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As the world wrestles with the unprecedented implications of the COVID-19 pandemic, and schools and parents adapt to distance learning for confined children, FRED (facilities, real estate and design) News continues to follow developments in the charter school facility space.
In that space, those most immediately impacted are in-progress construction projects and the bond market. More on those and some of the policy implications at the state and federal level.
Earlier this month, the Charter School Facility Center produced a webinar titled "Will the Coronavirus Pandemic Cause Construction Delays for Charter Schools?" We answered questions and offered guidance to schools with construction projects in progress—especially those expecting to inhabit their buildings for the start of the 2020-2021 school year. Fortunately, many state governments have deemed school construction an essential service. But, mass public quarantines and travel restrictions in China temporarily shut down factories in the world’s second-largest economy. This will disrupt supply chains globally for months, including building supplies. Meanwhile, the shutdown here is making it hard to check the boxes on things like zoning, traffic pattern studies, special use permits, utility connections—not to mention labor shortages in some places.
Three experts—Building Hope’s Dru Damico, Turner Impact Capital’s David Leahy, and Charter School Development Corporation’s Laura Fiemann—offered some smart advice that’s helpful even in ‘normal’ times, such as, “What to do if I get a force majeure notice?” and make this a can’t miss webinar. If you missed out, watch the webinar.
The credit markets froze when the pandemic crashed the stock market. Going forward, high-yield municipal issuers, including those that finance charter schools, face heightened risk that their access to capital will be constricted and more costly. For charter school borrowers, that means the cost of new borrowing has gone up measurably just since the beginning of March. For charter schools that hope to maintain their access to capital markets, sharing high-quality, differentiating information with the market has never been more critical. Liz Sweeney, credit analyst at Nutshell Associatesoffers advice on what charter schools can do proactively to effectively address potential investor concerns.
The national crisis is also negatively affecting charter school bonds in other ways. Hempstead, New York’s Local Development Corporation last week approved a $58 million bond sale to Academy Charter School. But, there still needs to be a public hearing on the matter, and those are typically held in person. The IRS may provide some new guidance on this. Otherwise, the bond sale will be held up.
Until the bond market sorts itself out, commercial loans may be an option to consider. Developers of a 10-story, mixed-use property that will be anchored by a charter school landed a $51 million construction loan for the project. The opportunity zone investment development is located in the Bronx. The charter school will be operated by Zeta Charter Schools. Centennial Bank extended the loan to Starwood Capital and AB Capstone. Demand for enrollment in the school is expected to be strong, and the rest of the project’s space is already leased.
If a charter school can’t issue its own bond, it should participate in the District’s bond. That’s just what voters in Wisconsin approved earlier this month. Sauk Prairie school district voters approved a $65 million bond that includes money for expanding a charter school in the district. Voters supported the measure by more than 60 percent. The rest of the money will modernize a traditional high school, and upgrade sports facilities in the district, which is just north of Madison.
An Anchorage charter school will also benefit from a school facilities bondvoters approved by 58 percent on April 7. Aquarian Charter School will get $6.8 million to pay for a new roof and other fixes, including a faulty heating system. A 2018 report concluded repairs will actually cost about $9 million. The Anchorage School District owns the building where Aquarian has been housed for the past 21 years.
On May 5, Kalamazoo County, Michigan voters will decide whether to renew the Kalamazoo Regional Education Service Agency’s request for a renewal of its school enhancement millage. Funds raised through the property tax enhance state funding for operational costs at local school districts. This year several charter schools are included in the proposal, including Augusta Academy, Evergreen Academy, Forest Academy, Kalamazoo Covenant Academy, Lakeside Charter School, Kalamazoo Oakland Academy, and Paramount Charter Academy. Several of these schools serve mainly students who are low-income. If approved, the millage would generate about $12.5 million in 2020.
By now, Americans are familiar with many of the details of the Coronavirus Aid Relief and Economic Security (CARES) Act. The National Alliance provides information for schools to learn about how to apply for help. In Washington D.C., Scott Pearson, executive director of the district’s charter school;authorizing board, said he hopes all qualifying schools submit an application to avoid possible layoffs if state or city budgets go bad.
The most popular program, the Small Business Association Paycheck Protection Program, can be used to meet payroll and costs such as health insurance premiums, facilities, and debt service. Much of the loan may be forgivable under certain conditions. The availability of funding is constantly changing; please check the SBA’s website highlighted in the link above for the current status of the program.
States are working on their budgets for the coming school year-at a time when sales and income tax revenues have steeply declined. State and local experts say the coming months will be a bloodbath for governments—especially those required by law to maintain balanced budgets. They will be forced to choose between steep and painful cuts to social programs. Schools will be part of that discussion. Edunomics’ Marguerite Roza provided a good overview of the impact of the pandemic on state education finance in this webinar.
In the last recession, a number of states cut education funding or held back funding for a period of time. The Charter School Growth Fund published their advice for school leaders as they prepare school budgets.
Webinar: Charter Schools and the Capital Markets During a Pandemic Wednesday, April 29, at 1 PM ET Register Now
Charter schools are changing their operations and finances as they look to borrow money or to repay existing debt. The National Alliance’s Charter School Facility Center will host a webinar on Wednesday, April 29, at 1 p.m. ET, featuring a panel discussion with capital markets experts, including underwriters, debt advisors, credit experts, and charter school leaders to discuss charter schools and the capital markets reaction to the COVID-19 crisis.
Confirmed panelists include:
Laura Kozel, vice president of capital finance at Rocketship Public Schools
Greg McKenna, managing director of public finance investment banking at BB&T
Kevin Quinn, principal at Wye River Group
Liz Sweeney, president at Nutshell Associates and former managing director at S&P Global Ratings (moderator)
The Charter School Facility Center is an initiative of the National Alliance of Public Charter Schoolsto create a more equitable landscape for charter school facilities through innovative solutions, improved policies, and building local capacity by training charter school operators. We thank the U.S. Department of Education for initial funding for this effort. For more information, please visit our website or email us at firstname.lastname@example.org.
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