How 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
And, to download a printable PDF datasheet, click here.
The 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
The Charter School Funding Misconception: Who’s money is it?
This article was originally posted here on September 5, 2018 by The74 and written by James V. Shuls, Ph.D., is an assistant professor of educational leadership and policy studies at the University of Missouri-St. Louis. It is an opinion article that challenges one key assumption about charter school funding: does the funding for public schools belong to the child or to the district? This question is at the heart of education reform arguments.
Proponents of school choice believe that every family deserves to choose the best educational option that suits their child’s specific and unique needs—whether that school is a traditional district public school or a public charter school. Opponents of the charter school movement believe that families that choose the public charter school are “taking” money away from traditional district schools. As this writer suggests, this may hold true if you believe the child, and the funding that follows them, are district property.
Do the traditional district schools have less money if the student opts for a public charter school? Yes. That is the natural result of freedom of choice as it is within any other industry, so why should it be different for education? If your local charter schools are outperforming your local district schools or offer your child something unique to their needs, shouldn’t you be able to make that choice?
If you think the funding belongs to the district and not the student, this writer makes an enlightening comparison to shopping at Walmart versus shopping at your local farmer’ s market, “It presupposes that the customer belongs to Walmart; that any time the individual chooses to buy cucumbers from a local grower or salsa from an aspiring entrepreneur, he or she is “robbing” the dominant grocer.”
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 and the advancement of the charter school movement as a whole. We hope you find this—and any other article we curate—both interesting and valuable.
Read on for the complete article.
Shuls: Do Charter Schools Take Districts’ Money? Only If You Think Children, and the Funding That Comes With Them, Are District Property
How would you respond if you stumbled across a headline that asked, “How much do farmers markets cost Walmart?” It’s a ridiculous question. It presupposes that the customer belongs to Walmart; that any time the individual chooses to buy cucumbers from a local grower or salsa from an aspiring entrepreneur, he or she is “robbing” the dominant grocer. That’s just absurd. Yet this is the standard frame we use when talking about education. We blithely assume that education is wholly different from any other field.
Consider, for example, a recent headline on the Education Writers Association’s website: “How Much Do Charter Schools Cost Districts?” It’s the same question, and it is just as absurd as when talking about groceries. Worse, it is unethical, because it dehumanizes children, reducing them to economic units. In this formulation, neither they nor their parents are individuals with aspirations, endowed with free will and the ability to act in their own self-interest; they are a mere funding stream for public school districts.
This type of headline is all too common. Most people wouldn’t even bat an eye at it. But this isn’t just semantics. It gets at the heart of the way many people view public education.
It is only in education that we presume the customer is the rightful property of a specific supplier and therefore “costs” the supplier when he or she goes somewhere else. Indeed, this is the fundamental problem with the public education system in the United States: We presume the tax dollars that fund a child’s education belong to the public school district and the child belongs in a public school seat.
If, heaven forbid, parents want to use those education funds at a charter school or a private school, they must prove that “choice” works. We demand that school choice programs justify themselves by increasing student achievement on standardized tests, or increasing graduation rates, or fixing decades-old segregation issues. We would never ask the farmers market to prove its tomatoes are bigger and juicier than Walmart’s as a condition of operation.
It doesn’t stop there. A few years ago, one writer went as far as to say, “You are a bad person if you send your children to private school.” You can almost hear Snowball from Animal Farm repeating the mantra, “Four legs good, two legs bad.” It’s us versus them. We treat public education as if it — the system, the school district — were the ultimate good to be served. Just google “school vouchers” and look at the images. The internet is replete with political cartoons that characterize school choice programs as systematically dismantling traditional public schools, brick by brick.
Challenges to this concept are not new. In his 1958 book, Freedom of Choice in Education, Father Virgil Blum wrote that “our educational policy must be philosophically based on the dignity and transcendent value of the individual, on the integrity and freedom of the human person; it must be legally based on the Federal Constitution, recognizing the individual student clothed in all his constitutional rights.” We are no closer to that reality today than we were 60 years ago.
Our commitment to educating every child, regardless of wealth or ability, is a reflection of our highest and noblest ideals. What we do today in our public education system is a feat that was almost unthinkable even 100 years ago. Yet in the process of building that system, we somehow lost our purpose. Instead of the system serving the children, we now insist the children must serve the system.
If we are ever to change this, we must first change how we talk about public education. We can’t presume, as the author of the Education Writers Association piece did, that children and their funding inherently belong to the public school system. Do public school districts have less money when a student goes to a charter school or a private school? Absolutely — as they should. This is what happens in any industry when customers choose to spend their dollars at one place instead of another. More to the point, it is what happens when students leave a district school for any reason.
In the final analysis, we must realize that public education is not about the school system, but the students that it is supposed to serve. They have value. They have worth. They should have choices.
James V. Shuls, Ph.D., is an assistant professor of educational leadership and policy studies at the University of Missouri-St. Louis.
Since the company’s inception in 2007, Charter School Capital has been committed to the success of charter schools. We provide growth capital and facilities financing to charter schools nationwide. Our depth of experience working with charter school leaders and our knowledge of how to address charter school financial and operational needs have allowed us to provide over $1.8 billion in support of 600 charter schools that have educated over 1,027,000 students across the country. For more information on how we can support your charter school, contact us. We’d love to work with you!
How Charter School Capital Helped Minnesota School Thrive
With so many choices for where go to access financial resources for your school, it’s important to select the right one for you. At Charter School Capital, we believe in the power of charter schools and their leaders to deliver quality education to families across the country. And we’re proud to provide the reliability and stability charter leaders require as they walk their journey to better educate more students today—and in the future.
Please watch and listen as Eric Mahmoud Founder and former CEO of the Harvest Network and Best Academy in Minneapolis shares his experience working with Charter School Capital during some very difficult financial times for charter schools in Minnesota.
This video was originally published Jul 17, 2014. While we’re no longer funding Best Academy, we are proud of the way our support has helped them continue to serve their students. Because, when you no longer need Charter School Capital, that means we’ve done our job and your school has become financially stable, successful, and set up for future growth. To learn how other school’s have achieved success by partnering with us, check out our other success stories here and filter by the content type, “School Spotlights”.
Watch the short video to hear Eric’s story and find the transcript below. You can learn more about Charter School Capital here.
We started as a daycare in our home with about 10 children and then after seeing our children graduate from our preschool program and go into the public schools where they weren’t being challenged, we decided that we would expand our preschool program to elementary school, which we did in 1992.
We’ve taken a population that traditionally (both in Minneapolis and around the country) has not done well, and we’ve actually raised their achievement all the way up to the top. And, while at the same time we were growing our BEST academy program, the state was going through their own financial crisis.
And so we went from a 10 percent [state] hold back – maybe about five, six years ago – to subsequently 17 percent, 27 percent, then 30 percent. And last year, a 40 percent hold back. And for many schools it actually crippled them. And, actually, I thought it was very appalling.
The opportunity to talk with Charter School Capital came about and within a very short period of time, we were able to get the resources that we needed.
There was a whole lot of flexibility working with Charter School Capital in a number of situations when we thought that we were going to get a certain amount of revenue from the state and we didn’t.
Charter School Capital was very flexible and it’s been very easy working with Charter School Capital to fulfill the needs that we have as a school. Certainly, they helped us think about our overall financial picture. And so it was more than just writing us a check.
We had a very good relationship during the years that we’d been using charter school capital. I think it was a good business decision. And as a result of that business decision, we’ve been able to move our children where they need to be academically.
Are you looking into funding options for your charter school? Our team of dedicated professionals 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, enhance school safety/security, or buy new technology, complete the online application below and we’ll contact you to set up a meeting.
Charter School Capital Funding Allows School Leaders to Stay Focused on Their Students
With so many choices for where go to access financial resources for your school, it’s important to select the right one for you. We believe in the power of charter schools and their leaders to deliver quality education to families across the country. And we’re proud to provide the reliability and stability charter leaders require as they walk their journey to better educate more students today—and in the future.
Please listen as Ricardo Mireles, Executive Director, Academia Avance shares his experience working with Charter School Capital.
This video was originally published Jul 17, 2014. We are proud of our continued partnership with Academia Avance. We are honored to support them in continuing their mission of setting a standard for public charter school excellence and inspiring a lifetime of learning and leading.
Charter School Capital Funding Helps Academia Avance Sustain Thier Growth
Academia Avance is a charter public school in the northeast community of Highland Park in Los Angeles. We serve grades six through 12. We are on track to having 500 students for this upcoming fall charter funding.
[The way that we can access] charter funding makes it very difficult for schools that increase their enrollment [because] you don’t see those funds until the spring. But the relationship that we had built with Charter School Capital allowed us to say, look, this month I need this much money.
Another challenge that charter schools have, is the need (in any kind of financial transaction) to provide some kind of collateral. And so, for new schools, small schools, they don’t own a building. They don’t have assets that they can pledge just for collateral. It’s just very difficult.
I’m really appreciative of how Charter School Capital was able to understand what our need was. We looked at this as a very different way of getting funding based on the one collateral that we do have – and that’s our students.
Charter School Capital has allowed us to work with a product that is flexible in terms of the amount, in terms of the timing. In all the conversations I’ve had with the leaders of Charter School Capital and their entire staff, they always understand what we’re trying to do with our students and how they’re joining us in making it work for our students.
We’ve been working with Charter School Capital now for four years and throughout, they’ve been flexible, and they’ve been very professional, and they’ve allowed us to stay focused on our students.
Starting the relationship with Charter School Capital is different from what we have experienced with other financial institutions in that they are very focused on the viability of the school going forward relative to the charter.
Without Charter School Capital, Academia Avance wouldn’t exist.
Learn more about Charter School Capital Funding
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, enhance school safety/security, or buy new technology, complete the online application below and we’ll contact you to set up a meeting.
Charter School Financing: Your Guide to Budgeting Best Practices
The Charter School 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. We put together this guide to share best practices and call out common pitfalls to avoid. (This guide won’t teach you how to put a budget together—you’ll need to call on your finance team for that.)
Whether your school is growing student enrollment, expanding facilities, or implementing new educational programs, your annual budget should serve as an essential tool to help you achieve your goals as quickly—and as realistically—as possible.
In this guide, we discuss budgeting strategies for the various stages of charter school development including:
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
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 more than a decade, we’ve invested over $1.6 billion in more than 600 charter schools to help them grow, finance facility projects, and achieve operational stability. We view ourselves as a resource and partner of charter schools and a strong advocate of the charter school movement as a whole.
This manual is intended for charter school leaders who want to be more strategic about charter school financing and budgeting and avoid short-term mistakes that can lead to unintended long-term consequences. This manual is only for informational and planning purposes. If you’re seeking financial advice or support, please seek out the guidance of a qualified professional organization such as Charter School Capital.
Download your free copy here! GET THE RESOURCE
Best 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.
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:
The school’s existing reserves
Public subsidies
Private donations
Public or private foundation grants
Operating revenue
Charter term—financial institutions want to see that your charter has been renewed for the long-term
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.
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
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.
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.
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.
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.
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.
We are 100% dedicated to the charter space and to enabling the success of charter schools and the charter school movement. Working exclusively with charter schools, we measure our success by the number of students we serve. Our mission is to provide school leaders access to the financial and other charter school resources they need – whether it’s operational capital, growth funding, or facilities expansion. We believe in the power of charter schools and their leaders to deliver quality education to families across the country. And we’re proud to provide the reliability and stability charter leaders require as they walk their journey to better educate more students today—and in the future.
Why Partner With Us?
We’re mission-driven and 100% dedicated to the charter school space.
Unlike traditional lenders like banks, we work with you to solve the unique challenges you face.
We are dedicated to financing schools ethically and responsibly.
Your success is our success. Our goal is to help your school become financially stable, successful, and set up to serve more students.
OUR CHARTER SCHOOL FUNDING PRODUCTS:
Working Capital
Charter School Capital provides flexible funding solutions so charter schools can gain ground and achieve success. Our charter school working capital financing enables school leaders the flexibility and stability to support everyday expenses and – importantly – fuel their growth.
Why might you need to access working capital?
To expand or grow programs
To open a new charter school
To enhance facilities – with labs, gyms, etc.
To provide new technology in the classroom
To hire and/or develop your staff
To address budget shortfalls and delays (deferrals, holdbacks, etc.) gracefully
To improve transportation options
To enrich educational programs
Charter School Capital is a trustworthy, reliable funding source. They are a true friend and ally to charter schools, the movement, and the children we serve.
~Caprice Young, CEO & Superintendent, Magnolia Public Schools
Facilities Financing
Our facilities financing product is a long-term lease that allows schools to access funding through all stages of growth – from start-up to expansion through maturity. As a long-term partner, our team works closely with you as we explore budgetary and financial options to support your facilities needs.
Why long-term lease financing?
You can finance 100% of project costs
You can retain control of your facility
You can plan on long-term affordability
You can enhance your existing building or finance new construction
Your lease can be customized to your school’s model – whether blended learning,
traditional, etc.
Tenant improvements can be financed in your lease
Can be used as take-out financing for an existing bond or potential bridge to bond financing.
It was a blessing to find Charter School Capital. We couldn’t have even looked at a building like this without them. They were responsive, communicative, and very much about the school kids. Our students and their families are very excited about the facility!
~Freddy Mendoza, Founder and Teacher, Arizona College Prep Academy
Since our founding, we’ve been able to provide over $1.6 billion in funding to more than 600 charter schools across our nation and most importantly, to serve over 800,000 students.
We’re proud to provide the reliability and stability charter leaders require as they embark on their journey to educate more students today—and in the future.
If you have working capital needs or would like help with charter school facilities financing, our team of experts is here to help you with a needs assessment. Start by completing our online application or contact us for more information about our funding types (link below).
It’s a big relief to know that, with Charter School Capital, our organization can stand alone. They have done such a good job of making us feel part of something…You don’t get that feeling with a bank.
~Dr. Kris Sippel, Principal, San Tan Learning Center
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 to learn more about your needs.
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.
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. GET STARTED
New Five-Day California Charter School Funding Option
We heard from a number of charter schools that they needed a faster funding option for tight-turn budget needs. We’re very excited to now be able to answer that request with our new five-day funding option, currently exclusively for California charter schools.
Since our founding, we’ve been able to provide over $1.6 billion in charter school funding to more than 600 schools across our nation and most importantly, to serve over 800,000 charter school students. We’re proud to provide the reliability and stability charter leaders require as they embark on their journey to educate more students today—and in the future.
If your school needs funds fast, we can provide charter school funding in as few as five business days so you can keep your focus on what really matters – educating your students. And, as an ongoing Charter School Capital client, you may qualify for a lower-cost option on fundings, as well as additional benefits and services as we partner with you to ensure your school’s continued success and growth. We help charter schools access working capital so they can:
Expand or grow programs
Open a new charter school
Enhance facilities – with labs, gyms, etc.
Provide new technology in the classroom
Hire and/or develop staff
Address budget shortfalls and delays (deferrals, holdbacks, etc.) gracefully
Improve transportation options
Enrich educational programs
Buy new equipment
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.
To learn more about this new funding option, set up time with our California Funding Specialist, or get your funding request started by filling out the form here: GET STARTED
Webinar: Top Five Financial Mistakes Charter Schools Make…And How to Avoid Them
Join us for our live webinar this week!
We’re going to answer one really important question, “How do we avoid the top financial mistakes that charter schools make?” We’re being joined by some leaders of Desert Star Academy, SALTech, and Wayne Preparatory – and they’ll be generously and bravely sharing the mistakes they’ve made as charter leaders, and of course how they solved those problems for the future.
We presented some of this content at the National Charter School Conference in Austin, Texas last month to a standing-room-only audience, so we’re bringing it back as a webinar for those that weren’t able to make it out to Austin. Join us to understand the five mistakes and you’ll walk away armed with the tools you’ll need to avoid them. Our esteemed panelists:
Margie Montgomery, Founder / Executive Director, Desert Star Academy
Michael LaRoche, Founder / Executive Director, SALTech Charter High School
Sharon Thompson, Chairman of the Board, Wayne Preparatory Academy
Tricia Blum, Head of Business Consulting, Charter School Capital
How To Avoid The Top Financial Mistakes Charter Schools Make
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
The Charter Leader’s Definitive Guide to Budgeting Best Practices
