Charter School Financial Solutions

Charter school tax-exempt revenue bonds are bonds issued by a state or local government agency on behalf of a charter school to refinance existing debt, or finance the acquisition, renovation or expansion of a school. Tax-exempt bonds can be issued on a fixed-rate basis for a term of up to 40 years to finance your building costs.

Most states, cities, counties and school districts use tax-exempt municipal bonds as their major source of capital. The advantages of a tax-exempt bond issue are:

• Tax-exempt rates are lower than taxable rates or traditional bank financing.
• No upfront cash or equity is required, which will allow your school to borrow up to 100% of the cost of your project. 
• Long-term fixed rates for up to 40 years will provide a predictable cost of capital that benefits the school budgeting process. 
• Commercial bank financing typically will require 10% to 20% equity and set your interest rate for only 5 to 10 years, introducing refinancing risk and future market risk.

You could develop a 5-year business plan that outlines projected operations once you have acquired your building. The following factors should be considered when developing your plan:

• Future projections of enrollment are based upon established waiting lists or market research conducted by the charter school. 
• Per Pupil Revenues (PPRs) are directly related to school district / charter contract provisions and changes in state law funding formulas. 
• Other revenues (non-PPRs) — before- and after-school care, fundraising, grants or startup funds from a school district — should be separately identified. 
• The annual bond payment should not exceed 20% of the ongoing stabilized revenue stream. 
• In addition to budgeting for normal operating expenses, the school will need to generate cash flow for other contingencies, including reserves, working capital, and a repair and replacement fund for the periodic replacement of capital items such as carpet, desks, heating and air conditioning, and roof replacement.

While more complex than typical bank financing, PNC’s experience in this type of transaction can facilitate the process. Once you have identified your project — refinancing of existing debt-acquisition, renovation or construction, and its financial scope — the tax-exempt bond process typically takes 3 to 6 months. During that time, the following will take place:

• Select an underwriter and financing team. 
• Receive an “inducement resolution” from a municipal entity to issue the tax-exempt bonds on your behalf. 
• Apply to a rating agency to receive your credit rating, if applicable. 
• Document the bond transaction. 
• Conduct investor outreach. 
• Price and close the bond issue.

• Last 3 years of audited financial statements and a current budget with 5-year projections 
• Current enrollment by grade as well as a current waiting list by grade 
• Copy of the original charter contract and any subsequent renewals 
• Land or building appraisal, Phase I environmental study, and purchase and sale agreement