Facility Financing Workshop

1. Facility Financing Workshop Self-Help Building Hope

2. Who is Self-Help? • Non-profit CDFI founded in 1980 • Mission: Creating and protecting ownership and economic opportunity for people of color, women, rural residents and low-wealth families and communities. • Over $100 million lent to charter schools nationwide since 1997

3. Building HopeMission: To close the achievement gap by providing student access to high quality charter school facilities through the provision of the following services: • Technical Assistance • Assisted over 100 charter schools with business planning, real estate, and finance • Speakers at national conferences and U.S. Department of Education programs • Led ground-breaking conversion of 7 Catholic schools to charter schools • Provide grants for feasibility studies • Support/manage charter school applications for surplus DC school facilities • Project management to build or renovate facilities • Financing (Loans and CE’s) • $42 million in total lending since 2003 • Over $17 million in guarantees • Supporting $310 million in facility costs • Supporting over 18,500+ seats • 50+ transactions • CS Business Services • Provide accounting and I.T. services to over 25 charter school campuses • Prepared eRate applications for over 50 schools • HR Management • Property Management • Incubator Initiative • Partnership with DC Gov’t • Established 5 incubators for 6 charter schools • Leased and renovated over 110,000 sq ft creating seats for approximately 1,000 students. * As a % of staff time

4. Charter Schools Need To Demonstrate: Financial Control and Sustainability: • Credit and Financial History • Report, tax returns, audited financial statements, year-to-date results, projections • Cash Flow • Profit, increasing enrollment • Collateral • School property worth ~50-75% of loan value, so need to fill gap with other real estate, cash pledges in CDs, equipment, personal guarantees, etc • Cash Equity • Standard down-payment is 20%

5. Two Factors About Financial and Facilities Planning • Numbers of Students • The Amount of Per Pupil Revenue You Will Receive • Plan only with money you have either in hand or committed by law • Too many schools get in trouble because they assume their enrollment will grow. If you play optimistically, even a modest shortfall can challenge your school’s ability to honor its obligations.

6. Charter School Budgeting Worksheet Question 1: What is my maximum gross revenue? • How many students do you expect to enroll in Year 1? 150 • How much per pupil revenue will you have? $6,000 • [# of students] X Per Pupil Revenue= Maximum Growth Revenue 150 X $6,000= $900,000

7. Determining a Realistic Revenue Projection Question 2: What is my likely gross revenue? Note: Most new schools suffer 10% attrition from opening day [Maximum gross revenue] x [0.9] = likely gross revenue $900,000 x .9=$810,000

8. Maximum Facilities Expenses Question 3: How much should I spend on my building? Note: Occupancy costs should be no more than 15% your revenue. This includes maintenance, rent/mortgage payments, insurance and all other building related expenses. [0.15] x [likely gross revenue] = maximum facilities expense .15 x $810,000=$121,500

9. Size of the Building Question 4: How big of a building do I need? • Note: You should plan at least 75 square feet per student (100 square feet per pupil is ideal) [# of students] x [75] = minimum usable space for building 11, 250 sq ft [Max payment] / [Min square feet] = max rent or mortgage per square foot $121, 500/11, 250=$10.80/sq ft

10. Ideal Mortgage or Lease Payments Question 5: What rent or mortgage payment can I afford? • Account for operating costs; typically, about $6/ft2 [Max cost per sq ft] – [ $6 ] = Max mortgage or non-inclusive rent per sq ft $10.80-$6=$4.80/sq ft Mortgage or Lease Utilities CAM Repair/Maintenance Grounds Security Administration + Insurance = Total Facility Cost [Max mortgage or non-inclusive rent per ft2] x [building size in ft2] = Max mortgage or non-inclusive rent $4.80 x 11, 250 = $54, 000

11. Question 6: What is my total teaching budget Your spending on teachers should equal at least 55% of your likely gross revenue. (This includes salary and benefits.) [0.55] x [likely gross revenue]= teacher staffing budget .55 x $810,000 = $445, 500 Teaching Staff Expenses

12. What’s Left? Question 7: How much do I have to spend on everything else? • After 55%+ in the classroom, • 15% for occupancy costs, you have: 30% likely gross revenue for student services, administration, and any other costs. [Likely gross revenue] – [minimum teacher staffing budget] – [maximum facilities expense] = What you have left $243,000

13. Caution on Facility Spending #1 • Caution: Realtors may encourage you to spend 20% of your maximum gross revenue on your lease or mortgage because this can increase their commissions by as much as 30% • Spending such a high % of your revenues on facilities provides no margin for error should enrollment lapse.

14. Caution on Facilities Spending #2: • Caution: Schools that spend less than 55% of their revenues on instruction and more than 15% on facilities have limited budget flexibility: • You can always hire additional teachers or part-time instructors to fill gaps, but you cannot easily eliminate 2,000 unused sq feet of a building they you renting or have purchased.

15. 4 Key Take-Aways • Facility budget = Max 15% of likely gross revenue • Teacher staffing budget = at least 55% of likely gross revenue • Minimum facility size = 75 ft2 per student. 100 ft2 per student is ideal. • Be aware of your realtor’s personal interests and be wary of any single-source agreements.

16. Jane Ellis Director of Charter School Lending Self-Help (919) 956-4407 or (800) 476-7428 jane.ellis@self-help.org Joe Bruno President Building Hope (202) 457-1999 jbruno@bhope.org Contact Us!