Pub. 2 2012-2013 Issue 1

10 M ost charter f inancers , banks included, have a set of metrics to evaluate potential charter credits including management structure, scale, the niche served and how they deal with common risk factors. Charter Management Every school relies on a small group of founders, whose dream it is to build a successful school; they are essential. But this reli- ance presents what we call “key man” risk, and the successful business has to move beyond it. Banks look at schools that have developed institutional characteristics including: a depth of management, an objective and diverse board, and a focus on the charter’s long-term goals. Charter schools can develop those characteristics in the following ways: The independent charter, usually with larger enrollment (500-plus) develops the management capability in-house and expands the board to include outside community leaders. The independent charter retains a professional “Charter Management Company” to provide a range of back-office services and bring an outside perspective. The school remains independent with its own board and separate financials but benefits from the professional support. The independent charter works with a 501 (c)(3) Charter Sposor that provides management support for the independent school. Their focus is assisting startups as a credit enhancer or developer, but the relationship helps develop institutional characteristics. The charter affiliates with a large “Charter Management Organization” (CMO) that centralizesmanagement and finances, and the schools cease to operate as an independent entity. Scale Ten years ago, most charter schools were independent, starting with a core group of parents who built the school from the ground up. Modulars, or perhaps a leased storefront, with a cordoned off parking lot playground was sufficient for those pioneers. Today, expectations of parents have increased, and a storefront, particularly in suburban locations, will not cut it. They want a school with a science lab, cafeteria and playground with grass. It is very difficult for the small, independent start-up to compete in this market. With the average Utah charter enrolling 600 students, a school size necessary to support the higher level of expectations, most of our credit requests are now turn-key buildings with a capacity of 500-800 students, or an expansion of a school already at that enrollment. A project this size needs a sponsor that will bring financial equity and development expertise to mitigate the construction and enrollment risk of the new location.   While certainly a small dedicated group can still be successful, expectations are higher, competition is stiffer, and the hill is steeper. With so many good alternatives to provide management and development support, we encourage today’s pioneers to find the right relationship rather than reinventing the wheel. The Successful Niche A successful charter school meets a specific need or “deficit” within the community they serve. There are generally four key deficits that drive parental decisions to move their children, and banks like to ensure that one or more are present as a core driver of success. 1. SAFETY: A major issue in both urban and suburban schools, modern district schools often are not conducive to educational success. Issues include drugs, bullying, peer pressures that discourage academic excellence and non-traditional value systems enforced by unsupervised students. Charter schools have a number of tools to combat these, foremost among them being uniforms, motivated teachers, non-negotiable academic standards and required parental involvement. 2. SUPERIOR ACADEMIC ACHIEVEMENT: Charter schools consistently outperform district schools, particularly in urban settings. There is great debate about why this happens, but charter test scores are carefully considered. It is important to measure success in the context of the market served and compare scores to the adjacent alternatives available to parents and students. BY CONRAD FREEMAN FINANCING? What banks look for in You. LOOKING FOR