, Massachusetts, and Michigan combined. 

The Finding Space report also found that charter schools in district facilities spent significantly less on facilities than their charter school peers not in district facilities. Translating the numbers from the 2013 and 2015 reports to today’s context:

  • Comparing the 1.8% spent by schools in district facilities to the 9% spent by those in non-district facilities would be a difference of $687 per pupil per year, Institute of Education Sciences.
  • Translating to a per school difference of $304,511 per year (average enrollment of 443).

Highlighted Issues

This year’s report from the Facility Center will further explore the landscape of charter schools in district facilities by building upon the CSFI data while adding new data sources including a complete compilation of state statutory provisions connected to the first of its kind crowdsourcing effort. The goal is to better understand how the wide variety of statutory provisions function. Crowdsourcing can provide aggregated data capturing the local knowledge and experience with the respective statutes and local environments. The upcoming report will address important questions, including though not limited to:  

Costs versus Rent: There’s little argument that charter schools in district facilities should pay their share of facility costs such as utilities and maintenance, but should they pay more than that in “rent”? The data suggests a wide range in what schools pay for when using district facilities, and it is not always consistent with state statutes.

Data from Finding Space shows 13% of the 343 charter schools in district space were paying more than just costs for the use of district space. The median difference when paying costs versus costs plus rent is over $420,000 per school.

Shared Space: While most of the discussion about ‘access to district buildings’ involves empty district facilities, there may be as much or more potential for charter school use of partially occupied facilities. 

The majority of charters in district facilities are in previously empty buildings, but California and New York have a significant number of charter schools in shared district facilities. From the CSFI dataset, approximately 41% of charter schools in district buildings share that space and nearly all of those are in California and NY. In both states, strong policies helped open a significant number of partially occupied facilities to charter schools.

Shifting Enrollment: According to NCES (Table 216.90) data, from 2009-10 to 2018-19 overall public school enrollment has increased by 1.25 million students, of which 1.68 million are charter school students, meaning traditional districts have experienced a slow downward trend with a net decrease of 430,500 students during that time. 

COVID-19 has exacerbated that trend over the last two years. According to a recent analysis by the National Alliance, “across 42 states in the analysis, charter schools gained nearly 240,000 students (a 7% increase from 2019-20 to 2020-21), while other public schools, including district-run schools, lost more than 1.4 million students (a 3.3% loss from 2019-20 to 2020-21).”

The number of schools shows a similar trend: From 2009-10 to 2018-19, traditional district schools decreased by 2,537 while charter schools increased by 2,475. As these trends continue, there will inevitably be greater available district space and a larger charter school demand for that space.

These issues and others will be in the forthcoming report further exploring the landscape of charter schools in district facilities and how state and local policies impact access.  As the research is ongoing, please be sure to contribute your knowledge through the crowdsourcing effort. You may sign up to participate here.

 

Creating Revolving Loan Funds: Doing Good with Low-Cost Capital

The American Indian Academy of Denver (AIAD) offers students in grades 6-12 a STEAM curriculum designed to meet the educational needs of American Indian and Latino students. Prior to its launch in 2020, AIAD sought an early-stage investment for tenant improvements to its facility. Founder and head of school Terri Bissonette knew securing low-cost capital was difficult for established charter schools and knew it would be even more challenging for her new school. She didn’t have a track record, and therefore, the bank terms were discouraging. Dr. Bissonette learned about the Colorado Charter Facility Solutions led by Jane Ellis and wondered if they could help.

Single Projects or Solutions that Scale

There are many ways for donors and investors to create high quality education seats, promote economic development, and support job creation. Many organizations support an individual school. They can provide their support via a grant that has an immediate and direct financial impact. The resources go directly to the grantee to meet the specific need - and then it is over.

Similarly, a donor or investor can provide a loan or a loan guarantee. The donor or investor either makes a loan or puts up some collateral to guarantee a loan. The donor/investor often takes on all the risk often with no recourse or security interest. A guaranty is like a grant in that it only benefits one project.

There is a third financial tool that allows for multiple beneficiaries: pooled loan funds supported by program related investments (PRIs). This financial tool allows for multiple investments both now and in the future, and therefore impacts more lives.

Benefits of Revolving Loan Funds (RLFs)

RLFs are very efficient structures to create. They provide benefits to charter school leaders in several ways. First of all, similar to a grant, the capital can immediately be put to use. Second, the loan is distributed at a zero or nominal interest rate, saving the charter school critical resources that can be directed to the classroom. Third, the funds paid back to the loan fund can be recycled and lent to another charter school, saving the next school critical resources, and so on.

Another critical aspect of a RLF is it can leverage investment from other lenders, especially if it’s used as subordinate debt. What does this mean? Often a charter school needs to finance the entire cost of a project. They may approach a commercial bank for a senior loan but that senior loan won’t pay for the entire cost of the project. The bank often requires the school to come up with some portion of the project costs, much like a home mortgage requires a 20% down payment.  A charter school in its early years doesn’t have a down payment and will need to take out a secondary loan from another source. The RLFs can fill this need and be used to pay for the gap in funding. This leverages the bank financing and makes the investment into the RLF go further. In addition to leveraging bank financing, a revolving loan fund can leverage other donors. Revolving loan funds can be of significant size and often rely on multiple investors. These are ideal for collaborative approaches to social investing, especially place-based investing in a certain state or region. As more impact investors are seeking to collaborate and join efforts to make bigger and more impactful investments, loan funds are an ideal solution.

Finally, the revolving nature of this loan fund can help a generous donor leverage her impact. Instead of giving one grant to help off-set the costs of one school facility, she can contribute to, or invest in, a fund that provides low-cost subordinate debt that is repaid and lent out to other schools saving schools critical funding and impacting more children’s lives. The donor achieves two goals: the first is social and the second is scale. For the former, the donor is advancing her mission to create high quality school options for children. The latter ensures her capital is continuing to benefit more and more children.

These investments can be in perpetuity or they can sunset and the original capital can be returned to the investor for future investments and grantmaking. Investments in funds that live on forever are typically made through grants. Investments that have a fixed duration of 5, 10, or 15 years are often made through loans or program related investments.

Investing through Program Related Investments (PRIs)

Partnering for Success in Colorado

In 2016, five donors – including the Gates Family Foundation of Colorado – joined together to launch a loan fund backed for charter schools in Colorado. They had the option of creating a stand-alone entity or partnering with a non-profit loan fund that was already established. In this case, they chose to start a new organization to administer the fund which includes sourcing schools, disbursing loans and managing repayments. The group of donors identified a leader with a strong background in community development investments. This created Colorado Charter Facility Solutions (CCFS) led by Jane Ellis.

Together the donors agreed to capitalize the fund with a mix of direct grants and program related investments – socially-motivated loans that are structured to achieve below-market rate returns – totaling $10 million. The goal is to support the creation of 10,000 high quality charter school seats throughout the state over a 10-year period. Working with the Colorado League of Charter Schools, Colorado Department of Education, the Colorado Charter School Institute, and Moonshot edVentures, CCFS has identified schools needing low-cost capital to open new schools or access new facilities. Since the first loan transaction in 2018, CCSF has lent $10 million to 14 schools which has leveraged almost $60 million in financing and created a total of 5,168 seats, while more schools are in the pipeline. As the loans are repaid, the funds can be recycled to award low-cost subordinate debt to new schools. To date, five out of the 14 schools have repaid their loans in full.

CCFS’ average cost of capital from the investors is about 1.50%. CCFS charges the charter schools a 3.5% interest rate, which helps to cover the organization’s operating expenses and the technical support they offer to the charter school leaders, as well as the interest owed to the PRI investors. The investors set a term of 10 years at which point they can decide to reinvest in the fund or direct their capital to other priorities. This is the power of a PRI – the investor can pursue different challenges as time goes by.

When Dr. Bissonette heard Colorado Charter Facility Solutions could be a partner in securing start-up facility funds she wondered if it was too good to be true. Working with executive director Jane Ellis and her team, AIAD was able to receive valuable technical assistance, two start-up lines of credit, and an unsecured tenant improvement loan totaling $750,000 at 3.5% interest. Without the Colorado Charter Facility Solutions loan, AIAD wouldn’t have been able to find a loan at any price that made sense. This initial loan capital allowed for AIAD to open its doors to students wanting better education options, and it allowed them to direct more money into the classroom rather than paying interest.

Partnering for Success in Idaho

A few hundred miles to the northwest of Colorado, the J.A. and Kathryn Albertson Family Foundation (JKAF) faced a similar challenge in 2013. Charter schools in Idaho struggled to find affordable, flexible financing for their facilities. This had hampered the growth of charters across the state. JKAF wanted to provide high-performing charter schools access to low-cost facilities financing. Rather than create their own fund as was done in Colorado, they partnered with Building Hope, a mission-driven nonprofit Community Development Finance Institution (CDFI) and provided a PRI that has grown to $32M as of 2021. Working with BLUUM, a nonprofit in Boise, ID that incubates and supports new charters schools, Building Hope provides subordinate loans up to 35% of the total facility project at a 3% interest rate. Using JKAF’s $32M program related investment, Building Hope has leveraged $72 million from traditional investors resulting in $104 million for new charter schools creating 13 new school facilities providing 7,200 new seats.

What has this meant for the school leaders and students they serve? In the case of Keith Donahue, who served as the leader of Sage International School of Boise and the founder of Forge International School, the partnership between JKAF and Building Hope ensured more of the per pupil allocation could be used to hire teachers and support students rather than service the debt on the buildings. For example, when Sage – a K-12 International Baccalaureate school – began to grow out of its space, Mr. Donahue realized they would have to pay nearly $1M in annual lease payments if they stayed the course. With the help of Building Hope and JKAF, they were able to secure a $4.5M subordinate loan at 3% interest, which helped Sage secure a $10 million bond through a local bank. Annual debt payments ended up being $750,000. When Sage refinanced in 2020, they were able to reduce their annual payments to $640,000 per year.

Mr. Donahue shared when the second campus at Forge was ready to launch, BLUUM provided critical technical assistance as they applied for their charter and coached them as they sought to buy a facility in year zero before students were enrolled in the school. Like the Sage campus, Building Hope provided the Forge campus subordinate debt so they could buy their facility, thereby decreasing costs for the school, reducing inefficiencies, and directing critical resources to meet the academic needs of students. 

What’s Next

For those who want to continue to impact the lives of students, consider the option of launching a revolving loan fund with a program related investment. The investment will have a multiplier effect by impacting the lives of thousands of kids by providing low-cost capital to multiple schools.

Dr. Bissonette recently wrote, “Facility affordability and finding low-cost start-up financing is the biggest impediment to growing charter schools in Colorado. Colorado Charter Facility Solutions has been a critical ally to many schools like AIAD.”

There are other examples of foundations that have considered using program related investments to reduce facility costs for charter schools. According to those who have succeeded in providing low-cost capital to charter school operators, it is important to have a local partner that can offer charter leaders technical assistance as they develop their school model and navigate the facility landscape, as well as identify investors who are willing to invest with a double bottom line: earn a modest rate of return on their investment and create high quality seats for students.

For those interested in public sector Revolving Loan Funds, here is a list of states with such funds. For lessons on how to manage public RLFs, see 10 Building Blocks for State and Local Charter School Revolving Loan Funds

 

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.