Wednesday, May 14, 2008

Civic Builders :: Solutions

Civic Builders :: Solutions
Charter Schools in New York City: A Unique Moment in Time
New York City has embraced the creation of charter schools as a central pillar of its larger educational strategy. In 2003, Mayor Michael Bloomberg and School's Chancellor Joel Klein announced an initiative to create fifty new charter schools in the city over five years. Pledging to make New York City "the most charter friendly city" in the country, the Administration committed $250 million in capital support for charter school facilities.
By the fall of 2006, New York's statewide cap of 100 charter schools had been met. In March 2007, with more than 13,000 NY families still on waiting lists for charters schools, the State legislature approved a bill to increase the cap from 100 to 200, with 50 of those new charters dedicated specifically to NYC.
Despite New York's strong commitment to new school development, launching charter schools is not without challenge. To date, some of the most daunting impediments new charter schools face are those related to their facilities needs.
Inexperience in Real Estate
Start-up schools are short the reserves and risk tolerance that complex real estate deals require. Hundreds of thousands of dollars are regularly expended on site selection and analysis before a firm agreement is even reached. Additional and substantial funds can be invested – a project may even be underway – when a deal falls through.
As first time developers, school administrators often find the building process unduly taxing. Inexperience in development frequently leads to:
- construction cost overruns- poorly planned and executed renovations- difficulty with zoning and building code non-compliance status- unforeseen design and build-out costs- scheduling crunches; and- under-negotiated facilities and construction contracts.
Ultimately, this lack of development experience can also affect the quality of the facility itself, resulting in a substandard learning environment for the charter school’s children.
Inadequate Capital Funding
Charter school administrators typically lack access to ready and affordable capital. For a traditional public school, land purchases, construction and major repairs come primarily from local governments and related local taxes and bond sales. Charter schools are not eligible for this type of financing, and the state allocations they do receive usually do not account for real estate requirements. Without experience in facilities finance or development, they lack the relationships and track record necessary to secure supplemental foundation grants or adequate commercial loans at affordable rates.
The Need to Separate School and Real Estate Assets
Charter schools have a need for long term, permanent real estate (10 years plus), but they themselves are contingent organizations reviewed annually by their authorizer and reauthorized every 5 years. These misaligned timing imperatives make capital investors nervous. If the school fails – or for whatever reason it must change locations – any infrastructure improvements accrue to a third party landlord. In these cases, money intended for educational purposes ends up in the hands of private landlords, who are then free to rent the property to a new tenant of their choosing. This very real risk has deterred foundations and commercial lenders from committing resources to charter facilities, exacerbating the schools’ capital shortfall. See Case Study.

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