August 2, 2021

How Much Does a Charter School’s Facility Cost? Introducing the “Infrastructure Insights: Financing Charter School Facilities” Series

By Bellwether

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Photo courtesy of Caleb Oquendo for Pexels

As the Biden administration’s historic infusion of federal education funds are spent in states, coupled with a potential $1 trillion bipartisan infrastructure package making its way through Congress — a package that could include money for K-12 building safety and technology upgrades — we must ensure that charter school facilities are included in the policy debate. Join us in an “Infrastructure Insights: Financing Charter School Facilities” weeklong series, where Bellwether Education Partners will share insights into a range of issues facing charter school facilities.
Charter schools and charter school networks face a considerable array of challenges when it comes to finding and financing facilities. These challenges often prevent them from expanding their impact. In Bellwether’s work with charter schools, we’ve found that many tend to spend time and money on facilities that could instead be spent on core programming (e.g., staff salaries, instructional supplies, and field trips). We’ve also seen schools settle for less-expensive, smaller, or shared facilities, which can limit the range of programming offered. 
The National Alliance for Public Charter Schools* reports that 17% of the 650 charter schools it surveyed from 2014 to 2017 had to delay their opening date by one or more years due to facilities barriers. When charter schools do find facilities, they’re often less-than-ideal. For example, our research in Idaho found that while most charter schools had a computer lab and cafeteria, less than half had a gym, library, or auditorium. 
It’s a problem that deserves a spotlight as the national debate swirls on investments in infrastructure. This week, my colleagues and I are rolling out a series of blog posts that will:

  • Help policymakers, charter advocates, prospective school leaders, and others understand the facilities barriers that charter schools face.
  • Provide an overview of the ecosystem of private and philanthropic strategies for addressing these barriers.
  • Review state and federal policy levers that can support facility access and affordability.
  • Provide a description of a particularly promising solution — charter school loan funds — and what charter school leaders should know about them. 

Today, let’s get started with charter facilities 101:

How much does a school building typically cost?

If you’re planning to own your building, there are two primary categories of facilities costs: project costs and maintenance and operations (M&O).
Project cost consists of the cost of acquiring land and/or an existing building as well as the work done to the site. The work done to the site includes “hard” costs (e.g., construction) and “soft” costs (e.g., management, permits, and appraisals).
Project cost is significant and depends on factors such as the local real estate market, building/lot size, and amenities such as science labs and playgrounds. National facilities support providers such as Building Hope and ExEd suggest $20,000 per student (with a reasonable 100 square feet of space per student) as a rule of thumb for newly constructed charter school buildings, which results in a $10M project cost for a school that serves 500 students. As you can imagine, location (particularly urban versus rural) has a significant impact: Project costs for several buildings we’ve seen lately that are located in cities are closer to $40,000 per student and more than $20M in total. 
And while purchasing and renovating an existing building might seem like it would be more cost effective than new construction, it’s often just as expensive. The buildings that are available for charter schools to purchase tend to be former grocery stores, warehouses, office spaces, or churches — not former schools. That means there’s significant retrofitting and renovating that must happen before the building can be safe for use as a school. 
Ongoing facilities M&O is what it costs to maintain the school building each year (e.g., expenses such as janitorial, utilities, insurance, and routine or small-scale maintenance and repairs). This is essentially all of the annual facilities cost except for the mortgage (also known as debt service). M&O varies by factors such as building size but is typically a much smaller expense relative to what one pays for the building itself. For context, the 21st Century Fund looked at M&O expenditures across state public schools in FY2017 and saw a range of ~$700-$1500 per pupil, with an average of $1,128.

How do schools pay for this?

The diagram shown below, called the “capital stack,” illustrates the mix of financing sources used to fund a facility project. Schools may use a mix of upfront cash known as “equity” and loans (a.k.a. “debt”) to pay for their often multi-million dollar project costs. A typical capital stack may look something like this:

Capital stack diagram illustrating how charter schools pay for a facilities project cost

The equity at the bottom of the stack is similar to the 10-20% down payment that is often required when you purchase a home. This is upfront cash that the charter school must provide in order to obtain debt (the other two parts of the stack) at reasonable interest rates. Charter schools often acquire this money from philanthropy and/or build up their own savings over time. Even when providing the upfront equity, access to affordable debt (i.e., getting loans at reasonable interest rates) can be a major barrier for charter schools, but more on that later.
The other type of cost, M&O, is typically paid for via general operating budgets such as the per-pupil funding charter schools receive.
Now that you have a sense of scope in charter facility costs, up next in our weeklong “Infrastructure Insights: Financing Charter School Facilities” series, we’ll focus on challenges charter schools face in securing new facilities. 
(*Some organizations listed include past or present clients or funders of Bellwether.)

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