A Barrier to Growth: The Charter School Facilities Gap

Editor’s Note: This content was originally published here in May by Academica Media. The charter school facilities gap is one of the biggest barriers to growth and a universal challenge for many charter schools. Listen as Ryan Kairalla from Doral College, speaks with Mark Medema, the Managing Director of the Charter School Facility Center for the National Alliance for Public Charter Schools. Whether it’s finding a facility, affording one, maintaining one, relocating because you’ve outgrown your facility, these are all common issues charter leaders face. Learn about the current state of charter school facilities across the country and what’s on the horizon to address some of these issues on a legislative level.

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 school choice, 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.

Listen to the complete podcast here or read the transcript below.

Bridging the charter school facilities gap with the National Alliance’s Mark Medema

Ryan Kairalla: Welcome to the show everybody. I’m Ryan Kairalla from Doral College. Our guest this week is the Managing Director of the Charter School Facility Center for the National Alliance for Public Charter Schools. In his role, he leads the National Alliance’s facility experts and addresses the facility policy and regulatory issues confronting charter schools nationwide. He has also worked with the Charter Impact Fund, Building Hope at the international education reform organization EdVillage and more. You can find out more about his work by visiting www.publiccharters.org.

Ladies and gentlemen, we are happy to have Mark Medema on Charter School Superstars. Hi, Mark.

Mark Medema: Hello.

Kairalla: It’s so good to be hearing from you. I’m excited to finally get to talk with a guest about facilities. That is a topic that we haven’t touched upon, and I know it’s definitely one that matters to the folks listening that are charter school advocates, charter school employees, charter school enthusiasts. So, let’s get it right into it. Can you tell the listeners a bit about the work you do with the National Alliance with the Charter School Facility Center?

Medema: Would be happy to. One of the biggest barriers to growth of charter schools these days is facilities, and as you mentioned, it’s often not talked about. Educators like to focus on education, and facilities is to say it, some people like thinking it’s like watching paint dry, and facilities, it actually is watching paint dry.

So, what we’re trying to do is bring to light some of the best practices happening for facilities, whether it’s about how school leaders and board members can develop and design and finance buildings much more affordably, or how policymakers can use public resources, whether it’s a building or state or federal funding to help lower the cost of facilities so that schools are paying more into the classroom rather than paying more money on the classroom.

Kairalla: Absolutely, and you’re so right when you say that facilities are the biggest challenges or represent one of the biggest challenges that charter schools face when building a sustainable program. I see it on the education services company side. I see it on the legal side as a lawyer. I’ve seen a lot of really otherwise successful charter schools with great models have trouble because they have issues with the actual building itself. As you noted, it can be either a problem with finding a good facility, affording that facility, maintaining that facility, getting a new facility once you’ve outgrown the old facility. Among those kind of different areas of facilities, where do you tend to see charters having the most trouble when it comes to getting a stable place to call home?

Medema: It really starts with going out and finding and developing a facility. School leaders are educational experts. They’re not commercial real estate experts, and so they’re venturing into a world that they don’t know. Commercial real estate, I think, probably doesn’t have a great brand to it to begin with, and now an educator has to figure out how to navigate an area that doesn’t really have a lot of straight ground rules and guidelines. So, they’re really in just unchartered territory for themselves.

Once they do get familiar with this, then it comes down to the cost of money. Charter schools have to borrow money at rates much higher than the government can, which is just another level of unfairness between charters and other traditional school systems, and so we need to find lots and lots of new, creative, innovative ways to bring down that cost of funds to a much more equitable level to what the traditional school systems are paying.

Kairalla: Yeah, there’s a lot about just the inherent nature of the charter model that makes facilities acquisition a challenge, or least from what I see on the legal side. You spoke about the difficulty dealing with lenders because … And I think it’s similar to the difficulty that charter schools have when dealing with landlords. These are two groups of people that look at the charter model and say, “You’re on a five-year charter maybe. This charter could succeed. It might not.” We don’t know what the political climate’s going to be, so it makes you a bigger risk either to underwrite a mortgage for or to ultimately for a landlord to want to take a chance on you, and so it does create this sort of gap. What kind of solutions have you explored with maybe your past work with Building Hope or what you do at the National Alliance that try to help bridge that gap?

Medema: There are some groups that really understand the inherent risks in charter schools much better than others. Charter schools typically will have much lower default rates, I think, than the private capital markets expect, but they just quite haven’t begun to pricing that. So, a lot of it educating the private marketplace or finding replacements for the private marketplace, and those can be through non-profit funds, which are seeded by social capital really looking for double bottom line type returns and those kind of financial returns that are much more affordable for charter schools than what the private commercial marketplace would provide.

Kairalla: And are you seeing an emergence of more of these kind of charter-friendly lenders or real estate owners or landlords as the charter model proliferates nationwide?

Medema: We’re seeing more of them. I’m not sure it’s there are tons of them still, so there’s still a huge demand. The foundations I think are stepping into this place now. They’re starting. Some of the family funds are creating their own, so not just investing in existing non-profits but creating new non-profits. So, it’s exciting to see that happen.

What we haven’t tapped into very well is the individual retail investor who would love to see their personal investments go to social good, but we haven’t really developed easy mechanisms or products for them to be able to support charter schools in their communities. I think that’s the next venture.

Kairalla: That’s a particularly interesting development because you certainly see those kind of investment vehicles in other areas of real estate space, and so perhaps if those things could emerge in the charter school field, that could be a pretty welcome development.

You spoke earlier, Mark, about policy reforms and some of the legal issues that exist maybe state by state that sort of create additional challenges for charter schools in the facility space. So, can you talk a bit about the work you do at the National Alliance to advocate at the policy level to try to make the facilities challenge easier for charter schools? Are there particular reforms that your shop is really trying to fight for?

Medema: So, we were really excited to see Idaho’s Legislature pass and the Governor pass a moral obligation bill. So, when a traditional school district borrows money, it has the backing of the state or the school district that’s in the state behind it because it has a taxing authority, so they usually are very little risk. The students who go to public charter schools are the same public-school students that should afford the same backing of the state, and a moral obligation really says the state is providing its obligation that it’ll backup a charter school’s debt. It’s not a legal, binding obligation, but it’s a moral obligation. Idaho’s now the third state to do that behind Colorado and Utah, which will see great success and great savings to schools. What-

Kairalla: Well, that’s interesting.

Medema: What the National Alliance would like to do is talk more about this and share this with more state legislators. Lots of them just never even heard of this. It’s kind of a not very well-known strategy that’s been used in affordable housing and higher ed and healthcare centers, and we want to try and spread this to more states. So, that’s one low-hanging fruit that we should be working on the next few years.

Kairalla: Well, that’s pretty interesting, and so what you’re finding is that … Are you finding that when states adopt these moral obligation bills, which as you said don’t actually require the state to step in if the charter school defaults, just having the moral obligation bill is enough to actually allow charter schools to get more attractive lending terms?

Medema: Yes. A state might have a AAA rating and so a school district can borrow at AAA rates. That’s an S&P rating methodology criteria.

Kairalla: Mm-hmm (affirmative).

Medema: A moral obligation will get you close. It might get a AA rating, which is probably 100 basis points or one full percentage point less on the interest rate. That, over a 30-year mortgage, is millions of dollars of savings to a school. That’s money that can be spent on teachers. It can create jobs. It can go into special programming, and all with no cost to the state because again, it’s not a binding obligation. Now, the states will most likely adhere to it because they don’t want the markets to know that they’re backing out on their moral obligations, but it just doesn’t get called because charter schools are really such a good risk for investors. So, it’s never been called upon in its history.

Kairalla: Yeah, really, it’s just about the state kind of just stepping a little bit with this moral obligation, and all it’s really doing is just educating the marketplace because it sort of gives people an opportunity to take a chance on charter schools. Then, they realize, well, this is actually a pretty good investment. This is a stable, commercial real estate tenant. It’s going to be there a while. It’s performing a social good in the community, and by the way, a good school in an area tends to have an effect for surrounding real estate that’s pretty positive. And so, that can be a big win all around.

Medema: And it’s not new. It started in the ’70s in New York with housing. We just hadn’t figured out how to transfer it over to the charter school sector. Now, we’re seeing more progress on that front.

Kairalla: That’s very exciting to hear. You’re actually going to be participating in the National Charter Schools Conference. You’re going to be doing a session about, surprise, facilities, and for a lot of the listeners out there who I think are hungry for more information about this and want to hear more about the developments and how they can up their facilities game, I’m sure that they want to take part. Can you tell the listeners a bit about what you’re going to talk about at the conference?

Medema: We’ll direct the audience or for two audiences. If it’s a school leader, it’s a lot about best practices from what other schools have been doing to identify property, acquire it, work with developers, secure financing. And then as for the policymakers and some of the philanthropic foundations who are looking for more systemic changes, things like these bills or including charter schools in a district’s school bond offering, which we’ve started to see around the country, there’s a handful of policy initiatives that we think should resonate and should spread from one city to another.

Medema: Again, a lot of cities don’t know about what’s happening around the country. This isn’t a topic that’s talked about very much. Again, a little bit like watching paint dry, and so we just need to figure out how to share these best practices from one city and state to another.

Kairalla: Well, let’s start talking about this, people. Facilities are super, super important. We all have to have a place to call home for our charter schools, and I’m telling you folks. I can tell you from my own experience, a solid facility, good landlord, good property owner, everything can really make a big difference for charter schools. So, Mark, I’m so grateful for the work you do at the National Alliance to help the charter schools thrive in this area.

Let me ask you this last question before we let you go, and this has been truly a pleasure speaking with you. If with a snap of your fingers, you could make any change to the education system, what change would it be?

Medema: I think it starts with a belief that all children have the potential to meet and rise to their full expectations. I think if everybody, whether they work in schools or even just the general population, really believed that they and their neighbors and their friends and people who live down the street really believed in the full potential of all kids, making these policy changes would be easy. It’d be a snap of the fingers. Everybody would know exactly what we’re doing.

I think there’s probably still some hesitancy, and we think watching students excel is sometimes an exception. And rather than exception, I think all these students are just exceptional, and I think we can all come to that realization.

Kairalla: He is the Managing Director of the Charter School Facility Center for the National Alliance for Public Charter Schools. Find out more about his work by visiting www.publiccharters.org and don’t forget to take part in the National Charter Schools Conference June 30th to July 3rd in Las Vegas. Visit ncsc.publiccharters.org.

Kairalla: Mark Medema, everybody. Mark, thank you so much for joining us this week.

Medema: Thank you very much.

Kairalla: And thank you all for listening to Charter School Superstars.

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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If you feel that finding the perfect facility for your charter school seems like a huge, complicated undertaking, you’re in good company. 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. Check out these five key considerations when considering charter school facility financing.

1. 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.

2. 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.

3. Look at market trends

The charter school market boils down to this: Plenty of kids want to attend charter schools, but there just aren’t enough seats, classrooms, and schools to serve all of them. Looking at market trends, money is cheaper than it was a decade ago or even five years ago, but interest rates have actually been rising over the last few years and are expected to continue to rise even more. The Federal Reserve Board is always analyzing the effect of interest rates on inflation and economic growth and has the ability to raise or lower them at any time. Changing interest rates affect every aspect of the capital markets.

4. Reconcile your dreams with your budget realities

Three key considerations here are:

Requirements: Everyone wants a school that they can be proud of, but that isn’t as important as having a facility that enables you to meet your academic mission, fulfill the promises made in your charter, and meet your charter’s enrollment goals in the near term. So, go back to your mission and your board of advisors and dive deeply into what your facility must have to carry out your mission. Science lab for a STEM school? Auditorium or music room for a performing arts school?
Curb Appeal: What are the minimum requirements needed to attract enough families to meet your enrollment goals? The way your facility looks isn’t as important as what it can do—but it’s still important. Depending on the area, the way a school looks can have a significant impact on student enrollment, and enrollment numbers drive operating revenue, which in turn affects the quality of your academic programs.
Budget: Taking into account revenue and financing streams, what can you afford? Getting prequalified is the key first step in the process of renovating, expanding, or finding a new facility.

5. Understand the financing options available to your school

There are four main types of financing that charter schools use to finance facilities:

Cash
Investment Banks
Bonds
Long-term Leases

Your financing options may expand as your school matures. After a school secures its first charter renewal, more options become available, and the more conservative players in the capital markets begin to feel more confident about participating.
Depending on your school’s specific situation, one option may be the obvious best choice, or maybe you’ll need to weigh the pros and cons of a few different options. For each option, compare and contrast the amount of funds you’ll spend up front and annually to get the facility that you need. The time and opportunity costs associated with each option can vary widely, with bonds generally on the high end and long-term leases on the low end. Some transactions can take six to 12 months; a long-term lease typically takes between 60 and 90 days.

Charter school facility financing is complex, that’s why it’s so important to find the right funding partner to help guide you through the 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 our team of dedicated charter school experts will help you see which solutions might be best for your school’s situation. Connect with one of our charter school advisors to learn how we can help you achieve your goals.

If you’re still feeling overwhelmed, don’t worry, we’ve developed a manual to cover our perspectives on the charter school facilities landscape market and provide you with practical and actionable advice on planning and realistically balancing your team’s facility dreams with budget realities. We also cover in-depth the four primary funding structures that charter schools use to finance facilities mentioned above: cash, banks, bonds, and long-term leases.

Download this guide to get a deeper dive into the five keys to charter school facilities financing we’ve mentioned in this blog post.

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.

GET THE RESOURCE

Editor’s Note: This article about Federal charter school funding and its reach, was originally posted here on November 6, 2018 by the National Alliance for Public Charter Schools and was written by Christy Wolfe, a Senior Policy Advisor for the National Alliance for Public Charter Schools.
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.

Charter Schools Program funds are reaching schools in thirty-eight states

Congress appropriated a total of $400 million for these awards for FY 2018, including funds for active awards previously awarded. Due to increased funding in recent years, more states than ever have access to start-up funding—31 states have State Entity grants and charter schools in an additional seven states were successful in receiving Developer grants. Many states are also seeing charter school growth through grants to Charter Management Organizations for the Replication and Expansion of High-Quality Charter Schools, but awards were not made for that program during FY 2018.
This year, the program awards are a bit more complicated because, for the first time, two competitions were run under the new requirements in the Every Student Succeeds Act (ESSA). Let’s take a closer look at where the money went:

State Entity Grants: Funds to Open Charter Schools and Build Statewide Sector Quality

The State Entity grant program plays a key role in not only awarding subgrants to schools, but also providing funding for technical assistance and strengthening the quality of authorizers in a state.

Eight states received awards: Arkansas, Arizona, Colorado, Delaware, Idaho, Michigan, North Carolina, New York.
Five states were not successful: Alabama, D.C., Guam, New Hampshire, Puerto Rico.
Two Charter Support Organizations (CSOs) were funded: The new changes in ESSA unlocked CSP funding for non-state educational agency applicants, including CSOs. This year, two funded applicants from Arkansas and Idaho were CSOs.

At the close of this competition, 31 states (including D.C.) have a current CSP grant in their state (14 states with charter school laws are unfunded). Next year, nine states will likely have expired grants, which leaves a potential (although unlikely) pool of 24 applicants. If Guam and Puerto Rico are included, there will be 26 potential applicants.

Charter School Developer Grants: The Safety Net Program

This is the first year the competition has been run since the passage of ESSA. What is new is that there were two sub-competitions: one for replication/expansion grants, and the other for new charter school operators. There were 22 replication/expansion awards and 10 single site applicants. This year there were 32 funded applicants for a total of $30.2 million.
Ideally, this program would be obsolete. It is a safety for charter schools that wish to open in states that do not have a state entity program. If there was enough funding – and state capacity – for every state with a charter school law to have funding, new charter schools could simply apply to their state. Instead, after obtaining their charter contract, schools need to jump through the hoops required by federal grants to access funding. So, until every state has adequate funding for start-ups in their state, this program will continue to play a key role in advancing charter school growth.
BUT—you may have noticed that some developer grants went to states that also got a state-entity award (Idaho, Illinois, Michigan, North Carolina, and New York). The reason for this is, in part, because ED ran the State Entity and Developer competitions at the same time this year, so Developer applicants didn’t know if their state would receive a State Entity grant prior to applying. ED did not deem those applicants ineligible even when their state ended up receiving a State Entity grant. In addition, some developers were awarded a grant for replication and expansion because their state didn’t have a State Entity grant that permits them to make such awards, such as Ohio (NCLB-era grants don’t permit such awards unless a state has an approved waiver).
Of states that don’t have a CSP State Entity grant, seven have schools that received Developer grants: Alabama, Hawaii, Maine, Missouri, New Jersey, Pennsylvania, and Utah have charter schools that received Developer grants. Eight states with charter school laws have neither State Entity nor Developer grants (not including Guam and Puerto Rico).

Current Charter Schools Program Grants: State Entity and Developer Grants

Credit Enhancement: Reducing Facility Costs for Charter Schools

The Credit Enhancement program awards grants to organizations to “enhance” charter school credit so that they can access private-sector and other non-Federal capital in order to acquire, construct, and renovate facilities at a more reasonable cost. This year early $40 million was awarded to four entities.
This is a significant decrease from the $56.2 million in awards for 2017. More funds were awarded last year, in part, due to the large pool of high-quality applicants and the needs of the sector. This year, appropriators restricted ED’s flexibility to fund additional applicants, so they were limited to $40 million. Unlike the other CSP programs, Credit Enhancement funds are a one-time allocation so there aren’t any continuation awards—the amount appropriated is the amount that goes out the door.

Dissemination: Advancing Accountability and Facilities Access

Like the Developer program, this was the first competition year for the new National Dissemination program under ESSA. Previously, this program was known as the National Activities program and had a somewhat broader focus. Under ESSA, the program is focused on the dissemination and development of best practices. This year, 8 grants were awarded to organizations and charter school operators for a total of $16.2 million over the grant period. There were two “buckets” of funding to which applicants could apply: charter school authorizing and charter school facilities. For FY 2019, we anticipate that ED will propose new priorities for this program.
The National Alliance is pleased to be a recipient of a Dissemination grant to establish the National Charter Schools Facilities Center to develop and disseminate best practices and reduce the burden of obtaining and financing charter school facilities.

Grants to Charter Management Organizations for the Replication and Expansion of High- Quality Charter Schools: A Delayed Competition

ED did not run a competition for the CMO Replication and Expansion program because the agency is required to propose and take public comments on new program rules under ESSA. Comments for the new competition closed on August of 2018 and the competition will open later this year or in early 2019. Congress knew that ED would need extra time, so FY2018 funds for this program didn’t expire on September 30—ED has until March 2019 to make awards. ED’s “forecast” indicates that the competition for this program will be announced in late November 2018 and applications will be due around the start of the New Year. $120 million is available, and a little more than half of that amount will likely be available for new awards.

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. Our team works with you to determine funding and facilities options based on your school’s unique needs.

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Charter School Facilities Funding: It’s Time to Fill the Gap

Editor’s Note: This content originated here and was posted by the National Alliance for Public Charter Schools. Across the U.S., facilities are, by far, the greatest challenge faced by charter schools and accessing a school building is often the biggest obstacle in expanding charter school options. And, it’s one of the main reasons we have over one million students sitting on charter school waiting lists. Most charter school leaders have to jump over serious hurdles to cobble together the charter school facilities funding to provide their students with an adequate school building. It’s time to fill the gap in public school funding.

Note: The following content is also from The National Alliance for Public Charter Schools on September 18, 2018, and was originally published here.

Here are the five things we think you need to know about charter school facilities:

Charter schools rarely have access to taxpayer-funded facilities, even when they’re vacant.
Taxpayers own public school buildings and they should be available to all public school students, but that’s not the reality. Unlike district schools, charter schools don’t have an inventory of buildings to choose from. And in many places – like Detroit, Indianapolis, and Minneapolis – districts refuse to allow charter schools to lease or purchase buildings even when they’re vacant. As a result, you can find charter schools operating in shopping malls, office buildings, repurposed factories, or co-located with other schools.
Charter schools on average spend about 10% of per-pupil funding on facility space.
While some charter schools access federal or state programs these initiatives have limited funding and reach. They don’t work for all charter schools. Moreover, many of these programs simply reduce the cost of borrowing money – schools still need to cover the debt which shifts much needed funds from the classroom and to the building.
Charter school facilities often lack amenities like gymnasiums, libraries, or science labs.
Specialized instructional spaces, such as science labs, libraries, and computer labs, are an important part of a comprehensive educational program, but about 40 percent of charter schools do not have the right amenities or specialized classrooms to best implement their educational model.
Access to school buildings is one of the biggest obstacles to expanding charter school options.
Charter school leaders report that lack of access to adequate facilities is one of their primary concerns and one of the biggest barriers to growth. In fact, nearly one in five charter schools had to delay their opening date by a year or more due to facilities related issues. Even celebrities can’t avoid the facilities challenge.
5 million parents want to send their child to a charter school, but don’t have the option.
Based on parent demand, estimates suggest that the potential number of charter school students is 8.5 million – almost three times larger than today’s actual enrollment. Thirty percent of parents surveyed would be interested in sending their child to a charter school, with 10 percent saying that a charter school would be their top choice. Of interested parents with charter schools in their community, over half cited access problems – such as the school is too far away or has a wait list – as the reason their children do not attend a charter school.
Learn more about the facilities challenge many charter schools face and help ensure charter schools can open their doors to students!

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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

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