August 4, 2021

What are the Four Characteristics of a Healthy Charter School Facilities Ecosystem? “Infrastructure Insights: Financing Charter School Facilities” Series

By Bellwether

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Photo courtesy of Yan Krukov 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.
Finding and affording adequate permanent facilities or land to house a charter school is one of the biggest barriers to charter growth. Suitable existing facilities or land are hard to find and typically expensive, the work is highly technical and complicated, and the process takes a considerable investment of time. 
Given lean operating teams at most charters, school and network leaders that should be focused on driving academic gains find themselves instead navigating this unfamiliar and complicated terrain. 
For charters to thrive, we need more systemic solutions that lower the significant facilities barriers that exist. 
Through our work with charter operators and funders across the country, Bellwether has identified the four characteristics of a healthy charter school facilities ecosystem; the graphic below captures three ideal-state market characteristics (in blue) as well as policy characteristics (in red).
Market (in blue) and policy (in red) characteristics of a healthy charter school facilities ecosystem
1. ACCESS: There must be a supply of affordable buildings (or land that can be developed) that is accessible to charter schools. The most economical option, and the one most operators look to first, is securing an existing school building and modifying it to meet their needs. In many markets, districts typically hold on tightly to their vacant buildings; access to buildings previously occupied by private schools (many of which have shuttered due to declining enrollment) is much more limited. Local policies that incentivize or compel districts to make vacant buildings or excess space available (at market or discounted rates), including co-locating charter schools with traditional district schools, can add needed building supply, if enforced.
When existing school building space is limited, charters must look to commercial spaces that are more expensive to modify. This can be prohibitively expensive in many dense, urban markets such as Boston, San Francisco, and Seattle. Overly restrictive zoning regulations and bureaucratic permitting processes can also create barriers in many markets, severely limiting the options available to charters and significantly extending the time it takes to navigate the process. 
These barriers can be reduced or eliminated through a mix of smart zoning and incentives. Local zoning regulations should permit the construction of schools in most commercial or mixed-use areas. In dense markets, incentives can encourage developers of mixed-use buildings to include a school as a tenant. And, a nonprofit “incubator” space that is used by charters in their early years as they scale up (before they move to a permanent building) can help make the economics work by lowering the cost of facilities in the early growth years.
2. FINANCING: Operators must have access to affordable financing, which typically requires schools to contribute ~10-20% equity. When an operator does identify a suitable building or land, it must secure the financing required for the purchase and any renovation/building costs. Most charters cannot issue bonds (the primary mechanism for districts to finance facilities construction). Instead, they must look to the private lending market. This is often an issue because most private lenders don’t have familiarity with the charter market and are reluctant to make investments as a result. 
To secure financing, schools typically must provide some amount of equity, which is a major struggle for most as a result of the relatively low (compared to district schools) per-pupil funding and limited dedicated facilities funding charters receive. There are multiple mechanisms for addressing this gap. A nonprofit or mission-driven lender (e.g. CDFI, loan fund, or philanthropist) can provide a low/no-interest loan that serves as equity and stimulates private lending and other nonprofit lenders that provide higher-risk capital. A publicly funded loan fund can provide credit-worthy charters access to low-cost capital. And the State can provide credit enhancements (e.g. in the form of a loan guarantee) that lower the cost of borrowing. 
3. EXPERTISE: Schools must have — or have access to — the expertise and resources to navigate the complicated facilities process. The leaders of individual charter schools and small networks often have academic backgrounds and limited expertise in facilities. Unfortunately, because most leadership teams are lean, these leaders must also drive the facilities process. 
In an ideal situation, these leaders can access support from a local expert to navigate the often multi-year process to secure a permanent facility (see graphic below). Local nonprofits, facilities developers, or individual consultants can provide technical expertise, funded by philanthropy, to operators across the full facilities process or more targeted support at different stages.
Support levers to secure a permanent building in a healthy charter school facilities ecosystem
4. STATE POLICY: There must be supportive state policy. State policy has a major impact on access and financing in a healthy charter school facilities ecosystem. Come back tomorrow for another post in our “Infrastructure Insights: Financing Charter School Facilities” series, focused on the different ways that federal funds and state policy impact the charter school facilities ecosystem.

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