Leadership Spotlight

Financing Better Schools in Low-Income Neighborhoods

SARA VERNON STERMAN

In 1999, the Wissahickon Charter School was just a dream. In a modest Philadelphia living room, its founders talked of a curriculum that focused on environmental studies and service and that took full advantage of the natural beauty of neighboring Wissahickon Park. Today, the school serves 425 students in grades K-8 who learn in a clean and modern facility. Classrooms are spacious and vast hallway windows allow natural light and woodland views, brightly painted walls are covered with students' many works of art, and a blue tile "river" winds its way through the main corridor.

Across many of Philadelphia's poorest neighborhoods, a scatter of new charter schools like the Wissahickon Charter School have taken seed since charter school legislation was passed in 1997. For many, Sara Vernon Sterman, SW'97, WG'99, has served as a vital catalyst.

Sterman is Managing Director of the Community Services Lending Group at The Reinvestment Fund (TRF), a Philadelphia-based non-profit that has developed a successful model for underwriting charter schools as well as childcare and social service organizations. "My arrival coincided with this opportunity to create a new financing product for charter schools, which were just beginning to take shape when I came to TRF in 1999," Sterman says. "It was uncharted waters—nobody knew much about charter schools at that point, and they were seen as too high-risk for most lenders. They had very little collateral, for instance, no credit history and untested management teams."

Despite these challenges, Sterman forged ahead. And today, "charter school financing is by far the largest part of my unit's budget and a substantial part of what TRF does today," Sterman says. In all, The Reinvestment Fund has financed 29 charter schools, serving over 15,000 students in the last seven years. And with more than $53 million in charter school loans and a 0% loss rate, TRF has developed a national reputation for turning the risk associated with such financing into success stories. Recently, Sterman's unit was awarded a $10 million grant by the U.S. Department of Education to expand charter schools in the Mid-Atlantic region, one of just five such grants awarded nationally and one of only two $10 million grants. The grant will be used to establish a $60 million TRF Charter School Growth Fund (TRF Growth Fund).

Unlike public schools, charter schools must locate their own facilities, a process that is often complicated and costly. The TRF Growth Fund will offer financing and technical services in construction management and energy efficiency planning in order to cut the overall project costs that come with charters. It will also deliver organizational and business assessments to help stabilize the start-ups and will allow for significant expansion of the charter school movement in Pennsylvania, New Jersey, Delaware, Maryland, and the District of Columbia. "In states like Maryland, where the fledgling charter school movement is only beginning to take hold, we expect demand for such funding to only increase in the next few years," Sterman says.

Like Copisarow and her role in expanding the credibility of microfinance worldwide, Sterman has legitimized charter school financing for more mainstream lenders. "There are so many instances where TRF has gone into an area that traditional lenders are not ready to tackle," she says. "After we are successful, things have opened up. We have played an important part of charter schools being able to access financial markets that initially would have been closed to them. Without our being willing to take the first baby steps with these organizations, this would not be the case."

And for Sterman, the daughter of a career business executive father and a counselor mother, this intermediary role is a perfect fit. "I don't want to be in the classroom right now myself, but I absolutely believe in quality education. And in order for quality schools to exist they need access to financing. I absolutely believe in quality childcare, and they need access to financing in an accessible way. It's very easy for financing to be very intimidating to people. I'm not a lingo person. What I really want to do is make the process as accessible as possible."

Sterman, 38, had no clear career path in mind when she graduated from UNC Chapel Hill with a degree in history, just a vague sense that whatever path she took, her work should "feed her heart."

She stumbled into the newly created Teach for America program in 1990 and began a two-year teaching commitment in New York City elementary schools, where she found herself ill-equipped to handle some of the realities of life for today's city kids, "everything from kids not having proper dental and medical care to non-English-speaking, first-generation immigrant kids."

And as she watched Teach for America grow and change during an additional teaching stint in Washington, D.C., and a program management position back in North Carolina, she began to see the need for strong management skills at non-profit organizations. "It was the constant need to fundraise, literally payroll to payroll on occasion, that created a sense of instability and uncertainty for employees," she says today. "Idealistic young people probably thrive in that kind of environment—I did because it was a noble cause—but it's not the way you build a lasting organization."

And so she began pursuing her master's in social work from Penn and her MBA from Wharton, finishing both degrees by 1999 and thinking that perhaps one day she would serve as an executive director of a non-profit.

It was the time of the Welfare Reform Act, when legislation set a timetable that States had to follow to reduce their welfare rolls and mandatory work requirements were set for anyone on welfare. Suddenly, childcare became a national issue as thousands of women with children entered the workforce. "I began wondering what all of these women were going to do," Sterman says. "How were they going to find quality childcare that they could afford?" To find some answers, she began a research project for Philadelphia Citizens for Children and Youth (PCCY), a study that examined subsidized childcare programs in Philadelphia and the impact of waiting lists on low-income families and their ability to hold jobs.

As luck would have it, Sterman found a kindred spirit in Wharton classmate Sharon Kershbaum, C'92, WG'98, who introduced Sterman to The Reinvestment Fund, where she had just completed an internship. Deluged with calls from childcare organizations seeking loans to expand, TRF was looking for a summer intern to write a business manual for childcare providers. With her recent work with PCCY, Sterman fit the bill perfectly.

And so began Sterman's relationship with TRF, a Philadelphia-based organization that makes loans, equity investments, and grants for affordable housing, small business, community services, commercial real estate, workforce development, and energy conservation projects in four states. "I love where I work, the people and the organizational culture. The organization keeps changing. It never gets boring and it attracts really bright and socially motivated people. It challenges my head and feeds my heart."