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Walton Family Foundation leading push to add $300 million to charter school loan funds

Posted on April 9, 2018

By Cynthia Howell 

Operators of open-enrollment charter schools in Arkansas and across the country are getting easier, more affordable access to loans to buy or build school buildings.

The Walton Family Foundation plans to announce today that it's leading an initiative to infuse $300 million into two new loan funds.

The nonprofit funds — one for long-term, mortgage-like loans and the other for short-term loans of up to five years — are backed by the Walton Family Foundation of Bentonville through its already existing Building Equity Initiative and, in the case of the short-term loan fund, in partnership with Bank of America Merrill Lynch.

"Big challenges require bold solutions," Alice Walton, a Walton Family Foundation board member, said in a prepared statement announcing the new Charter Impact Fund and the Facilities Investment Fund. Applications from charter schools will be solicited starting as soon as this week.

"This effort will allow resources that were spent on facilities to be directed back into the classrooms, back to the teachers and back to where it should be — with students," Walton said.

Marc Sternberg, the Walton Family Foundation's kindergarten-through-12th-grade education program director, said too many education leaders across the country are "working too hard" to find long-term, affordable buildings for their schools.

"The spirit of this effort is to make it easier for educators to do what they should be doing, spending time on teaching and learning and getting them out of the work of facilities," he said. "We're just making the path easier to finding an affordable plan for a high-quality school to have a home."

Currently, there are more than 7,000 charter schools that enroll nearly 3.2 million of the nation's students, according to the National Alliance for Public Charter Schools.

Walton Family Foundation officials say that 15 percent of charter school dollars go to facility-related costs, citing the National Alliance for Public Charter Schools. The Charter School Facilities Initiative reports that nearly one in five charter schools have to delay the opening of school campuses because of funding issues.

The new loan programs announced today will facilitate the addition of some 18,000 charter school seats by 2027, Sternberg said, "in high-quality schools in communities that need more good options for families."

"But it's more than just about seat creation," he emphasized. "It's about making it possible for schools to spend less money to finance their buildings and to spend more on the work done inside their buildings … paying for teachers, and after-school programming, and professional development and all of the things we know that are so important to school success."

Arkansas has 25 open-enrollment charter schools and charter school systems this school year.

John Bacon is chief executive officer of the eSTEM Public Charter Schools in Little Rock. The schools spent $11.4 million in building and renovating a new high school that opened in August, the third campus in the kindergarten-through-12th-grade system. The system is currently building a $24.5 million elementary and junior high campus — East Village — that will open in July.

Bacon welcomed the news of the loan programs.

"It's an incredible opportunity for charter schools to access funds to either build or renovate facilities," he said, noting that next to personnel, facilities are typically the second-highest expense for a charter school system, using 15 percent to 20 percent of all available funding.

Arkansas law has authorized the operation of publicly funded charter schools for almost 20 years but only very recently began providing any money for building and maintaining charter schools. This year, the legislature authorized $6.5 million to be distributed on a per-student basis, Bacon said.

"For us that has been a game-changer," he said about the targeted state aid, adding that many states do not provide much, if any, similar funding.

Schools in those states will have a better chance to get their facilities in order because of the loan programs, he said. His system already has the funding necessary to complete its current project, but Bacon said the programs could very well be a revenue source for possible future renovations to the system's older sites.

The newly established Charter Impact Fund will use $200 million to provide long-term, fixed-rate loans to high-performing charter schools anywhere in the country.

Existing charter school operators can apply to the fund organization to receive loans for up to 100 percent of their costs. The schools would have the flexibility to repay the loans over several decades.

"The schools are permanent, so their finances should be, too," said Anand Kesavan, a former chief financial officer for KIPP Austin Public Schools in Austin, Texas, and now chief executive officer of the Charter Impact Fund.

The focus of the Charter Impact Fund will be on providing loans to the highest-quality charter schools, the schools that are driving high student achievement, Kesavan said. There is a process for vetting the schools to find those that have had the greatest impact and enable them to expand.

Application information will be available soon through the organization's website:

The organization's work is based on a revolving loan fund model that relies initially on money from investors who are committed to a particular mission — be it clean water or education, Kesavan said. That seed money is then used to attract additional investors who feel their investments are safe because of the early backing of philanthropists and/or government agencies.

"We can get a lower cost of funds from market investors, and we can pass that lower cost on to schools," he said. "And to schools, saving $200,000 is a lot of money. It's money that goes back to the classroom to hire teachers. That's how the model works. As the loans are paid back, we revolve that money and make loans to more schools."

"We are using the $200 million to kind of co-sign the loan so that we can borrow $400 million from other investors and then have $600 million in loans to give to schools," he said.

The goals are to provide the schools with loan interest rates that are much lower than what they would get from many banks or other investors and to eliminate fees, Kesavan added.

"Those banks charge a lot of transaction costs, and we don't charge. The schools end up saving a ton of money," he said about typical underwriter fees, debt reserves and legal costs.

The interest rates charged to the schools will vary but will be lower than other options, he said.

The new Facilities Investment Fund of $100 million is being established with a $34 million contribution by the Walton Family Foundation and $66 million from Bank of America Merrill Lynch.

The fund will provide low, fixed-rate, short-term loans for up to $20 million or as much as 90 percent of project costs for new construction or facility renovation. The loans will be targeted to more than a dozen regions in the country. In Arkansas, the targeted areas include Little Rock and Bentonville.

Bank of America Merrill Lynch has a history of providing financing for charter schools.

Maria Barry, community development banking national executive for Bank of America Merrill Lynch, said the organization has been involved in financing more than $1 billion in loans to charter schools since 2000. That's created education options for more than 25,000 students at more than 80 schools.

The new private-philanthropic partnership with the Walton Family Foundation will broaden the number of charter schools that are able to get financing, Barry said.

"Given that charter schools typically have to spend so much of their funds on financing their facility, this is a great opportunity for them to be able to get financing that will enable them to get the school they need and hopefully redirect any extra funds to help the students," she said.