The State-funded Charter School Facilities Program (CSFP) is jointly administered by the California School Finance Authority (CSFA) and the Office of Public School Construction (OPSC). CSFA directs the financial soundness review process and provides certification for purposes of Preliminary, Advance, and Final Apportionments. OPSC administers the application process and provides project approval and oversight.

As a result of the passage of Proposition 51 in November 2016, $500 million in additional bond authority has been made available to CSFP for use by charter schools for the construction of new facilities or rehabilitation of existing facilities. For both new construction and rehabilitation projects, the charter school must provide a 50% matching contribution which can come from the charter school’s own resources or can be borrowed from the State, provided the charter school requested the loan during the preliminary apportionment phase. Loans are repaid over a period of 30 years starting one year from the date of occupancy. To qualify for funding, a charter school must be deemed financially sound by CSFA who is the financier of the long-term debt. The underwriting terms for the loan are set by the State, not the capital markets, and typically provide more favorable lending terms and conditions than capital markets.

Background Charter School of Morgan Hill's Application

On March 31, 2017 Charter School of Morgan Hill (CSMH) notified the District of its intent to seek a preliminary application for Proposition 51 funds. CSMH application identified projects totaling $11,577,416 and sought funding (50% grant and 50% loan) for the rehabilitation of the Encinal campus. In accordance with the CSFP requirements, the 50% match ($5,788,708) would be achieved through a loan from CSFA.

In accordance with Regulation 1859.163.4(d), at the Morgan Hill Unified School District’s Board meeting on May 16, 2017 by a vote of 5-2, a majority of Trustees voted to “support the Charter School of Morgan Hill’s application for Proposition 51 funding with the Office of Public School Construction for the rehabilitation of the Encinal School site.”

On September 21, 2017 the District, as the charter authorizer, received a request from CSFA to provide information related to CSMH status and determination of “good standing”. The MHUSD administrative team determined that CSMH is not in good standing because it had not met the stipulations and conditions under which the charter was renewed. On December 5, 2017, the Board of Education deemed CSMH be in “good standing and in compliance with its charter for purposes of Prop. 51 funding”. Based on the Board’s December 2017 resolution, on January 17, 2018 CSFA determined CSMH was financially sound for the purposes of Charter School Facilities Program.

On February 28, 2018 the State Allocation Board took action to provide a $13,799,424 (50% grant and 50% loan) unfunded Preliminary Charter School Apportionment.  In order to be able to receive potential proceeds from the next round of State bond sales (i.e. convert from an unfunded to a funded application), CSMH and the District must execute a three-party Memorandum of Understanding with the State and provide a Facilities Use Agreement that complies with the Proposition 51 requirements.

Conclusion

Staff from the District and CSMH have spent the past several months negotiating a Facilities Use Agreement which provides for the following major provisions:

• Total term of 40 years (four 10 year terms) commencing July 1, 2019
• Since Proposition 51 improvements have not been designed provides for two potential options: 1) Renovation of existing portables in the current location or 2) construction of a new classroom building on the grass field
• MHUSD will serve as the Lead Agency for California Environmental Quality Act (CEQA) and CSMH will indemnify the District with respect to any claims made under CEQA
• All improvements require District pre-approval and will conform to the District’s specifications and requirements

Staff recommends approval of the three-party Memorandum of Understanding and the Facilities Use Agreement for Proposition 51 which was approved by CSMH's Board of Directors on January 15, 2019. A Proposition 39 Agreement (“in-lieu” agreement) for all of the non-Proposition 51 facilities must still be negotiated.