Financing Child Care in the United States - Ewing Marion Kauffman ...

CHILD CARE FACILITIES LOAN
FUND (CONNECTICUT)
DESCRIPTION
Connecticut makes long–term, low–interest loans for the
construction or renovation of child care centers available
as tax–exempt bond funding from the Connecticut Health
and Educational Facilities Authority (CHEFA). The state,
through the Department of Social Services, pays up to 85
percent of the debt service on the bonds on behalf of
eligible nonprofit child care providers.
WHEN ESTABLISHED
The loan fund was established in April 1998.
ANNUAL AMOUNT
In the first two pooled bond issues, this initiative
leveraged more than $29.2 million to finance projects for
12 child care providers, supporting a total of 19 child
care facilities. The third pooled bond issue, estimated at
$17.8 million, might fund as many as 10 child care
facilities. The state spends $2.5 million of its general
revenues each year to support debt service on the pooled
tax–exempt bond issues. The average debt service
support per bond issue is 80 percent.
SERVICES FUNDED
The loan fund supports construction of or renovation of
not–for–profit child care facilities. Loans typically are in
excess of $500,000 and may amortize up to 30 years.
For–profit entities or programs that need smaller amounts
are directed to the guaranteed loan or small direct loan
funds described below.
HOW FUNDS DISTRIBUTED
Bonds are issued on an as–needed basis. CHEFA’s Board
of Directors approves financing for each project, based on
an agreement that the state Department of Social
Services (DSS) will pay a portion of the debt service.
POPULATION SERVED
Eligible providers include child care and child
development centers, family resource centers and Head
Start programs that include Department of Social
Services–eligible children (i.e. children with family
incomes at or below 75 percent of the state median
income.) Priority is given to child care providers that:
1) have obtained accreditation from the National
Association for the Education of Young Children or have
an application pending for such accreditation, 2) are
included in the local school readiness plan (described in
the profile on the previous page), 3) promote
collaborative programs to improve access and quality of
care, and 4) are located in under–served areas.
STRATEGIC CONSIDERATIONS
• Instead of doing small–gap financing or modest bridge
funding, more common facility financing strategies, this
initiative allows Connecticut to complete the financing
of multiple expansion projects and build a large number
of new facilities. The key component of the
Connecticut strategy is the alliance between CHEFA,
which issues the bonds and administers the loans, and
DSS, which underwrites a portion of the annual debt
service.
• To address the need for shorter–term, lower–cost
financing, two other child care financing strategies
were developed to work in tandem with the pooled
tax–exempt bond initiative:
1 A guaranteed loan program for both nonprofit
and for–profit child care providers who need loans
between $25,000 and $1 million. These loans
amortize for 1–15 years. The loans are
administered by People’s Bank. CHEFA provides
a 20–50 percent guarantee on the loan and will
subsidize up to 3 percent of the interest cost on
the debt.
2 A small direct loan program is intended to serve
family child care homes and to provide
pre–development loans for child care centers.
These loans are limited to $25,000 and amortize
for up to six years. The New Haven Community
Investment Corporation (NHCIC) administers this
program. CHEFA will provide an 80 percent
guarantee on all qualifying loans.
• The Connecticut strategy does not include a
technical–assistance component. CHEFA staff have
learned, however, that many of the small, nonprofit
providers that serve low–income neighborhoods have
little or no knowledge of the real estate development
process and lack the internal management staff
capacity to undertake a major development effort on
their own. As a result, the state is exploring the
technical–assistance needs of potential applicants.
• Individuals involved in administering the program also
point out that the initiative could benefit from a pool of
start–up or pre–construction funding to help child care
providers before they close on CHEFA financing.
These funds are needed to secure a site or hire
development professionals such as architects or
engineers to help put the project together in the
earliest and riskiest stages of development.
OTHER SITES WITH SIMILAR STRATEGIES
The State of Illinois pioneered the use of revenue bonds
to finance child care facilities. (See profile on page 162).
Illinois, however, did a single bond issuance as a
demonstration for seven centers that were all built at
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