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Pursuing a multimillion-dollar project can be daunting for a start-up public charter school. It can feel like every week you’re faced with a deal-breaking and enterprise-ending issue. And yet, schools continue to be built all over the country so there must be things that can help you navigate the obstacle course.

The three main categories of risk are: Schedule, Budget, and Quality. Here is your initial guide to the top risks in each category—and what you can do to help you sleep at night.

1. Schedule: The worry isn’t if, but how long there will be a delay.

Top Risk - Trouble Getting a Building Permit

Every city and town has their own process for issuing the building permits that authorize you to start construction. Some processes can be very complicated, involving stormwater management reviews, environmental studies, zoning approvals, and neighborhood support, along with detailed compliance with various building codes throughout your drawings.

Often major financing is conditional on securing the building permit. And being able to open on time is directly tied to starting construction on time. So there is a ton of pressure near the end of design to get every detail right and every step of the building permit process happening smoothly, but something will inevitably get stuck.

What can help:

• Finding out if the permit office has an ambassador or advocate program, that helps non-profits and/or schools understand and navigate the permit process.
• Scheduling appointments with key administrators like the head of zoning, when you have your basic concept, to explain your project and get their advice on what to expect and plan for as you move forward into design.
• Engaging zoning counsel.
• Requiring your design team to have previous experience preparing documents for your jurisdiction.
• Hiring a permit specialist. Sometimes they’re called ‘permit expeditors’ but their greatest value will come from a specialist who can offer strategic advice on navigating the process like splitting into different permits. (To find a permit specialist ask for referrals from the permit office, from other schools, and from local builders. Strong Owner’s Representatives will also include this in their portfolio of services.)

2. Budget: The worry isn’t if, but how much the price will go up.

Top Risk - Construction Going Over Budget

Construction can be impacted by so many factors that can go wrong outside of your control and your builder’s control. Steel prices can escalate. Tariff policies can change. Weather can be unseasonably bad. Underground streams can appear. Products can be discontinued. 

How much you finally pay in the end for construction will inevitably be more than the original price. This is true even when you have a Guaranteed Maximum Price (known as a GMP) contract.

What can help:

• Setting your overall project budget to include a strategic amount in a contingency fund.
• Having a good amount of time in the schedule for the architects to generate high quality drawings.
• Engaging construction contract counsel.
• Being clear in your construction contract about what the builder pays for, what their contingency funds should cover, and what the process will be for change orders.
• Having lists of what could be added to the project late in construction and what could be deleted, to help manage the budget. (This is standard risk management practice of strong Owner’s Representatives.)
• Hiring cost estimates at key design milestones. Estimates by pure estimators can offer great detail, while estimates by builders can offer local market insights. (To find a cost estimator ask for referrals from other schools, and from local architects. Some builders offer preconstruction services like cost estimating, that you can similarly find with referrals from other schools and architects.)

3. Quality: The worry isn’t if, but to what extent the quality will be compromised.

Top Risk - Technology “Fails”

We are no longer in the days of blackboards and overhead transparencies. Schools are heavily reliant on internet connectivity for everything from interactive white boards, printers, and individual tablets to access control, climate control, and sophisticated building monitoring systems. Technology is moving at a pace that some of what you purchase will no longer be the newest thing when you open the building. Through design and procurement, you will be weighing priorities for redundancies versus distribution, and ease of maintenance versus specialized functionalities..

What can help:

• Having your operations manager on board when design starts. It can be a staff hire or a service provider, but have a specialist in the day-to-day use of technology in schools, participating in the design discussions.
• Researching available grants and buying programs that your project may qualify for, to enhance your budget, and learn about product choices. This isn’t just the FCC’s E-Rate program. Ask other schools, authorizers, and operators for every lead they have on alternative funding sources for technology.
• Selecting a vendor to be involved in the design, purchasing, and installation of information technology, so they are vested in hitting deadlines for placing orders for the critical products and for the materials with long lead times. (To find a vendor who specializes in schools and who understands design, procurement, installation, and servicing, ask for referrals from other schools, local architects, and local builders. Some architects will have specialist designers, and some builders will have pre-approved installers. Consider taking all of the input you can get.)

Every construction project has its challenges and they will hit the schedule, the budget, and the quality. But a school might feel like it has additional pressure. It is squeezing all financial resources. It needs to not only open on time but maintain the parents’ confidence that it will. And it is relying heavily on technology to work well. So expecting and preparing for delays, additional costs, and quality compromises, can make these inevitable obstacles easier to navigate as you keep moving to the finish line.

Building a school facility can be an incredibly rewarding experience, and a pivotal milestone in a charter school’s history, and ability to serve. But you’re going to need your

In our first posting on Access to District Buildings, we explored the cost implications of sharing district buildings. In this entry, we review the different statutory schemes in place across the nation and the impact they are having on access to buildings.

This second blog presents initial findings showing a clear relationship between states that address district facility access in legislation and higher levels of charter schools in district facilities.

Landscape of Laws Regarding District Space

Of the 46 jurisdictions with charter school laws, 33 statutes mention charter school access to district space, ranging from comprehensive regulation of charter and district space issues to vague statements that charters may lease district space. Figure 1 shows which states include any of the variety of provisions addressing charter access.  

Figure 1. States with Statutes That Address Charter School Access to Available District Space

Data from the States

To assess the impact of the various statutes, the project team developed simple state specific “crowdsourcing surveys” to gather feedback from the field. After documenting and categorizing elements of the various state statutes, each state survey was customized to match the various statutory provisions within each state law. The surveys were distributed to and through individuals and organizations in each state including charter support organizations, authorizers, and charter attorneys.

While the project team continues to gather and compile survey results, we wanted to highlight one of the more interesting observations from an initial review of the data. 

Initial results show the majority of states have less than 10% of charter schools in district facilities. Across all states, 66% of respondents said less than 10% of charters are in district facilities.

Figure 2. Responses to “What is your current statewide estimate of the percentage of charter schools in district facilities?”

Access is higher in states with statutes addressing access to district facilities. When comparing the results between states with and without statutes in Figure 2, it appears that having some regulations in place improves the rates of charter schools accessing district facilities. Among states with an access-related statute, 43% said that 10% or more charter schools are in district facilities compared to only 20 % of those states without an access-related statute.

These results confirm data collected between 2010-11 and 2017-18 through the Charter School Facilities Initiative (CSFI), which surveyed charter schools in 20 states regarding their facility situations and challenges, then released public reports of the results. Three states have significant number of charter schools accessing district facilities (LA, CA, and NY). These have been well documented in the past. In addition to these three states, there are others that are less well-known.

For states without a statute, one state remains an outlier. Oklahoma has had remarkable success in accessing available district space. Further analysis of Oklahoma is needed to understand the sharing dynamic in that state.

Figure 3. Distribution of charter schools in district facilities by presence of statute

This topic and others will be presented in an upcoming report 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. 

As a recent college graduate and new entrant in the charter school facilities finance field, I wanted to share some of the things I learned at my first charter school conference last month at the 2021 Florida Charter School Conference. I hope this can help other people who are unfamiliar with charter school finance.

One informative session I attended was “Setting Your School Up for Success with Long-Term Facility Financing.” The session covered the key considerations school leaders need to know when seeking financing options.

“You are in business until you run out of cash,” said Richard Moreno, president of Building Hope Services. That was one lesson that stood out to him from a Finance professor years ago.

It also leads to our first key takeaway from the session.

Takeaway 1: Understand your current finances and plan for your future.

When a charter school leader is considering long-term financing options—which can range from debt lasting anywhere between 10-35 years—you need to have a good understanding of whether you can continue to operate and pay off your debt obligations. Due to the incredibly low rates today, you may feel the need to act quickly instead of taking your time.

“The market is driven by demand,” was a standout statement from Shannon Falon, senior associate at Equitable Facilities Fund. “Take your time in planning out your future. Make sure you project 5, 10, or 15 years out and update your projections yearly to have a good idea of where you are financially and where you most likely will be. This will equip you with an understanding of how much debt and what kind of debt your school can handle.”

Once you have your projections ready, you can then create a wishlist—write down what your school needs and what would be “nice to haves.” For example, you need ten classrooms and one gymnasium, but you would also like to have a science lab.

Another cost consideration here is to only build spaces that will be used close to 100% of the time. Going back to the science lab on the wishlist, if you build this science lab, but only use it for one hour each day, that’s potentially thousands of dollars towards something that you hardly use—and those funds could be used elsewhere.

Once you know your wants versus needs, you can decide what type of facility option makes the most sense for you.

Takeaway 2: Track enrollment demand.

Tracking enrollment demand—specifically your waitlist—is another metric imperative to your school’s success. If lenders see a high waitlist in comparison to student count, that is a great indication you are a potentially good investment.

When tracking your waitlist, you need to be consistent. This means if you track student enrollment in August in your first year of tracking, then August needs to be your tracking date year-over-year. This is important because lenders loan out money based upon risk. If you have tight and strong data, you appear to be a lower risk and lenders will be more comfortable investing in your school.

Understanding your demand also plays into the accuracy of your projections. Knowing what you can expect in future years for student enrollment will give you clarity around what to expect for your staffing levels and revenue.

Takeaway 3: Perfect telling your school’s story.

“You have to be your best cheerleader,” Tara Tahmosh, Principal of Sarasota School of Arts and Sciences said in reference to selling yourself to lenders and rating agencies like S&P or Moody’s.

You may or may not want to be rated, this is something you and your team need to think about. If you go to the bond market as a school and have an investment grade rating, you will be able to receive lower rates than a non-rated or noninvestment grade school in the bond market.

Assembling a strong team is part of being able to sell yourself and showing how great your school—a central theme in best practices for securing charter school facilities financings. To be your best cheerleader, you need people working at the school who have a strong understanding of your school’s values, the school’s “story,” and your end goals. This means having leaders with diverse skill sets, including real estate experience, legal expertise, or financial background.

Your school’s “story” explains anomalies or numbers that do not make your school look as strong. For example, you may be a K-5 school that just expanded to K-8 due to high demand, but once you made the jump to K-8 your waitlist numbers dropped. This background information is a key part of telling your story. It makes a stronger case for why someone should invest in your school.

If you are able to understand your current finances and plan accordingly for your future, track your demand data, and be a good self-advocate, that will set yourself up for success when dealing with long-term financing.

I look forward to learning more from the experts in the years to come.

Jared Kane is an Investment Analysts at Equitable Facilities Fund (EFF). He is in the inaugural cohort of the Education Finance Analyst program sponsored by EFF and Civic Builders. This is his first entry in a four-part series.

Following the guest blog from James Heugas, “Spooky Buildings– Don’t go in Alone”, we have a related blog from Ann Drummie about ways to bring an architect on to the team early on.

So you are imagining a facility project for your charter school and are keen to get rolling? That’s great! An architect is one of the first people you’ll want to get on board.

Whether you feel like it’s no big deal or you’re in over your head, here is your relationship guide for getting an architect to build your new charter school building.

1. Meet a few people: When you’re just starting, you aren’t making any commitments. Keep things simple. Have some casual conversations with a few candidates referred by other schools and people in the design and construction industry. (Here’s what to ask your referrers).

Get to know the architects and let them get to know you. Here are a few conversation starters:

• What do you like most about your work?
• What do you know about this part of town?

2. Ask about past experiences: Yes, all architects have a common set of skills and could, in theory, design a school. In reality, an architect of amazing opera houses is not a strong a partner for navigating the pressures of a school project.

Find out what types of projects they’ve done before:

• How do grade levels and teaching methodologies affect school design?
• How many school projects have you been a part of? Can I see them?
• How long did it take your last school project in this city to go from idea to opening?
• What are some challenges for school projects these days, and how might I mitigate them?

3. Share views on money: All architects can design to a budget. But an architect used to budgets that accommodate high-end finishes and building materials may need time you do not have to adjust their mindset and baseline options for a lower budget. Down the road, you will be weighing a lot of choices of how to stretch your budget and where to make long term investments versus short term compromises.

It can be comforting to know that you’re getting advice from someone with a similar approach to budgeting and who respects that money is going to be tight, so ask them about money:

• What was the range of cost for your last few projects? Is that something you think I can afford?
• What have other clients prioritized their spend on?
• If you were in my shoes, how would you answer my board member who asks if we should spend more on the building or hire a music teacher?

4. Trust your gut: While you could just get candidates to complete a survey of the above questions, you aren’t just looking for expertise. You’re looking for a partner.

They should have lots of questions for you. They should ask about your target enrollment, budget, timeline, site, decision-making structure, and more. They’ve been on this path before and might use a lot of terms that you don’t know or bring up issues you aren’t familiar with.

How do you feel when they ask you questions and when they take in your answers? When you ask for clarification? Do their questions lead to dialogue? Try asking a question specifically to observe your interaction, more than to get information. Here’s a sample question:

• What do you think is the biggest risk in design related to information technology?

5. Focus on what you need right now, not next year: You are just looking for short term help in this interview process to get started. Eventually, when more stars align, a big commitment will be made with an architect—complete with detailed legal documents. That commitment will outline an agreement to pay a broad design team to provide a hefty amount of services on specific deadlines, like design committee workshops, permit and construction drawings, value engineering, governing agency meetings, parent and neighborhood presentations, and responses to questions and issues during construction.

But that’s all later and could even be a different architect.

Right now, you are talking with a few people to help you make your idea feasible and compelling over a period of maybe a month. That doesn’t need a big contract, though you probably want something more than a handshake. You might be asking them to:

• Check the feasibility of a site for your desired operation (e.g. can it accommodate a big enough building?)
• Set some expectations for milestones and phasing within your schedule
• Expose you to recent developments and products in educational design to consider (including sustainability and technology)
• Draft a list of indoor and outdoor spaces that will be needed for your desired operation
• Offer advice on development structures, like partnering with a developer, and delivery methods like Construction-Manager-at-Risk or Design-Build
• Do a “back of the napkin” sketch to help others visualize and support the idea

6. Talk about who is paying for lunch: When a candidate starts doing some of the work on your list, you’ll need to talk about their fee. Sometimes architecture firms will work for free in this early stage, considering it as part of their marketing and business development. Keep in mind the phrase, “You get what you pay for.”

A “Going Dutch” option would be negotiating a fee that you can afford, for services that they feel they can offer. If you’re hoping for 10 hours of their time and it’s in the range of $200/hour, then you might be looking at $2,000. Remember that you aren’t “going steady” with anyone. Getting more than one opinion may be worth it.

Overall as you start looking for a relationship with an architect, think of it as finding a project vision partner who brings the skills of an architect to help you at the beginning, with no guarantees or expectations beyond that. They are not your permanent partner.

Go out, meet some people, and get recommendations. The time will come when you’ll have the mandate to select a long-term design team with a Request for Proposal and interview process. So just focus on enjoying the exploratory phase you’re in now.

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!

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. 

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.

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

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

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.