Category: Charter School Facilities

Charter School FacilitiesExpert Advice on Accessing and Funding Charter School Facilities

In this CHARTER EDtalk, we sat down with Mike Morely, Founder and Principal at American Charter Development to talk about charter school facilities. Mike shares his years of experience in working with charter schools and supporting charter school success. Learn some insights on how to know when you’re ready for a new facility, what your funding options are, some pitfalls to avoid, and how to set yourself up for success whether building from the ground up or renovating your charter school facility.

Janet Johnson (JJ): Good day. This is Janet Johnson with Charter School Capital at the National Charter School Convention in Austin, Texas, and we’re honored today to be talking with Mike Morely with is ACD, who is a developer of charter schools.
Mike Morely (MM): That’s correct, yes.
JJ: John Dahlberg from Charter School Capital, and we’re going to have a conversation about charter school facilities. Take it away gents.
Jon Dahlberg (JD): Thank you. Hey Mike, thanks for making the time.
MM: My pleasure.

Why Charter Schools?

JD: We’re doing a campaign, We Love Charter Schools, can you share what you love about charter schools in less than 20 minutes.
MM: That may be hard, but I can sure try. You may know, in fact I know you know that we’ve got a large family. I come from 13 kids and have nine children of my own and so we’re into kids, and so we’re into whatever is good for kids. Several years ago I was in the legislature in Utah and was introduced to charter schools, didn’t really know much about them. A wise senator told me, as I was looking at that in terms of policy decision, that if parents can vote with their feet we’re going have a lot less administrative and regulatory needs for schools.
I got into charter schools, started looking at them, seeing that they were doing more with less, and in many cases outperforming schools that were run by districts with seemingly unlimited funds. Not obviously that, it is something that is debatable, but certainly on less funds that are being provided for district schools and being successful. We fell in love with the choice in education. We started a couple charter schools, started doing facilities for charter schools, and they were accepted well and been successful. My children, at least those that were growing up during the years that we were in charters schools and been in them, and we’ve been really pleased with the outcome. We love philosophically the choice option and we also are committed to providing that opportunity for others.

How to Know When You’re Ready for a New Facility

JD: That’s great. Well, so let’s take that to our listeners here. How do you know when a school is ready for a new facility?
MM: Well, we have been in the business of trying to help schools get facilities from the beginning, and we initially started back in the early 2000s trying to figure out how to bring construction and development funds into the charter school. Because obviously, it’s not available through state funding, they get funded based on the kids that they have in the seats. It’s kind of cart before the horse because they don’t have any kids in the seats when they’re starting out. We have funded schools from inception or even before inception and help them get their charters, help them establish a board, help them move through the process and having a school, a brand new school, ready for them to start in the first year.
Not all schools are able to do that, and it may not even be wise for all schools to do that. It really has a lot to do with the demand in the area, what the curriculum is going to be. I mean we’ve helped schools from project-based, sports, STEM and STEAM. We’ve helped classical education schools, and there are schools that are focused on a particular niche that may not be as widely accepted as maybe some other schools.
We look at the experience of a board. We like to see a wide diversity of experience on a board. We like to see the somebody that has accounting experience, marketing experience, legal experience business experience, school experience, but usually, that’s not the problem. Usually, most of them have good education experience, but we like to see a really diversified board with experts in many areas so that they can pull from that. We like to see some experience in the charter school world now. In the beginning not many had it, but now there’s usually good experience to be had on a board from the charter world. If we’ve got that, and we are comfortable with their curriculum, and their focus, and their direction, we may take them on right out of the chute.
If not, we like to see them have a year or two in maybe a rental facility, and it’s hard sometimes to find. But they may have to start out a little small and rent some space from a church, or some other local facility that’s not going to be maybe the best situation for the first year or two, but to build a little bit of a track record to see if they’re going to be successful. It really is ultimately a business and ultimately it’s pretty risky. We’ve had a few of those, as you know, that hasn’t been quite as stellar and so we’re trying to make sure that we don’t repeat those that are not quite as well prepared as others.
JD: Well, I think to the point about the risk, I think that proof of concept starting in any space where you can get your school open and get the kids coming and prove your operation of success and your academic success, that momentum builds and builds and creates opportunity in the future.
MM: It does.

Avoiding Mistakes

JD: When you talk about the business aspect of it, right? The education is not hard. What are some of the avoidable mistakes that a school should be mindful of as they’re building and growing in to their next facility project?
MM: You know, to be honest, most of the mistakes that we have seen have been very preventable and most of them have been friction within the board, within the founding boards. When the schools have the most trouble it’s typically when the board itself gets heavily in two separate directions and end up in a collision course with each other, and end up destroying what they created or trying to change direction from what was originally envisioned. Because of that they lose half the parents, they pick sides, and it becomes a disaster. Cohesiveness on board is really key and to avoid that they need good board training, they need to recognize what a board does, how a board operates and the way that a board should function with regard to the administration, and the product that they’re proving. They’re really providing an education product, and they need to be on board with that and need to understand how a board effectively is to run, so that’s been our biggest problem.
There are mistakes. They get into a building that doesn’t meet their needs, they get into a building that they didn’t really clearly think out what their program was or growth options. They could then be unable to grow in that position in that particular building and then be tied into either a long-term lease, or they purchased the building, and it isn’t suitable for their current needs or expanding needs. It’s really important that you really sit down with somebody that understands and lay out a long-term vision of the school.
Have the board be on board with that decision as well. Make sure that everybody is kind of firing with the same cylinders and moving in the right direction. Recognizing that, “Hey, we want to be a 400-student school forever. We want to grow to a K-12, or we’re going to stay at K-6, or we want to grow to 600.” Come up with what your ultimate vision is because if you’re in a place that can’t be expanded and you’re tapped out at 200 kids and you got a long-term commitment and you want to grow, you’ve contract yourself. Those are some concerns that need some-
JD: I think the advice that you gave to our audience about making sure that your building and your charter are in sync is really, really sound advice here. The building is going to create the culture of your school. We do speak with leaders who are very intentional, and we also speak with leaders who have that aha moment that goes, “Oh, a stem school but I don’t have a science lab.” That’s a good …
MM: A sports school and don’t have a gym or a …
JD: Right.
MM: … or a performing arts school and no place to perform. Yeah, those are a lot of the issues.
JD: If you’ve got a board that’s cast division and everybody’s on board, what are some of the guidelines and guiding principles that schools should pay attention to when they’re thinking about that next facility?
MM: Well, if everybody’s locked stamp, then I think it’s important to maybe look at what’s the most economical and formal way to provide those facilities. It always seems to be the vision of every school to bond. That’s the goal. We just come out of a situation not too long ago where the school was ready to bond, they were so excited about it. They were saying, “Hey the cost of this building is too high, we can’t really bond because we’re going to be paying $106,000 a month for our facility.” I said, “Whoa, what are you paying for it now?” In a lease scenario, they were paying $65,000 and they were expanding with the bond. They were going to add on a gymnasium and some other classroom, but we’d already priced that out, and under the lease scenario they were going to be at $85,000 a month with total expansion taken into account. I said, “Why are you so anxious to bond and pay $20,000 more a month for a facility that you can control and have long-term security for $85,000.” That was the A-ha moment.
“But their interest rate is lower than your PACT rate.” Okay, let’s look at that, what that means. Interest rates are easy to talk, but they were adding on several million dollars in reserves, they had the cost of issuance, they had attorneys fees that were building up this huge amount that they would have to bond and pay interest on. Then it was advertised rather than just an interest only, so by the time you take all that into account the interest rate of the bond had very little to do with the cost of the facility on a monthly basis. Be careful that you’re not misled by some arbitrary interest rate or some lost leader kind of thing, and becoming so consumed with owning the facility.
Ownership is great and there are some times when it is a good decision, but ultimately if you own it you really own it. You’re responsible for all of the future expansions, you’re responsible for whatever taxes or insurance or other things, and you may have those kinds of things in the lease agreement as well, but you’re amortizing the facility and the ultimate goal is to own it, and if it’s a 30-year bond you own it just in time to completely refurbish it and start over. I’m not saying ownership is not a good thing, but it’s not the only way to do it.
JD: What’s in the middle? There’s the bond, which historically meets the need of about 12% of the charter schools since the exception. Then we talk about the lease. You’re in the market, are there other options besides the lease or beside a bond that you’re seeing schools take advantage of right now?
MM: Well, you know, there are organizations like the CSC that have purchased facilities and leveled the lease market and created an option for schools. That we have worked together on a couple of schools where you would’ve been able to purchase the school and put them in a better position than they would’ve been in a bond situation. It’s an interesting dynamic because right now the cost of constructions is going up.
JD: And so is the cost of money.
MM: And so is the cost of money, which is hard. You got the cost of construction, cost of land skyrocketing in this market which is … The fed just raised the rates again last week, and so we’ve got interest rates going up. And they’re indicating that there will probably a couple more bumps, in trying to cool inflation. In a market where cost and money are going up even though we are seeing increases in education funding that are a much lower rate, you may get a two or three percent bump each year, while we’re seeing double digit increases in funding cost and in construction cost. We are in a kind of a paralysis market right now, and it is hard. We’re struggling to try and balance those things and make sure that schools are getting affordable facilities for themselves. It’s a bit of a challenge.
JJ: It’s a dance.
MM: It is.
JD: It’s a dance.
MM: We’re in that dance, and you’re in that dance, and we’re all trying to …
JD: It’s a fun place to be.
MM: It is.
JD: It’s work, because if it was easy they would call it a PTO.
MM: A while back it was kind of easy you know because the cost were fair. Right now, we’ve talked about this multiple times, there is a point where the school can’t pay any more than maybe 20% max of their gross revenue. If the cost of facilities goes beyond that then it really does make it difficult, if not impossible, for them to go for owning. There are places in the country like that.
JJ: But you’re here to help.
MM: We’re here to do what we can.
JJ: Right, yeah. That’s right. That’s great. Well, we’re very grateful for your time today Mike, and John thank you for facilitating this discussion and I know you guys speak a lot on the road so I’m sure that our viewers will see you again soon. Thanks for your time.
MM: You’re welcome. My pleasure, thank you for inviting me.

Top 5 Financial Mistakes Charter Schools Make and How to Avoid ThemHow To Avoid The Top Financial Mistakes Charter Schools Make

If you missed this information-packed webinar on how to avoid the top mistakes charter schools make, don’t despair! We’ve got the recording for you to watch at your convenience. In this webinar, we were joined by some phenomenal charter school leaders from Desert Star Academy, SALTech, and Wayne Preparatory – and they generously and bravely shared the mistakes they’ve made as charter leaders, and of course, how they solved those problems for the future.
Watch the video recording to understand the five mistakes and walk away armed with the tools you’ll need to avoid them.
Our esteemed panelists:
Tricia Blum Head of Business Consulting, Charter School Capital
 
 
Margie Montgomery Founder, Desert Star Academy
 
 
Sharon Thompson, Chairman of the Board, Wayne Academy
 
 
Michael LaRoche Founder/Executive Director, SALTech

 
 

Watch the video of the live presentation, here.

And, to download a printable PDF datasheet, click here.

charter school financingThe Charter Leader’s Definitive Guide to Budgeting Best Practices
Over the past decade, we’ve reviewed thousands of charter school budgets and helped guide countless schools through their charter school financing processes. Year after year, we see many charter schools make the same mistakes when budgeting for the academic year. To help you achieve your goals, we’ve put together this informative and thorough guide to share best practices and call out common pitfalls to avoid.
It covers:
• Planning for long-term financial health
• Implementing best practices for achieving buy-in and setting internal controls
• Understanding key financial metrics to watch
• Utilizing tips on cashflow planning and more!
Download it now and get the tools to be more strategic about your budgeting practices!
GET THE RESOURCE

Charter School Facilities FinancingBest Practices for Charter School Facilities Financing

If you think charter school facilities financing can be a daunting task, you’re in good company. Most charter school leaders aren’t financial or real estate experts, and for a good reason—you’re focused 100% on educating children. If you’re reading this blog post, you probably feel like finding  – and financing – the perfect facility for your charter school seems like a huge, complicated undertaking … you’re definitely not alone.
Across the U.S., facilities are, by far, the greatest challenge faced by charter schools. Planning and financing any facility project is complex, time-consuming, and has the potential to distract your team from its core mission: serving your students. We hope this post provides you with some best practices for planning and realistically balancing your team’s facility dreams with your budget realities, the pitfalls to avoid, financing options, and other key budgetary considerations.

Two Pitfalls to Avoid

Not Knowing Your Budget

Before you do anything else, understand what you can afford. Take the time to understand your revenue and expenses. Knowing what you can afford for rent will inform how much you can borrow for your new facility or facility expansion.
Not Planning Ahead

Plan at least a year ahead. Any kind of facility expansion will involve quite a lot of effort and likely involve your entire team. The range of burden varies, but moving staff, students, furniture, and equipment is an enormous undertaking. If you’re renovating your current facility, you still need to plan ahead so your programs aren’t disrupted.

charter school facility financing

Three Budget Considerations: Requirements, Curb Appeal, Budget

When it comes to facilities, most charter schools are faced with a tough challenge: balancing essential requirements, aesthetics, and their budget.
It comes down to strategy: Is it more important to have enhanced facility options or invest in specific programs? If you have a top-tier robotics program, a new lab might be very important. If you’re offering an arts program, having an excellent sound dynamics room or a black box drama theater may be essential to your students’ performances.
Some key considerations:
Must-haves: What do you need to meet your mission?
Any special requirements? Are you running a dropout recovery program or a school for kids with developmental and learning disabilities? Do you need a state-of-the-art science lab or an air-conditioned gym to serve your students and mission?
Aesthetics: Does curb appeal affect enrollment at your school?
The way your school looks can have a significant impact on student enrollment, and enrollment drives operating revenue, which in turn affects the quality of your academic programs. Also, take a look at your competition. If every other school in your area is shiny and beautiful, but yours looks dilapidated and your enrollment is suffering, you may need to invest in improving your curb appeal.
Budget: What can you afford?
Getting prequalified is the key first step in the process of renovating, expanding, or finding a new facility. When pre-qualifying a school, a financial institution will look at a variety of factors, including: ƒƒ

  • The school’s existing reserves ƒƒ
  • Public subsidies ƒƒ
  • Private donations ƒƒ
  • Public or private foundation grants ƒƒ
  • Operating revenue ƒƒ
  • Charter term—financial institutions want to see that your charter has been renewed for the long-term

Facilities Financing

A Guide to  Four Types of Financing

Cash
For most, paying 100% cash for charter school facility financing isn’t an option. And even if a school were to have significant cash reserves, it still may not be in their best interest to use it. On one hand, the school wouldn’t be on the hook for interest payments nor would it have to provide collateral, meet underwriting requirements, or undergo time-consuming approval processes. On the other hand,  again for most, it would mean that the school’s cash reserves would take a major hit—and that’s money that might be more usefully deployed elsewhere. It could be used, for example, to hire more teachers, buy computers, or reinvest in academic programs.
Investment Banks
For stable and mature-stage schools that have plentiful cash reserves, this can be a great option for undertaking a $7 million facilities project without wiping out the savings account. Expect the underwriting process to be thorough and time-consuming—the bank will want to make sure that your school is stable and will still be around decades from now.
Bonds
In our experience, many charter schools have their sights set on a bond, believing it to be the most advantageous and common funding structure. The reality is that just 12% of charter schools nationwide receive bond market financing; the other 88% of charter schools rely on other funding methods. As with bank financing, the underwriting for bonds is time-consuming and involved, especially if a school has been operating for a short period of time or is waiting for a charter to be renewed. Unlike a bank loan, bonds don’t require a major up-front cash investment. However, bonds can become surprisingly costly, even with low interest rates, because it can take time for a school to accrue the cash reserves they are required to have in the bank for taxes and for the security of the bondholders. All the while, the school continues to pay interest. In addition, bonds usually require an outlay of hundreds of thousands of dollars in legal fees for each party’s attorneys in a (highly complex) transaction. For more clarity, check out this short video on when – and why – to select bond financing.
Long-Term Leases
Many schools begin with a long-term lease and then transition to a bond or a bank transaction after they’ve achieved stable revenue and enrollment. Long-term leases generally require relatively little cash up front. The cost of long-term leases vary based on location and are ultimately spelled out by the terms of the lease, but they can be relatively affordable, especially for newer, smaller schools. The underwriting requirements for a long-term lease are less involved than for a bond or bank transaction, though your board, charter, curriculum, and demographics will be reviewed in detail. No security interest or collateral is required because the landlord owns the building and the land, and the school simply rents it and supplies its own furniture and equipment. That means future operating revenues aren’t held as security interest as they would with a bond or bank transaction. As a result, a school can often get financing for furniture and equipment, which may not be an option with bond or bank financing. Click here to learn more about our long-term lease financing option.
Charter School Facility Financing

How Experience and Charter Status Affect Your Options

Investors tend to prefer experienced charter schools that have shown that they have stable enrollments, predictable revenues, and good relationships with their authorizers. The first charter renewal is a crucial milestone. If you’re still in the first period of your charter, and your authorizer has not confirmed your success by renewing your charter and extending it for another five or 15 years, investors will consider your school to be a riskier proposition than those who have done so.
Options for Startup Schools

  • Short-Term Lease: Startup charter schools with budgets of less than $7 – $10 million and in the first period of a charter will typically begin with a short-term lease. Many schools start out by leasing office space, the basement of a church, or an unused public school.
  • Long-Term Lease: Long-term lease options are also available to new charter schools. For example, Charter School Capital and other institutions are now offering 20 – 40-year leases to schools, including to promising, sustainable schools that have not yet had their first charter renewal. A long-term lease can give even early-stage and high-growth schools control over their facility as well as predictable monthly costs—removing the worry of rising interest rates or surprise rent increases.
  • Partnering with a Developer: Some developers specialize in charter schools and will consider working with very early-stage schools, even those that haven’t opened their doors yet. They have the expertise to build schools from the ground up or to completely renovate an existing building. Developers like working with schools if the management team has an excellent track record or are part of an expansion program for a charter management organization (CMO) or an education management organization (EMO). In this case, the developer accepts a high level of risk in order to invest in an early-stage school that most investors wouldn’t consider because they are working with people who also really understand the charter school market.

Options for Later-Growth or Mature Schools

  • Bonds: Most schools aspire to own their facility, often through raising a bond—an arduous, expensive, and time-consuming process. A bond can be a great option for mature schools that are done expanding and are ready to move into their dream facility and forever home, with no further goals to expand beyond it. Bonds are typically issued for 30-year periods, and if structured properly, the rates can be attractive. For large transactions ($20 million plus), high legal expenses, brokerage fees, and transaction costs are spread over many years. Remember, bond brokers usually aren’t motivated for deals of less than $10 million. And because bonds are issued for the specific cost of a specific facility, they don’t make sense financially if you’re planning on expanding. In that case, you would have to find yet another funding source, while still maintaining your obligations to bondholders.
  • Banks: For schools with sustainable operations, equity, and cash reserves, bank financing becomes a viable option. As we’ve noted before, banks typically require charter schools to contribute around a third of the transaction (anywhere from 20% – 40%) as equity—which is a significant barrier for many schools. On the upside, the transaction costs are often lower than those for a bond.
  • Long-Term Leases: Just as with earlier-stage schools, long-term leases can be a highly efficient, reliable option for mature schools. Unlike bank transactions, leases don’t require a major outlay of cash for equity or the time, energy, and attorney fees associated with bonds. With a long-term lease, a school controls its property without the responsibility of investing in and owning real estate.

Four Key Factors for Funding Approval

  1. Sustainable enrollment: This is a key indication that a charter school will be sustainable over a long term. Prospective enrollment can be gauged by several metrics: current enrollment, a waiting list, and demand for charter schools in the local market. If a school is currently below target enrollment, financial partners will want to see that the wait list aligns with your enrollment targets. If you currently have 200 students and you want to be at 800, but there are only 250 kids on your charter, that will raise serious questions.
  2. Strong leadership: Financial partners want to see a strength of experience behind the leadership team, the management team, or the school itself. Investors may be happy to fund a startup school if the leadership team has already led other schools to sustainable success. A rookie management team will have a harder time obtaining investors.
  3. Sound financials: Financial partners will want to see that your debt obligations or lease payments are less than 20% of your operating revenue and that the cost of the property is consistent with property values in the local market. You have to be able to show you’ll be able to make payments over the length of the loan, bond period, or lease while still funding a quality academic program and breaking even or achieving a surplus.
  4. Good governance: For charter schools, that means having a stellar relationship with your authorizer. Investors will talk to the authorizer to ensure that they’re happy with your progress and have no hesitations about renewing your charter.

Charter School Facility Financing Checklist
To download the PDF: The Ultimate Guide to Charter School Facility Financing, click here.

It’s important to find the right funding partner to help guide you through the facility planning and funding process … and help you succeed. Charter School Capital has years of experience in navigating the unique needs and challenges of charter schools and has helped schools achieve their facility goals using each of those methods—and we’ll help you see which options might be best for your school’s situation.
At Charter School Capital, we believe in the power of charter schools—and their leaders—to deliver quality education and foster success in their students. Over the past ten years, we’ve invested almost $2 billion in more than 600 charter schools to help them grow their schools, finance facilities, and achieve academic excellence and operational stability. We view ourselves as a longterm partner of charter schools and a strong advocate of the charter school movement. Please contact us if you’d like to learn more.

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charter school facilities
Editor’s Note: We understand that the planning and financing of any facility project are complex, time-consuming, and have the potential to distract your team from its core mission: serving your students. That’s why we wanted to sit down with the Founder and Executive Director of Desert Star Academy, Margie Montgomery, to get her insights and tips on planning for a charter school facility project. To help other charter leaders embark on their facility project, Margie generously shares what she’s learned and what she wished she knew before she started her facilities project—and what she’ll do now as she embarks on yet another!
We think it’s vital to keep tabs on the pulse of all things related to charter schools, including informational resources, and how to support charter school growth. We hope you find this—and any other blog post we write—both interesting and valuable. Below you will find the video and the transcript. Please read on to learn more.

Janet Johnson (JJ): Hello. I’m Janet Johnson with Charter School Capital and we’re honored today to be with a rising star in helping other people understand how to negotiate the charter school landscape, Margie Montgomery, who is the executive director and founder of Desert Star Academy in Arizona. And Tricia Blum, who is also with Charter School Capital and we’re just going to talk a little bit today about how facilities can trip you up and how you can be so much better as a result of negotiating your way through the morass Right?
Margie Montgomery (MM): Absolutely.
Tricia Blum (TB): So before we get there, I’d like to ask you a question that we’re asking all of our schools and thought leaders we’re talking to and that’s … We’re doing a campaign called We Love Charter Schools. You know that because you have socks that say that.
MM: Absolutely.
TB: Can you please tell us in two sentences or less why you love charter schools?
MM: It gives family and friends a choice of education. They can choose what charter school to go to and charter schools have a lot more flexibility than the district schools.
TB: I think that’s super interesting. Can you tell me how many days a week your students or scholars go to school?
MM: In Arizona, the charter school calendar is 144 days. We typically, as most charter schools in Arizona, go 144 days and it’s a four day work week. We go Monday through Thursday. Our hours are a little bit longer. We go an hour and a half longer than the other schools in our area but we get it done in four days.
TB: Your parents are really appreciative of that, right?
MM: They do love that. We’ve noticed it helps on attendance. It also helps with staff attendance because you have that Friday to do all of your business. You can schedule doctor’s appointments then, you can schedule whatever you need to do on Friday and still have a full weekend.
JJ: That’s awesome.
TB: I know. I’d forgotten about that. That’s why I was like, “Oh we have to talk about that.”
MM: It’s amazing. Yes, absolutely.

Consider Your Facility Constraints and Know the Rules for your Charter School Facility

TB: Okay so we’re going to talk, as we said, about facilities and you have been in what I would call hyper-growth mode, right? Four years, 460 students. Bang, bang, bang, bang. So you have a new building, tell me what were your expectations going into getting a new building?
MM: I didn’t have time for expectations. I was like get me a building. We had our first year of 67 kids and we were renting, literally, a strip mall. We had four different offices of a strip mall. And it was like, “I need help, I need help.” So we were talking to Charter School Capital from the beginning and the process is very long and it takes a little while to get off the ground so I was just … I need a building.
I had 50 scholars to one classroom and two teachers in that classroom and we literally were calling the fire department to say, “How many scholars can we put into a classroom? What is the capacity for one room?” And I found out that a child’s desk occupies a child. But if you put in a teacher’s desk or you put in other types of tables, it takes away from your square footage and you cannot have as many scholars in the room.
So my teachers were teaching from clipboards and on the board because we had no room for them or their desk. And we just had the scholars in the desks. And we did this for three months. For a whole entire quarter. And it was a challenge.
It was a challenge keeping the parents happy knowing that they were getting incredibly impatient. But in the end, Charter School Capital came through for us, they built us a fabulous building, beyond belief and made everybody incredibly happy.
TB: Yeah. Amazing, right?
MM: It was. And it still is.
TB: I think what you said is amazing too because what I’m hearing you say is look, I just needed a building, I could have done with anything, doesn’t matter, right? Just give me a building.
MM: I was. I was like I don’t need a Taj Mahal, I just need a building. I need walls and I need a building. But by the time it actually all rolled around, we were picking colors and we were doing landscaping and furniture and all this exciting stuff. And pretty soon I got the Taj Mahal.

Understand the Realities of the Process and Get Prepared

TB: What do you wish you knew before you started? Because like you said, I didn’t have time to think, I just needed a building.
MM: I wish I knew the process and the length of time that it truly takes and the planning involved and all of the construction aspects of the planning. Getting it through Charter School Capital, it had to be approved through this business and that business or the sections of the different companies.
I wish I had a better understanding of that. In fact, if anybody has a building, that should be one of the things that the client should go through, is this is the process and this is the time that it takes and this is what you need. Because they were always asking for financial this or that and this. And so I was literally jumping through hoops and I found myself not as prepared as I would have liked to have been.
TB: Right. And that’s because you have to have financials, there’s a plan that has to be agreed on with you and construction and then you have to get permits and you’re talking about all sorts of that kind of process, right? Is that what I’m understanding you say?
MM: I was a building principal and I ran the school and so the whole everything else from building to facilities was just … I had no idea about it. But it was a learning process and I would do it all over again.
TB: Well you’re getting ready to do it all over again.
MM: Absolutely.
TB: Right. We’re gonna add some more grades. She’s already facilities constrained. Right?
JJ: That’s great.
MM: Yes.
TB: So apparently if you build it they will come.
MM: They absolutely will come and that has been our story. We started with 64 scholars in 2014 and we right now have 437 and our cap is 475. So we are really constrained.
JJ: Well but congratulations on the success.
MM: Thank you so much.
JJ: You’re making a lot of families happy, aren’t you?
MM: We are. We have a lot of happy children.
JJ: Yes.

Make a plan with your builders: the details matter

TB: What would you have done differently? I know we talked a little bit about that but I have some ideas, like on the (furniture, fixtures, and equipment) FF&E, on the whiteboards and the lockers and paint colors … tell us about paint colors because that was a really funny, funny as in interesting, right? Because Margie had a very clear idea what paint color she wanted and the contractor had a very clear idea on what paint colors the contractor did not want. So I think that’s an interesting, again you have to negotiate that. The thing is why would you even think you have to negotiate that, right?
MM: You wouldn’t think so. But we came across that, absolutely. And so I think the next time I want to sit down with the builders and talk about a plan. Well, in education you have to have colors. I couldn’t live with just two colors. And so it was quite funny because I was talking to the contractor and to the superintendent and saying, “Well, if these are the only two colors that I have to pick from, this is what I’m picking. But I will tell you, as soon as you’re out of town, we’re going to repaint these walls and we’re gonna add color.”
And so it was a negotiation as far as alright, well if you have this can you live without that? And I was like yep, I can do that. So, we had brick on the outside of our building and it was like well we only need brick on half of the building so let’s take the other half of the building brick off and we added lockers because that was a commitment to the parents, to our community that we have lockers.
The year before when we were constrained in this building, before we had our facility, parents were like, “They have to carry their books around.” Some of these backpacks were heavier than these girls and you thought they were going to tip over.
Just have knowledge of the process and meet with the builders because the facilities people are out of state, they don’t know the community. Every community is different and unique. And if you’re going to be successful in the community, I think it’s really important as a leader of the community and leader of the school to listen to your community. Truly listen to them. Listen to the parents, listen to their concerns, listen to what they like.
The first thing that they do when they come in either one of our buildings is like, “Whoa.” And it’s the colors. We are not a white school, we are not an institution. Our elementary school is turquoise, and red, and yellow, and bright. And it’s all mixed up. It looks like blocks and it looks fun and exciting. Our middle school is apple, orange, and blueberry, literally. And it looks very techy. Very techy for that customer. And so we kind of looked at those scholars and the parents as our customers so we aim to please and it was really exciting. A lot of fun.
TB: Congratulations.
MM: Thank you.
TB: Now you’ve got a new building to do, are you going to do the same colors?
MM: Similar. Similar.

Working with Charter School Capital

TB: One last question, if you would, please tell me or tell us a little bit about your experience working with Charter School Capital.
MM: Amazing. Absolutely amazing. From everybody to Tricia to the COO, Brad, yes. I remember Brad.
TB: He did visit your school.
MM: And he saw all the colors.
TB: And he said it was a sweet school. He said he would love to send his kids there. And I agreed with him for sure.
MM: Incredibly supportive. Very, very supportive. And you know, I was very excited through the whole building facilities process is they allowed the contractors and the people to actually talk with us and negotiate with us. So they were not rigid like, “No, this is what we’re doing and this is what we like.” Because they liked two colors. And from what I understood it wasn’t bright colors, it was very subdued colors. But they understood and I think as a whole Charter School Capital understands that every market is different. So I appreciate that.
MM: On the funding side, again, Tricia’s been amazing.
JJ: She is.
TB: Thank you.
MM: You know, Bryan and Christina has led us in a lot of different directions, helped us out when they don’t have to. But they have that very personal touch and commitment to the schools and to the client. So it’s very nice to say that we’re partners with Charter School Capital.
JJ: What a nice way to end.
TB: Thank you.
JJ: Thank you, Margie.
MM: Absolutely. We would not be the school that we are and we would definitely not be in the position that we are without Charter School Capital funding the growth and really taking an interest in charter schools and helping the charter schools grow. Charter schools are a huge movement, they’re so successful across the country and the states do not typically like … There’s not money for facilities provided for the state. So I think for you guys, whoever came up with a niche to go out to the charter schools and help them fund is amazing. Thank you.
TB: Thank you.
JJ: Thanks.

The 5 Essential Steps to Charter School Facilities Planning

Charter school facilities planning can be daunting. If you think that finding the perfect facility for your charter school seems like a huge, complicated undertaking, you’re in good company. This handy, information-packed guide, will help as you move towards realizing your facility expansion or relocation goals.
In it, we cover these five essential charter school facility planning steps—in detail:

  1. Charter School Facilities PlanningPlan – Begin planning at least one year in advance
  2. Fund – Understand your options to make savvy decisions
  3. Acquire – You know what you can afford and how you’ll pay for it … now go get it
  4. Design – Partner with experts to design your new space
  5. Execute – Let the construction begin and get ready to move in
DOWNLOAD NOW

charter school facility financing bondsCharter School Financing: Understanding Bonds

Editor’s Note: We understand that navigating charter school facility financing options can be a daunting and dizzying task for charter leaders. For this CHARTER EDtalk, we wanted to help break down some details around bond funding for charter school facilities. We were honored to be joined by John “Tiny” McLaughlin, Sr. Vice President at Ziegler, Scott Rolfs, Managing Director at Ziegler, and Charter School Capital’s Jon Dahlberg, Vice President of Business Development and Facilities and our Chief Marketing Officer, Janet Johnson.
We think it’s vital to keep tabs on the pulse of all things related to charter schools, including informational resources,  and how to support charter school growth. We hope you find this—and any other blog post we write—both interesting and valuable. Below you will find the video and the transcript. Please read on to learn more about using bonds for charter school facility financing.

Janet Johnson: Hi everybody, I’m Janet Johnson with Charter School Capital. We’d like to welcome you to our charter and talk today about facilities financing. We’re honored today to have Scott Rolfs, who heads up the Charter School practice at Ziegler and Tiny McLaughlin, who is the SVP at Ziegler, and Jon Dahlberg who heads up our origination for facilities financing at Charter School Capital. Welcome gentlemen and thank you so much for joining us today.
Tiny McLaughlin (TM): Thanks so much for having us.

Why do you love charter schools?

Scott Rolfs (SR):  Ziegler, the company that we work with, was founded back in 1902 and our founder, Ben Ziegler, started this as an insurance agency. And then he reached out to the community, and the community needed infrastructure: hospitals, churches, schools. And he really turned that insurance agency into a bond underwriting firm specifically focused on infrastructure needs and community needs. And so, from that, the Ziegler Company has evolved over the years to where we are really one of the premier financiers for non-profit community-based organizations, and we’ve done that through bond-financing both taxable and tax-exempt. We’ve got a great history of it. And with our financing for Charter Schools, which we’ve done for quite a while, we added to the team a number of years ago, John Tiny McLaughlin, who’s been a great addition and Tiny will tell you a little bit about his unique background. I come at it from a finance and legal perspective, I was in legal for 25 years, and Tiny, you add a whole new dimension to it with your background as well.
TM: Yeah, I was very fortunate. I was approached by Ziegler a number of years ago and I never even considered going to finance or banking, and in fact, when our CEO said, “I’d like you to join the firm”, I said,”And do what?” He said, “We’ll make you a banker” and I said, “You’re kidding”, he said, “Well, you’d only have to work with Charter Schools”, I said, “Let’s talk.” And so, my background was one of leadership (I’m a formal naval officer) and I was brought into a Charter School on the West side of Chicago. I’ve been very active in education reform and love to really help turn around a failing school. Loved it, worked there for a number of years and remained on the board for more than a decade. I view charter schools as the most promising reform in terms of the ability to close the achievement gap that exists in this country. And that’s why I love charter schools.
JD: That’s awesome. So, we’ve had several talks about financing options, right. You talk about the need for change. There are 3.1 million kids that are going to charter schools and another 1.1 that need a seat, right? There’s a huge waiting list. We spend a lot of time talking about the financing options, and you guys are bond experts. So, let’s focus on bonds. How do you know when a school is exhibiting the indicators that it’s ready to explore bond financing to finance their school?

When to choose a bond for charter school facility financing

SR: Well I think one of the things that we’ve heard you reference are some of the talks you’ve done in the past is that really, loan size is the first part to start with. So, getting out into the bond market, it can be a very, very attractive and very long-term capital solution. But there is a size where it starts to make sense, there’s a size where it doesn’t, and that really is dollar-wise. So, what we look at is about five million dollars and higher is where we think it makes sense to consult with an underwriter like at Ziegler to learn more about the bond market options. If you’re looking at something less than five million dollars in need, then it’s probably better to look at some other options, lease purchase, a bank loan,etc., or whatever else that might be.
JD: Okay, so, what does the bond market look for in criteria other than size, right. So, if you’re a five-million-dollar school or if you have a five-million-dollar project, what else should they be focusing on?

How do we qualify to get a bond?

SR: So, one of the things with a bond market finance that’s really important is being able to allow us to tell a story to investors about success with your school or the model of your school. And so that can come up with either proof of enrollment or track record in that regard. It can also come up with perhaps cash reserves that you’ve been able to build up, but it’s important to know, though, that even if you’re looking at a newer project, if you’re part of a system, a CMO (or the like) that has a proven track record, we can get you into the bond market – in some cases right away – for a new school, which wasn’t the case say, three, five, seven years ago. I think the bond market is maturing. Investors in the bond market have matured to where they really understand what makes a successful school—and as a result, the access has expanded.
TM: And I’ll add to that. In the past, there was sort of a de facto rule that you really had to have gone through a renewal in order to get through the bond market. It’s really changed now, and whether you can, or you can’t get to the bond market really depends on your relationship with your authorizer. If they show great confidence in you, even if you’re a school that’s only been around for two and a half, three years, there are times where you’ve demonstrated to them you’re going to be around for the long haul. You’re making an impact in this community, you’re showing gains that are greater than the schools around you and that we really want to see. And so, in our diligence process, we connect with your authorizer and make sure that you’re in good standing with them, and that’s a very important part of this.
JD: You have a long track record in the bond market, without getting into a macroeconomic discussion, the money moved up and down, right?  We’re coming out of an environment where historically, money was very cheap and the fed is increasing the cost of rate. Does that change what a school needs to do or how they need to behave as we move to a slightly rising rate environment?

Interest rates, inflation, flexibility, and timing

SR: Well actually, we would say talk to us now—accelerate the project. If we were to share with you an interest rate perhaps showing just market interest rate or the US economy over the last hundred years, you would see that the last eight to ten years have been an incredible time to borrow – very, very low rates. They’ve gone up a bit, but they still exist. We’re still probably three or four points below historical 50-year loans on things like a ten-year Treasury bond. So, to your point Jon, there’s a lot of discussion on the news, federal reserve inflation pressures are coming, building costs are going down.
JD: Double-digit inflation, we’re hearing double-digit inflation in construction costs.
TM: Certainly, in a lot of markets.
JD: Exactly, not all markets. Some markets are definitely, definitely seeing the pressure.
SR: So, I think one thing is, we’ve encouraged people to move a little bit sooner if they can. The second thing is with bond financing that we don’t necessarily highlight enough is that bond financing allows for growth in the way of phased financing. So, let’s say your school has a 10-million-dollar project, we can go out today, get that charter school facility financing for you, lock in a 30 or 35-year fixed interest rate. Now, you’re growing, you’re succeeding, you want to replicate and do another campus five miles down the road say, three years from now. With bond financing, you can stack these, and so we can lock in today’s rates 30, 35 years of project one, and come back and finance project two for you. Now the rates on the project two loan are probably if interest rates are higher in the market, going to be a bit higher, but we don’t need to refinance project one.
JD: You do all the work now and you add money to the project.
SR: You add the money to the project, it allows you to lock-in, really. You keep the first phase at those low rates which are going to be below market at that point, years down the road.
TM: I think it’s important that a lot of financing sources, particularly in traditional bank debt, when you borrow you will be told you can’t take on any additional debt without getting our permission. What we’re really talking about here is that provided you’re making your payments, and provided you’re meeting all the terms of your bond agreement, you’re allowed to go back in the market without asking anyone provided you hit certain coverage requirements that you pre-negotiate.
SR: Yes, Tiny, I think that’s a key point to note. There’s a bit more flexibility in the bond market for growth. A little bit more objectivity and the ability to borrow funds for future phases for growth than you might not have in a conventional bank market perhaps.

Understanding the bond process and planning

JD: Two-part question, let’s talk about the process of what a school needs to know about getting a bond. And related to that, can you compare and contrast what a rating is and how a rating impacts set process? Are they two tracks, are they connected? Talk a little bit about rating and process if you would, please.
SR: Sure. The first thing on the process is really, we ask you to reach out to an underwriter (like a Ziegler) very early on in the whole process if your board is deciding, “Maybe we need to expand.” Because, where we can help you is, we have a lot of historical metrics that we’ve compiled – statistics over the years – on what is a safe debt-load for a school. We want to help you achieve your vision and get that school building, but at the same time, we don’t want to put you in such a debt-load that all of the sudden six months after than loan closes you’re saying, “My Gosh, how are we going to pay this back? How are we going to attract 500 new students to cover the mortgage?” So, we love for the schools to reach out to us early on, so we can get you some ideas, some sort of guard rails on borrowing capacity before you go out perhaps and approach a contractor or an architect and start to really run dollar cost. I think that’s a key one.
TM: Yes, we too often see in the market where a school will have a vision for a project and they’ll go out and they’ll design something without having any idea of what their real capacity for finance is, and that ultimately leads to disappointment. The real disappointment is when they’ve designed what they think is their perfect school, but their model supports going up to 800 students and the financing for that would need to be at 1600 students. So, it’s very important to know what you can afford before you can start designing.
SR: And specifics on the process, John, is working with an underwriter like Ziegler. Once you’re ready, every building plan is ready to go, it’s about a 60 to 90-day process to work through the bond offering process it. What we do is we learn everything we can about your school and we prepare a story that then we take out to our investors – who we have relationships with – and are really interested in Charter School bonds, and we tell that story. We communicate that effectively to them to be able to not only retain the capital and close the financing but drive down the interest rate to the lowest possible levels that we can for you. And so, on the 60 to 90-day process, there are some attorneys involved because we need to work with some type of state issuing authority that is able to sort of bless the bonds, for lack of a better term, to give them their tax-exempt designation. But that’s part of that whole timeline. So, there’s going to be a few attorneys we’ll introduce you to who we manage, and we always try to make this as turnkey as possible for the borrower.
TM: I think one of the things that is really important as well is that in order to go to the bond market, you need to be, what we like to call “show ready”. Because investors are providing you 30-year money, because you go to the market once for this, what they don’t want to find out is that, “Oh by the way, I didn’t get my zoning approved on this” or, “By the way, I was unable to secure permits” or, “Yeah, we didn’t really get a really solid bid from the contractor and it’s going to be 40% more.” That’s exactly what investors don’t want to hear so we really want to make sure that essentially, the day that you close the bond if you’re going to be building your school facility, that’s the day you’re going to start. You’ve got to just put the shovel in the ground.
SR: Costs are locked in, that’s the big thing.

Understanding ratings

JD: And how does rating fit into that?
SR: So, for those not familiar with what a rating is, a rating is where a third-party entity is going to assess…
JD: Not you?
SR: Not us. It’s going to be a third-party entity, names that people would be familiar with such as Standard & Poor’s or Moody’s. They’re called national rating agencies. That third-party entity is going to take a look at your school’s finances and they’re going to assign a letter grade. I mean, everyone enlisted in this is involved in the education world, it’s just like getting their grade on that paper.
JD: It’s not pass-fail?
SR: Well it’s not pass-fail, but they’re looking at the creditworthiness – what they might see as the creditworthiness of your school to borrow this amount of money. Then they’ll assign a letter grade and just as with the classroom, B’s and A’s are better and that’s what we want to head to. Now, specifically on whether or not you should get a rating, we would say what’s interesting (in the bond market today for Charter Schools) a majority of the financings now are being done at what’s called a non-rated basis, so the schools are not going out to a Standard & Poor’s or Moody’s and necessarily getting a rating. There are some advantages for really super-credit worthy schools (who have a great deal of cash on a balance sheet) to get those ratings. That’s where we come in as underwriters and help provide advice as to what makes sense. But investors in the Charter bond world have become very sophisticated in analyzing the borrowings of different schools and they actually are not necessarily placing a lot of stock in ratings. So, what we’re able to do, is save the cost of a rating in certain cases, probably six out of ten are non-rated right now.
TM: And you know, Ziegler has a significant number of analytical tools, so when we go into this process we’ll help you say, “If we were to go to a rating agency, this is the likely rating you would receive”, and we do encourage people to go through the rating process if we think it’s going to lower their overall cost of capital. If we don’t think it will do that then we have a discussion. Obviously, it’s the school’s decision, but in particular, in the rating world, there’s a term ‘investment grade’ and ‘non-investment grade.’
The investment grade world is BBB minus or better or sometimes BAA3 or better. If you’re able to achieve those, a couple of good things can happen. One, the universe of investors who are allowed to invest in you goes up—more competition for your bonds equals the lowest rates. The second is, there are at least four states in the country right now that have what we call credit enhancement programs where the state either puts a pool of capital behind it in case there’s a default or it puts what is called its moral obligation behind it, and that can dramatically reduce your cost of capital into the high threes and fours in today’s world for 30, 35 years. So, if you’re in one of those states or if you can achieve that investment grade, it’s very significant and very important to do it.
JD: So, then the first move for a school might be contacting you and then work together on a rating, not start with the rating?
SR: Exactly, don’t start with the rating.
JD: We counsel our schools to stay on mission, right? It’s going to take, as I understand you, it is going to take you time and money, which is going to take the focus away from the classroom, to do a rating.
SR: It will.
JD: Is it expensive?
SR: Rates can cost between say, 30 to maybe 70 thousand dollars depending on the size of the financing. If you’re borrowing ten million dollars, twenty million dollars, you know, your network is borrowing 40, 50 million dollars. And so that’s where we’ll do the analysis for you, we’ll say, “This is where we think the cost of capital will be with the rating” including the cost of the rating, we’ll build that factor in and then we’ll say, “This is where the cost will be without a rating.” And then we’ll let the borrower make an informed decision as to which direction they want to go.

The pros and cons of bonds

JD: So, given your experience, the hundreds of bonds that you have done for charter schools over the last decade plus, can you share some of the pros and the cons? You’re good at the pros right, but what are some of the cons that schools really should be mindful of when you do an honest assessment of the plus and minus?
SR: Well I think you have to look at what your other alternatives are. For a number of charter schools, the bond market can present to you the lowest cost of capital and provide a true 30 or 35-year fixed interest rate. So that you can focus on your educational mission once the bond financing is closed because you’re not always worried about the lease that’s coming up or this bank notes that’s only five years, the interest rates are going to reset. I’m a little concerned about that. But, I think it comes back, John, to the size of the financing is really one of the big things. Is you have to weigh out the pros and cons. You know, before we came over, Tiny, you were talking a little relating to the availability of facilities and costs in some markets.
TM: Absolutely. There are a lot of places where even if you wanted to purchase a facility, you can’t. Just the real estate doesn’t exist. Landlords are unwilling to sell.
I fall back also on your academic readiness, as well. I mean, you know, like everything else, there’s no point in having a charter school unless you’re going to do something better for kids than what’s available. And you have to have demonstrated that in order to go the bonding market. And, I would also say you have to have a demonstrated history of success. You’re not going to be able to go if you’re a brand new school right out of the gate and you’re not a replication. So, you have to have a track record of both, academic, leadership, and financial success. So, that’s what I’d say.

Partnering with your association and local leaders

JD: Well, that’s very helpful. Thank you. The one last question. You know, we’re at the National Alliance, the conference right now. And we’re spending a lot of time talking about advocacy. From your perspective, if you could give a school some advice about how they can partner with their association.
SR: Let me take this one, Tiny. Because I was just in a session that was talking about the political landscape in 2018. It was a great session. One of the speakers there noted that the most effective thing schools can do to ensure that the charter movement continues to prosper in the future is to have your local politicians and representatives at your school constantly. And what they said was politicians are always looking for an opportunity to speak to voters. They said so many times maybe a state legislature might pass a favorable bill for the charter movement and school choice movement. But then the people in the schools, the grassroots people, forget that. Now invite those legislators back who are keys to your success. Have them come to speak to your kids. Have them visit for a day. Have them there for the ribbon cutting. Because now you’ve brought them on board as partners. And those folks are going to stay long-term partners hopefully with you within your state framework.
TM: Scott, you took the words right out of my mouth. I tell every single school that, I’ve yet to meet a politician out there who doesn’t want their picture taken doing something positive for kids. And so, you’re asking them to come. They’re more than willing to come. They’re looking for that photo op. And it doesn’t have to be a big thing. It doesn’t have to be the ribbon cutting of the new school. You can have somebody come in do your kindergarten reading program. What politician doesn’t want that picture taken? So, those are great opportunities out there. That and just remind your local politicians that you vote and you’re active in your election cycle.
JJ: Gentleman, this has been really interesting. And we really appreciate your time today. People can get a hold of you at …
SR: Ziegler.com. Visit our website. We got a lot of resources out there for charter schools, webinars, pieces, statistics, everything that can help. Give us a call.
JJ: Thank you so much.
TM: Thank you very much for having us.

Charter School Capital logo Our team works with you to determine funding and facilities options based on your school’s needs. If you are trying to meet operational expenses, expand, acquire or renovate your school building, add an athletic department, or buy new technology, complete the online application below and we’ll contact you to set up a meeting.
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Funding Charter School Facilities: How the Federal Government Can Help

funding charter school facilitites
Editor’s note: This post was originally published here on March, 26, 2108 by The 74 and written by Christy Wolfe, a senior policy adviser for the National Alliance for Public Charter Schools. Finding suitable buildings and financing charter school facilities have been ongoing challenges for charter schools across our country. This article takes a look at some ways the federal government can remove some of the barriers that are contributing to this issue.
We think it’s vital to keep tabs on the pulse of all things related to charter schools, including informational resources, and how to support charter school growth. We hope you find this—and any other article we curate—both interesting and valuable.

Opinion: Charter Schools Can’t Grow If They Can’t Afford Buildings for Their Students. Some Ways the Federal Government Can Help

Charter schooling is often described in terms of the charter bargain: increased accountability in exchange for high-level autonomy. Unfortunately, in most places around the country, that bargain doesn’t include a building or funding for building expenses. Although charter schools today account for 7 percent of K-12 public school enrollment nationwide — more than 3.2 million students in more than 7,000 charter schools — and in some localities, charters educate 50 percent of the students, districts generally have a monopoly over public school buildings. Meanwhile, charter school operators must rely on a patchwork of solutions to access space and cover their operating costs.
Consequently, school facilities are one of the biggest obstacles to expanding charter school options. Given that charter schools are public schools, and the federal government plays a key role in providing funds to startup charters, the National Alliance for Public Charter Schools has examined how federal programs and the public sector can assist charter schools with their funding and financing needs in a new paper, Strengthening Federal Investments in Charter School Facilities. Some key findings:
Inequitable access:  Charter schools face steeper challenges in acquiring facilities than do district schools, which typically own or control their facilities and can issue tax-exempt bonds to support new construction or renovations. Districts pay back these bonds with taxpayer funds out of their capital budgets, independent of their schools’ operating budgets. Some states also provide direct operating and construction financing to districts. And, districts usually maintain large inventories of school buildings that can be renovated to accommodate growing enrollments.
Higher costs: Charter schools, despite being public schools, lack the options available to districts for accessing buildings and financing new ones. When a charter school wants to open or expand, it is generally on its own to find appropriate space. And once a charter school has a building, most states do not provide per-pupil funding to cover operating expenses. Charter schools may not raise taxes. They lack an inventory of buildings, and in many states and localities, districts refuse to allow them to purchase or lease existing school buildings even when they are vacant or underutilized. Depending on how well-established a school is and its geographic location, it may or may not be able access federal assistance to reduce the costs of acquiring capital.
Because of these two barriers, there is a shortage of facilities for charter schools, especially for those serving students in our nation’s poorest communities. Consequently, they must operate in any space they can find; frequently, these are expensive and suboptimal, such as storefronts and commercial buildings that lack libraries and outdoor space.
This deficiency in the public infrastructure for education is having a significant impact on the education choices for millions of parents and children. But the federal government can help to remove this significant barrier to school choice and charter school growth through two key strategies:
● Leverage federal funds to incentivize state support for charter school facilities and access public buildings. Policies assisting charters can be encouraged through an improved and better-funded State Facilities Incentive Grant Program. Other funds, such as new infrastructure spending, could be tied to state charter school facilities policies and equitable access to public buildings.
● Reduce the cost of acquiring capital to access charter school buildings. Existing federal initiatives, such as the Credit Enhancement for Charter Schools Facilities Program and the U.S. Department of Agriculture’s Community Facilities Grant Program, can be strengthened and better funded to meet the needs of more charter schools. Additionally, creation of new charter school-focused instruments could encourage private investment, similar to tax-credit bond programs or New Markets Tax Credits. Without intervention, the market will not respond to the needs of charter schools to make capital affordable.
A silver policy bullet that can fix charter school access to facilities doesn’t exist, especially at the federal level. Reforms like those above can equalize that access, enhancing what is already working well and creating new, efficient programs to ensure that all charter schools — including those that are higher-risk — are able to access financing to meet the demands of today’s and tomorrow’s students.


The Ultimate Guide to Charter School Facility Financing:
Thinking about a new facility for your charter school or enhancing your current one? This guide shares straightforward and actionable advice on facilities planning, financing options, getting approved, choosing a partner, and much more! Download it here.

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facilities financing

7 Things to Know About Facilities Financing

 

1- Facilities access is an obstacle to growth


One of the biggest challenges charter leaders face today is access to suitable and affordable facilities. With more than 3 million students enrolled in nearly 7,000 charter schools, many still have suboptimal facilities that hinder their growth. More than 1 million students remain on charter wait lists. With more facilities financing options, charters can expand their enrollment allowing more children to attend their local charter school.
 

2- Facilities financing volume

3- Facility strategy

  • Ownership is an investment
  • Control is critical to maintaining stability or growth
  • Evaluate true all-in costs, not headline rates
  • Cost is not just money, but time and opportunity
  • Consider flexibility to address long-term needs

4- Realistic Budget


 

5- Funding Comparison


 

6- Key Considerations

  • Plan ahead
  • Watch the market
  • Line up internal
    resources
  • Prepare for the deal

 

7- We’re Charter School Specialists

  • Specialty finance company 100% dedicated to empowering charter growth
  • Began funding charter schools in 2007
  • More than $1.5 billion of funding provided to date
  • $500 million facilities fund specifically for charters
  • 0% loss rate
  • Relationships with 550+ charter schools serving 650,000+ students nationwide

 

Does finding that perfect facility for your school seem like a huge, complex undertaking? Well, you’re not alone…it’s the greatest challenge faced by charter schools across the country. We understand that most charter school leaders aren’t financial or real estate experts, and for a good reason—you’re focused 100% on educating children. And, you want the best for them. Planning and financing any facility project is complex, time-consuming, and has the potential to distract your team from its core mission: serving your students.
This manual covers our perspectives on the charter school facilities financing landscape market and provides practical and actionable advice on planning and realistically balancing your team’s facility dreams with budget realities. We also cover the four primary funding structures that charter schools use to finance facilities: cash, banks, bonds, and long-term leases. Download this free guide to get all of your facilities questions answered!
In it, you’ll get straightforward, actionable advice on:

  • Facilities planning
  • Financing options
  • Getting approved
  • Choosing a partner
DOWNLOAD NOW

Charter School Facility Financing
The Ultimate Guide to Charter School Facility Financing: Straightforward advice on planning, financing options, getting approved, and choosing a partner.
Does finding that perfect facility for your school seem like a huge, complex undertaking? Well, you’re not alone…it’s the greatest challenge faced by charter schools across the country. We understand that most charter school leaders aren’t financial or real estate experts, and for a good reason—you’re focused 100% on educating children. And, you want the best for them. Planning and financing any facility project is complex, time-consuming, and has the potential to distract your team from its core mission: serving your students.
This manual covers our perspectives on the charter school facilities financing landscape market and provides practical and actionable advice on planning and realistically balancing your team’s facility dreams with budget realities. We also cover the four primary funding structures that charter schools use to finance facilities: cash, banks, bonds, and long-term leases. Download this free guide to get all of your facilities questions answered!
In it, you’ll get straightforward, actionable advice on:

  • Facilities planning
  • Financing options
  • Getting approved
  • Choosing a partner
DOWNLOAD NOW
Charter School Facilities

 

Editors Note: This post was originally published here on 12/13/2017 by National Alliance for Charter Schools, and authored by Stephanie Vittitow.  We think it’s vital to keep tabs on the pulse of all things related to charter school facilities and growth and therefore, hope you find this—and any other article we curate—both interesting and valuable.

 

Phi Delta Kappan (PDK) recently found that 17 percent of parents would choose a public charter school for their child if location and capacity were not an issue. And just last month, EdChoice found that 16 percent of parents would like to send their child to a public charter school—which is up nine percentage points since 2013. Together, these two surveys indicate that the potential number of charter school students in the U.S. is between 8 and 8.5 million. In 2016-17, there were just over 3 million charter school students. This means that the potential size of the charter school sector—based on current parent demand—is almost three times larger than what it is today. In order to satisfy this demand, the sector would need to open, and find suitable homes for, thousands of charter schools over the next 5 to 10 years.

However, charter schools already struggle to access adequate and affordable school buildings and charter schools generally lack access to the same funding and financing mechanisms as most school districts. To make matters worse, the House version of the tax bill would eliminate three financial instruments that charter schools use for the construction, renovation, and expansion of school buildings. Should the House prevail in the conference committee, it would be a giant step backward for charter schools. Should the Senate prevail, we would maintain the status quo, which is necessary—but far from sufficient—to meet the large and growing demand for high-quality charter schools.
The Charter School Facilities Initiative (CSFI), a national research project and partnership, has studied charter school facilities and facilities costs in 19 states. Over the past three years, the CSFI team has conducted five charter school landscape surveys: Ohio in 2014-15, Albuquerque and Delaware in 2015-16, and Colorado and New Hampshire in 2016-17. These recent surveys are indicative of broader national trends and these five locations represent more than 650 charter schools – or nearly 10 percent of all charter schools nationwide. Across these five locations, charter schools face clear challenges in acquiring and paying for suitable facilities:

  1. The majority of charter schools (53 percent) were renting or leasing space from a non-profit organization or a commercial entity. In fact, only 27 percent of charter schools had constructed their own building. The remaining 20 percent were located in a district or government building (16 percent) or had a mixed ownership structure (4 percent). Not surprisingly, nearly half of charter schools (49 percent) were located in buildings that were not originally intended to be a school.
  2. Nearly half of charter schools (49 percent) were in school buildings that did not have space for their anticipated enrollment in five years. Parent demand for charter schools is increasing, but facilities constraints are restricting supply. For charter schools that were planning to grow but were limited by their current school building, only 51 percent had developed a specific, feasible plan to construct or acquire additional space.
  3. Nearly one in five charter schools (17 percent) had to delay their opening date by a year or more due to facilities related issues. The inability of new charter schools to find an adequate and affordable school building is a major barrier to the continued growth and health of the sector. Facilities related issues have discouraged countless other developing groups from submitting or completing their application.
  4. Charter schools spent an average of $748 per pupil on rental and/or financing payments after accounting for any state facilities assistance. This spending on facilities diverts critical funds away from the classroom and limits programming options for charter school students. In addition, 40 percent of charter schools completed a major capital project in the past five years in order to renovate, upgrade, or otherwise maintain their facilities—and the median capital project cost nearly $500,000.
  5. Forty percent of charter schools did not have the ideal amenities, nor desired specialized classrooms, to best implement their educational model. Most instruction during the school day takes place in general classrooms; however, specialized instructional spaces, such as science labs, libraries, and computer labs, are an important part of a comprehensive educational program—and charter schools often go without these types of spaces.

The lack of affordable and adequate school buildings limits the growth of high-performing operators, limits the ability of new and independent charter schools to open, diverts critical funds away from the classroom, and limits programming options for charter school students. Congress should work to expand access to programs that help charters schools obtain school buildings—not take them away. In addition, states and districts should also provide charter schools with equitable access to public space. Without equitable access and resources, millions of students and families will continue to wait for a seat at one of these innovative public schools.

Do you need to expand, renovate, or move your charter school?  We’d love to support you. It’s our mission to help you educate more students, so we focus on providing products and services that enable you to meet – and exceed – both your growth and facility goals. When you succeed, we succeed—it’s that simple.
We’ve reached out to our network of charter school experts for best practices and strategies for success at every stage of maturity. So, whether you’re just beginning the process of starting up a charter school, looking to expand or trying to prioritize your next steps, download our Charter School Growth Manual to get expert tips and pitfalls to avoid as you grow.

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Genesee STEM Academy Charter School Expansion
We’re thrilled to share some fantastic news with you about the inspiring facility growth of one of our charter school customers, Genesee STEM Academy. Genesee STEM Academy is located in Flint, Michigan and is a top-tier K-9 Charter School authorized by Saginaw Valley State University. Last year, we worked closely with Genesee STEM Academy to complete their Phase I charter school expansion and now we’ve just helped them complete Phase II of their facility growth, adding an additional 14,300 square feet! This newest phase increases their available space with 13 classrooms, four administrative offices, student and faculty bathrooms, and upgrades to their auditorium.
We’re always thrilled to be a part of the growth and success of charter schools and help them better serve students – and their communities. We also know that they’re ecstatic about taking control of their own destiny.
This successful charter school expansion would not have been possible without the strong partnership between Charter School Capital and the dedicated team at Genesee STEM: including—but certainly not limited to—Laura Legardye, Rita Cheek, and Pasquale Battaglia.
At Charter School Capital, we understand that access to adequate charter school facilities continues to be one of the top challenges facing charter leaders today. There are currently more than 1 million students on charter school waitlists around the country and a relative lack of accessible financing options for charter facilities needs. In order to reach and teach more students and reduce these waitlists, charter schools require state of the art facilities that allow them to continue to build quality educational programs for student success.
It’s our mission to help charter schools with growth capital and facilities financing. Because we partner exclusively with charter schools, we understand the operational challenges their leaders face and can deliver financial resources charter schools need to maintain stability and grow. By leveraging the support of our team, charter leaders can stay focused on the school’s most important mission – educating students.
All of us at Charter School Capital are sending Genesee STEM Academy our heartfelt congratulations on their inspirational growth and success!

Do you need to expand, renovate, or move your charter school?  We’d love to support you. It’s our mission to help you educate more students, so we focus on providing products and services that enable you to meet – and exceed – both your growth and facility goals. When you succeed, we succeed—it’s that simple.
We’ve reached out to our network of charter school experts for best practices and strategies for success at every stage of maturity. So, whether you’re just beginning the process of starting up a charter school, looking to expand or trying to prioritize your next steps, download our Charter School Growth Manual to get expert tips and pitfalls to avoid as you grow.

DOWNLOAD NOW