Resources > Charter Currents > Charter Currents: Coronavirus-19 Update #13: Reopening, Paycheck Protection Loans, and Other Updates

Editor’s Note: CSDC is offering these Coronavirus-19 updates for public viewing, to members and non-members alike, and in front of our usual member’s only “paywall” as a service to the larger charter school community. We hope nonmembers will consider joining CSDC.


Newsom Floats Summer School and Early Start Trial Balloons

Sacramento, CA—During his April 28 daily press briefing, Governor Newsom began to “socialize” the idea of the academic year beginning in late July or early August 2020 to counter balance the learning deficit that seems to have occurred as a result of school closures and unplanned online learning that occurred due to COVID-19. Unlike many charter schools, many school districts, especially those in large, urban districts, took several weeks to begin distance learning. Worse yet, many have negotiated labor agreements with their teacher unions laying out minimal work and instructional expectations. As a result, many presume students will have learned little during school closures.

Newsom debuted his plan as part of a four-stage “Roadmap to Pandemic Resilience” (including 14 PowerPoint slides) articulating principles which he says will be used to reopen the state. Schools are listed in stage 2 as “lower risk workplaces” and in this presentation he lists “summer school programs and next school year potentially starting sooner (July/August)” under the heading “Schools and Childcare Facilities with Adaptions.”

Details on the Governor’s school reopening proposals are still very scarce, and both the State Superintendent of Public Instruction as well as the State Legislature would presumably need to weigh-in on this proposal. Funding would need to be provided to extend the teacher and staff school year, social distancing measures for students would need to be put into place, and many other related questions would still need to be answered.

Newsom noted “We have made no decisions definitively in that space, but I just want folks to know the concern around learning loss. Having talked to many other parents and educators, even the kids, I think we might want to consider getting that school year moved up a little bit.” Meanwhile, a few Northern California counties have jumped ahead of the Governor, indicating that schools in their sparsely-populated boundaries may open now.

 

Governor Signs Executive Order Delaying LCAP Deadline to December

As predicted in our Update #12, on April 22 the Governor signed Executive Order N-56-20. This Executive Order extends the deadline for adoption of the 2020–21 Local Control Accountability Plan (LCAP) from July 1, 2020, to December 15, 2020. Also as noted in our Update #12, stay tuned for additional details in coming weeks regarding an abbreviated “operations update” we presume schools will need to adopt by July 1 in lieu of the LCAP.

 

Should Charter Schools Accept Funds from Federal Paycheck Protection Program Loans?

Many charter schools, like other nonprofit organizations, applied for loans from the popular Paycheck Protection Program (PPP), a federal COVID-19 relief program that provides forgivable loans to small employers who retain their staff and meet other evolving requirements. Of late, public opinion has generated a bit of a backlash as large organizations (e.g., the Los Angeles Lakers basketball franchise and other publicly-traded corporations) who had received loans are now returning them. Federal officials are revising the program’s fuzzy requirements. 

Anti-charter organizations, including the Network for Public Education, also have criticized charter schools for applying for PPP loans. None of the critics note the fact that charter schools lack access to local property tax bases, borrowing tools, and low-cost facilities that traditional school districts enjoy.

Elite private schools are also debating the issues. Some private schools, including ones that have very large (if restricted) endowments, are continuing to pursue the funds while others have opted to decline them. This heightened scrutiny, combined with shifting federal guidelines is leading some charter school leaders to question whether they should apply for PPP loans and/or decline funding if they have already received approval.

As explained in more detail below, it does appear that the federal government’s guidance has shifted due to outrage over large businesses gobbling-up the loans. Originally, it seemed that federal officials were explaining this program as an effort to provide incentives to small employers to maintain their payrolls without layoffs. They noted that, in lieu of boosting funding to state unemployment funds, the PPP would provide near-instant funding through forgivable loans with a minimum of red tape and hassle. The loan applications do contain several certifications, one of which calls for the applicant to certify that “current economic uncertainty makes the loan request necessary to support the ongoing operations of the Applicant.” There was no guidance as to what this meant in practice. 

Given the larger context of simply maintaining payroll in lieu of unemployment, and the lack of emphasis on applicants’ larger financial situation, the articulated standard to qualify originally seemed rather low. Thus, it is no surprise that there was a rush among a broad range of organizations, including fiscally strong ones, to apply.

More recently, the Treasury Department is requiring recipients to additionally attest that they made the original certification in light of “their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” Effectively, they’re now asking whether applicants have considered other potential sources, an arguably higher bar than in the past, but offering no specific definitions for the key terms.

Given this shift, and the fact that the key terms and standards remain undefined, CSDC offers the following factors to consider as charter school leaders consider whether to apply for and/or receive PPP funds. These suggested factors simply reflect the opinions of CSDC staff; schools may need to consult with their lender and legal counsel and consider the optics of accepting these loan funds.

Examples of considerations that lean in favor of applying for/receiving PPP funds include, but are not necessarily limited to the following:

  • Relatively modest budget reserves, meaning that estimated reserves at the end of the current fiscal year are not adequate to cushion against the many downside risks that charter schools will likely face in the next year. These include likely funding deferrals, budget cuts, and other needs that may be specific to the school/organization (e.g., facilities reserves, set-asides for large purchases, etc.). Schools and charter management organizations (CMOs) with bond and/or debt covenant restrictions should factor these in, too.
  • Limited access to lines of credit or their equivalent, meaning the school currently lacks ready access to low-cost credit lines that are sufficient to meet its needs and/or are these lines of credit are subject to being “called,” reduced, or cancelled by the lender, as is common with most credit lines. Unlike school districts, charter schools generally lack the capacity to issue tax revenue anticipation notes (TRANs) and similar low-cost debt to address cash flow needs. Instead, charter schools often must rely on costly sales of future receivables (the school equivalent of “payday lenders”) and pay very high discount and other fees.
  • Enrollment decline and other operational risks, meaning the school/CMO has reason to believe that its enrollment may shrink next year due to declining enrollment generally, households moving to less expensive areas, loss of enrollment to competing schools, etc. Other operational risks include upcoming charter renewal requirements, compliance with the many burdens imposed by last year’s Assembly Bills 1505 and 1507, the potential costs of ongoing COVID-19 emergency spending for distance learning, implementation of “social distancing” techniques, additional cleaning and disinfecting, etc.
  • Little or no federal bailout funding anticipated, meaning the school/CMO receives little or no federal Title I funding and thus does not qualify for the federal CARES Act/Elementary and Secondary School Emergency Relief (ESSER) Fund assistance. These federal COVID-19 relief funds will be allocated on the basis of the school’s/CMO’s prior Title I receipts and thus are not available to many schools. Future rounds of federal funding are also likely to follow this pattern, potentially leaving many charter schools unprotected. Federal funding is likely to be play a key role in school funding in the next year or two since state revenues are plunging and only the federal government has the capacity to deficit-spend.

Examples of considerations that lean against applying for/receiving PPP funds might include the following:

  • Very large financial reserves sufficient to meet the school’s/CMO’s risks, needs, and covenants for the coming year.
  • Strong access to secure, low-cost lines of credit or working capital. These might include large and secure low-interest credit lines, reputable underwriters willing to commit to issuing low-cost debt, and/or ready access to low-cost lending or support from philanthropic sources.

Schools that do opt to take the PPP loan funding should carefully monitor compliance with the evolving terms of the loans, being especially careful to spend the funds on allowable items (e.g., payroll, health benefits, rent, utilities) and maintaining required documentation to prove it. 

 

FCMAT Issues Two Fiscal Alerts on Cash Flow and Funding Cuts

The Fiscal Crisis Management Assistance Team (FCMAT), a statewide body that supports fiscally-troubled education agencies, has issued two fiscal alert memos in recent days. The alerts largely align with CSDC’s prior webcast and guidance, though FCMAT’s take on budget cuts is more optimistic than CSDC’s. The alert first highlights the need to protect cash positions, and the second warns of possible substantial budget cuts of up to 10 percent. 

CSDC is continuing to publish regular, sequentially numbered updates summarizing key COVID-19 developments, along with webinars and other resources, all targeting the school perspective. We anticipate additional action this week as the lower house of the Legislature begins hearings and the Governor’s May Revision budget update in the following week. If you have questions or concerns regarding charter schools and COVID-19, please let us know.


Posted: 05/04/2020