DaVinci Academy Affiliated Building Corporation
The DaVinci Academy Affiliated Building Company is a separate legal entity which exists solely to hold ownership of any school we may build. The school will lease from the ABC and therefore will be able to take advantage of state lease aid. The ABC will finance the building through tax-exempt bonds. Selling bonds provides money to the ABC to buy, renovate and/or build a facility.
DaVinci Academy has formed our “ABC”, that is, the DaVinci Affiliated Building Corporation. This is a separate legal entity which exists solely to hold ownership of any school we may build, because a charter school cannot own its real estate under MN law. The ABC is a necessary legal step on the path to building a new school.
In July 2013, after being in operation for five years, the State of Minnesota allowed the establishment of an Affiliated Building Corporation. An Affiliated Building Corporation is a non-profit corporation established to own and manage the building(s) for a charter school. Any money it receives above its expenses may be allocated to the charter school to use in the general education fund. During the current school year, the biggest project the School Development Committee will work on is planning and having the paperwork ready for establishing an Affiliated Building Corporation.
Lenders in Minnesota understand how Affiliated Building Corporations work, so it is possible to get financing even without a big fund balance or history. To finance, we can either use a bank, other lender, or a bond issuer. Issuing bonds is normally cheaper in the long-term, but has more up-front costs. Nova Academy’s Affiliated Building Corporation recently did a bond issue for $17.5 million.
The School Development Committee will work with the Facilities Committee to anticipate what its plans are regarding facilities for future years and with the Budget Committee to review and recommend a financing option. Depending on a number of factors, the Affiliated Building Corporation may be used to purchase the current building and/or a second site.
Although, it is impossible to accurately calculate the annual contribution we can expect each year without specific numbers (e.g. purchase price, insurance, interest rate, and future maintenance costs), we can give an example based on some assumptions. According to the current DaVinci Academy Treasurer, Doug Hiatt, we pay around $660,000 a year to the current landlord. The landlord uses these payments to pay for property taxes, insurance, interest, and principal on the building, and provide a profit. DaVinci Academy currently pays for maintenance and repairs.
An Affiliated Building Corporation will be exempt from property taxes, will most likely get a lower interest rate than the current landlord, and does not need to make a profit. Assuming a reasonable purchase price for the current building, the Affiliated Building Corporation will contribute between $150,000 and $200,000 a year to DaVinci Academy in the beginning. As the principal of the loan is paid down, this amount increases depending on maintenance and insurance costs.
Needless to say, it would be difficult to raise funds equivalent to the annual contribution potential of an Affiliated Building Corporation. For that reason, we have made this project a top priority, and it will require a lot of work. If you have talents or experiences that would contribute to this endeavor, please contact Dale Lieb, current Chair of the School Development Committee.