Pub. 4 2014-2015 Issue 2

19 confidence in the lender of the school’s ability to provide accurate projections and financial statements, and remain in compliance with regulations. The involvement of a professional and experienced Charter Management Organization (CMO) will ensure that these back-office details are handled, while freeing up the school’s leadership to focus on academics. However, for some larger schools or multi-campus schools, the charter may be able to cost effectively handle these back- office functions in-house. 3. Demographics and Site Selection Starting with the right location is one of the key elements to the charter school’s success. Once a suitable site is selected for the school, the lender will be interested in the number of potential students to draw from in the surrounding area. Of course, you have already thought about this in your planning and site selection, so share with your lender why this is the right site and will contribute to the success of the charter school. For example, have you considered how many school-age students are located within a 1-, 3-, or 5-mile radius of your campus? Also, what other school options are available in the area, and what will draw students to your school? Perhaps you have a concept for an education need that is not currently being met in the community. Maybe the local district schools are over capacity and operating with portable classrooms and you are proposing a charter school in the area to alleviate the overcrowding and support population growth. Or, you have an existing charter school with a significant wait list and are building an expansion or satellite campus to serve more of the students on your wait list. Whatever the situation, your lender will be interested to know the story and how the selected location will assist in achieving full enrollment. 4. Academics and Curriculum What curriculumwill your school use? A proven curriculum is one of the keys to attracting and retaining students. Some of the schools we have financed use the Core Knowledge curriculum. You will know what the right curriculum is for your school. Plan to share with your lender what curriculum your school will use and how it will support your institution’s charter and focus. In order to attract enrollment, the curricu- lum should be of broad appeal to the families in your area. For an existing school seeking financing for a satellite or expansion campus, a lender may be interested in academic results for the existing school(s). We have seen situations where strong academic programs in one school lead to high demand, creating a long wait list and paving the way for the success of additional campuses. 5. Building Cost and Design Efficiency Unlike traditional school districts which have separate funding sources for facilities and operations, charter schools do not have the ability to levy a property tax to finance their buildings. Since the cost of the building will come out of the charter school’s monthly state and federal funding payment (either as lease expense or loan payment), it is important that the building be efficient, both in its cost and design. We recommend working with a general contractor who has a proven record of building schools on time and on budget. Based on charter school projects we have been involved in, most buildings generally fall within these ranges for size and cost: • 65 – 85 square feet per student (total square feet / number of students) • $11,000 - $14,000 cost per student (total building and land cost / number of students) • Facilities expense should not exceed 22% of total revenues Charter schools are much larger now than they were a few decades ago. Now, the average Utah charter school has 558 students , and most are constructing new buildings which are both functional and attractive. A well-designed and attractive building may lead to the appeal of the school, but the cost should be carefully considered so as to not overburden the school with more expense than it can handle. 6. Financial Analysis A lender will want to make sure that projected cash flows are more than adequate to cover projected lease expense or debt service, with some cushion in the event that enrollment doesn’t materialize as quickly as projected. We typically review a minimum three-year financial projection, including projected enrollment by grade. What are the key assumptions in your financial projection? The per-pupil funding revenues are fairly predictable, so major variables in the projection are enrollment and expenses. Share your strategy behind the enrollment and major expense projections with your lender, including any ideas to reduce expenses in the event that enrollment ramps up slower than projected. Also, if yours is an existing school, the lender will want to review historical financial statements and enrollment trends of the school. In addition to the construction and interim financing for your building, it is never too early to begin exploring permanent financing options. Only a registered municipal advisor can legally provide you with advice and recom- mendations regarding bonding or other long-term financing options that may be available once your charter school has achieved stabilization. A qualified municipal advisor can help you navigate a variety of options for permanent financing, including municipal bond financing, USDA financing programs for rural schools, or financing from non-bank lenders. We wish you the best in your future charter school endeav- ors, and are grateful for your dedication to educating the students of today to prepare them to become the trained workforce and parents of tomorrow. Andrew Larsen is a Senior Vice President with Zions Bank in Salt Lake City, Utah. He specializes in charter school financing and has been involved in financing eight charter schools in Utah.