Issue No. 1 Summer 2008 OnSite Home Views on Housing and Economic Development

Math class at City on a Hill Charter School in Roxbury.

Financing Charter Schools with the CDA

By Robert O'Malley

When most people think of community development initiatives, they generally don't think of charter schools, says Sarah Lamitie, vice president at member Boston Private Bank & Trust Company.

City on a Hill.

"But schools are an integral part of our community development program," she says. "We really see the community development value of education, which has a major impact on the well being of a community."

In recent years, Boston Private Bank and other member banks have turned to the Federal Home Loan Bank of Boston's Community Development advance (CDA) to fund the renovation of new charter schools in the Boston area.

Boston Private Bank used a $10 million Community Development advance to fund the renovation and expansion of the City on the Hill Public Charter School in Roxbury, and provided a $3.2 million CDA to help finance acquisition of a new building for the Neighborhood House Charter School's kindergarten through 8th grade program in Dorchester. Both schools serve primarily students from low-income families.

Boston Private Bank also provided $2 million in CDA funding to support the renovation of the South Shore Charter School in Norwell, Massachusetts, and $1.8 million in CDA funding to finance the renovation and expansion of the Lawrence Family Development Charter School in Lawrence, Massachusetts.

There are currently 61 charter public schools in Massachusetts that serve almost 25,000 students, according to the Massachusetts Charter Public School Association. An additional 19,000 students are on waiting lists. A recent state Department of Education study showed that 90 percent of charter schools in Massachusetts, which are largely state funded, are scoring as well as or better than district schools on the state's MCAS exam.

"Our goal is to provide the very best deal we can for our borrowers," says Ms. Lamitie. "I can't say that not having the CDA would have been a deal breaker, but it would have been harder to make the deal work without it. If we can borrow at a lower rate, we can lend to our customers at a lower rate."

Ms. Lamitie notes that the CDA is a "flexible financing tool" that can be used to finance a broad range of community revitalization initiatives, including affordable rental and ownership housing, charter schools, small-business development, and other initiatives.

City on a Hill principal Erica Jamison (see the video tour of the school in this issue).

She notes that graduates of City on the Hill (see video tour in this issue) are attending college at impressive rates. "Every one of their seniors is accepted into college," she says. "That success will have a tremendous long-term impact on that community. So we're proud of our participation in this."

After initially operating out of rental space, City on a Hill purchased a former Catholic school in Roxbury from the Archdiocese of Boston and is currently building an addition. The school anticipates opening the new wing early next year.

Wainwright Bank & Trust Company
Other member banks have also turned to the CDA to finance the renovation and acquisition of charter schools. Pamela C. Feingold, senior vice president/community development lending, at member Wainwright Bank & Trust Company, notes that Wainwright Bank used a $8.3 million CDA to provide construction financing to support the expansion of Boston Collegiate Charter Public School in Dorchester. Boston Collegiate is located in an income-eligible neighborhood and serves primarily low-income children in grades five through twelve.

In addition to providing CDA funding to Boston Collegiate Charter Public School, Wainwright Bank has used the CDA to fund the Conservatory Lab Charter School ($350,000), the Roxbury Preparatory Charter School ($650,000), and the MATCH School ($4.2 million).

Ms. Feingold says Wainwright Bank welcomes participation in charter school funding because the loans come with limited risk and serve a valuable social purpose. "These loans are funded through the Massachusetts Department of Education, so it's a solid source of funding," she says.

She notes that the developers and administrators of charter schools are enthusiastic and dedicated educators and that charter schools generally offer extended educational programs and other services, such as breakfast in the morning and after-school programs. "We're working with boards that are incredibly committed," she says. "We have such a wonderful success rate. In terms of community support these schools are great."

Ms. Feingold says the majority of the charter schools funded by Wainwright Bank are located in urban areas. The development of these schools not only enhances the education of children and gives more students the opportunity to attend college but also redevelops vacant buildings that become eyesores in city neighborhoods.

New addition under construction at City on a Hill.

In visits to these schools, Ms. Feingold has observed "a whole new sense of excitement in school, because the teachers, administrators and the students are all committed to making these experiments work. "Every student in Boston Collegiate's class of 2007 was accepted by a four-year college," she says, "and the school has had great success with the MCAS."

Ms. Feingold points out that Charter schools tend to rent space when they first open but eventually raise funds to acquire their own buildings. Like City on a Hill, Boston Collegiate purchased several buildings from the Archdiocese of Boston and built a third to create space for about 400 students in grades 5 through 12.

"Using the CDA allows us to offer lower-rate funding that helps the schools with their operating budgets," says Ms. Feingold. "And for a loan that size even 20 basis points makes a huge difference."

Ken Willis, vice president and director of the Bank's housing programs, says what distinguishes the CDA from the Bank's other community investment funding programs is its flexibility and availability.

The Community Development advance can be used to fund community development initiatives such as charter schools as well as affordable housing initiatives that may not win awards from the Bank's very competitive Affordable Housing Program (AHP).

"The CDA rewards member banks for doing economic development and affordable housing," says Mr. Willis. "And that translates into a lower debt structure for the project and benefits for the community. The banks like the CDA because the interest rate is lower, and they can use it to match fund and mitigate interest rate risk."

"In terms of volume the CDA program is bigger than the AHP and the largest of the Bank's community development programs," adds Mr. Willis. "So far, 2008 been a record year for approving CDA applications."