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Codefi Assets

Leverage Blockchain to Bridge the Gap for Digital Education: Innovative Municipal Financing in the Time of Coronavirus

by Alex KosturaMay 1, 2020
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The coronavirus pandemic has changed nearly every aspect of our daily lives. One area where there are both immediate impacts and long-term effects across a broad range of issues is on education. Social distancing restrictions have taken students and teachers out of classrooms for the foreseeable future. Unfortunately, many of our school systems and local governments were not prepared for this transition to 100% digital learning.

Many students and teachers are without the essentials for online learning – a home computer that can be dedicated for their own use and reliable high-speed internet. Previous studies have just focused on whether there was “a computer” or “internet access”, not whether it was actually a functional set up for that child to digitally distance learn.  US communities urgently need to explore the actual technical needs alongside  innovative financing mechanisms now to address the gaps and to prepare for a future where more, if not all, learning takes place online.

Unanticipated needs require new solutions. Global institutions and corporations are embracing blockchain technology to update legacy processes, promote transparency, and cut costs. At ConsenSys we have a range of tools that  State and Local governments can embrace to address these challenges immediately

The Digital Divide

With online learning, the digital divide becomes worse. Lower-income households are less likely to own a computer at home or to have access to high-speed internet. Students in rural areas are especially lacking in broadband access, and those disparities get larger for minority students.

Resources are scarce, and current programs are only partially meeting needs for our students. When New Bridges Elementary (PS532) in Brooklyn, NY started distance learning last month, many families lacked the proper technology. A non-profit organization, The Friends of New Bridges, launched an urgent online fundraising initiative. In a letter to donors, they stated, “while the DOE (Department of Education), the city, and telecom companies have taken some measures to connect students, there are families who for a variety of reasons have been unable to access these supports.”

My sister’s situation presents a common cluster of problems.  She is an elementary school teacher in Virginia, and plans to use part of her stimulus check from the US federal government to purchase a new home laptop, among a long list of other priorities for her family. Her school was offering a limited number of laptops to teachers who had no home computer. Since she has one at home, she did not qualify. However, she shares that laptop with her 6-year old son, who now completes many of his school assignments online. His school only offered devices to children in 3rd, 4th and 5th grades. Between teaching her students online, facilitating her son’s education, and entertaining her 2-year old, she is simply not equipped!

Individual teachers in the US spend an average of $459 each year on school supplies. And 90% of those teachers will not be reimbursed. Now teachers will likely be spending additional money on the hardware and software needed to do their jobs and to serve their students. They will also require additional time and resources to learn how to assess and utilize online free resources such as Khan Academy. Many technology companies have also offered free resources, such as Microsoft joining the global COVID-19 Education Coalition from UNESCO to offer access to tools that help students and teachers continue their learning and teaching through the pandemic. But again, teachers and communities need to know where to access resources, how to access and how to assess whether that’s the right thing for specific students needs.

Beyond these easily identified, immediate needs, there are a host of other upgrades to our education system that will require focused attention and innovative financing. Tom Hay is the Director of ConsenSys Academy and an educator who has spent much of his career supporting the digital transformation of education. He identified additional needs that were just as pressing and would require significant financial investment:

  • Alternative or supplemental digital tools for differently-abled students

  • Digital literacy and computer training for teachers to use the tools more effectively

  • Upgrading systems and processes for online learning (attendance, grades, etc…)

  • Financial aid planning during the prolonged economic recession

It is clear that everyday heroes have stepped up in the immediate response. State and local government workers and service contractors are undoubtedly among those heroes, working overtime to keep vital citizens services running. But, the current financing gap for educational needs will require state and local governments and their financial advisors to get creative.


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Updating a Classic for Community Engagement

One possible solution is to look at a traditional financing tool in a new way. For more than 200 years, local governments have issued municipal bonds to raise funds for critical community infrastructure, and schools have been no exception. Indeed, many school districts independently have the ability to issue municipal bonds, and either independently or through their municipality, have financed transformational projects and programs in the US through bond issuances, providing community-driven investment opportunities.

In its 200+ year history, the municipal bond has not seen a lot of innovation. However, some localities have successfully been experimenting with mini- municipal bonds, or “mini munis,” that are typically smaller in total dollar amount (<$10-15M) and utilizing new technology can be sold at denominations as low as $100 so that local investors can afford them. Traditionally, bonds are sold at denominations of $100,000, and even mini-muni programs have traditionally utilized $5,000 denominations, putting them out of reach for many individual investors. The City of Denver developed a successful mini-bond program with proven popularity among local investors. A $12M issuance in 2014 sold out to Denver residents in under 20 minutes.

A series of mini- bonds meant for smaller discrete project funding and targeted at local investors could be ideal for cities and states looking to raise money for digital education improvement in their communities. However, the legacy structure of the market means the costs of these smaller issuances are actually higher than those larger than $10M. Additionally, the administrative costs associated with running a mini-bond program with hundreds of individual investors can be prohibitive for city staff.

To address these issues, we recommend a digital makeover for the municipal bond. Introducing the digital municipal bond — a bond issued and managed on a digital platform supported by blockchain technology.

Introducing Digital Municipal Bonds

One of the great benefits of current state of the art blockchain technology is the ability to launch programmable digital assets in a format that is intuitive and easy to use for both the investor and the issuer.  Through the use of smart contracts — automated business rules for actions like issuance, investor disclosures and distribution of payments can all be managed from a single dashboard. And the fundamental role of a blockchain is to enable a real time record of ownership and transactions that is auditable and cryptographically secure, but to all intents and purposes from a user perspective that is simply “under the hood” doing its thing.

ConsenSys built the Codefi Assets platform to bring these very benefits to municipal bonds and to provide a tailored approach ready to deploy off the shelf. The digital platform streamlines the entire bond issuance and lifecycle management process, making it a more accessible and efficient process for state and local governments. But also in this challenging time, the entire issuance can be advertised online, sold and issued through an online portal with no physical paper or in-person transactions required. At a time when we know Covid19 survives on paper for up to 24 hours and questions about immunity abound, a digital platform is not just an efficiency consideration but a public health one as well.

With Codefi Assets, cities and states have new flexibility to issue bonds for smaller amounts to finance specific education programs and projects. They can do so at a much faster time-to-market than traditional bonds and in a way that reaches people safely in their homes through a digital platform.

Additionally, the platform allows the issuer to choose to limit marketing to local investors (by zipcode, for example) where the investment is likely much more meaningful. Imagine providing citizens the opportunity to invest directly in new laptops for every student in their community. Because it’s a bond and not simply a donation, these local investors will also see a return on that investment over a period of time.

The issuer or its authorized representative also have access to a dashboard that allows them to view the profile of their investors, send out communications, and even to distribute coupon payments.  This opens up new possibilities for civic engagement in the future.

The tools are there. The funding vehicle is a classic that has been used successfully for more than 200 years. And the Codefi Assets platform has been deployed successfully to digitize and optimize capital market transactions.

The encouraging news is that cities like Berkeley, CA and Denver, CO were exploring the possibilities of blockchain before the current crisis. In light of emerging and urgent priorities for education finance, state and local governments across the US should consider digital municipal bonds with ready-to-use platforms like Codefi Assets.

Written by Alex Kostura

To learn more about digital municipal bonds or to schedule a demo of Codefi Assets, please reach out: here.