School Climate & Safety

Financing a Hurdle in Charters’ Hunt for Space, Says Report

By Arianna Prothero — September 23, 2014 4 min read
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Federal, state, and private financing for charter school facilities is not keeping up with demand for the publicly funded but largely independent schools, says a report released this month by a nonprofit group.

Facilities have been a perennial issue for the nation’s growing charter sector. Federal and state initiatives aimed at helping these public schools get access to financing for buildings or renovations have either declined or remained mostly flat over the last decade, while the number of charter schools has doubled, according to the report from the Local Initiatives Support Corporation, or LISC, a New York City-based organization that facilitates financial investment in distressed neighborhoods.

Even though some charter-friendly changes in state policies, and private, nonprofit organizations have provided $2 billion in financing for charter school facilities since the 1990s, it’s still not enough to meet the growing need, the report says.

“There’s more and more capital that’s flowing to charters, but the demand has increased for charter school seats and we’re not keeping up with that demand,” said Reena V. Abraham, the organization’s vice president of education programs and one of the authors on the report.

The report is the first update on charter financing and facilities since 2010 from the group, which has been tracking the issue since the mid-2000s. During the last 10 years, the charter sector has grown from 2,959 schools to just over 6,000, and the National Alliance for Public Charter Schools estimates more than 1 million students are on charter school wait lists.

However, the report highlights one little-known but promising financing innovation that is starting to get attention. With that mechanism, called a credit-enhancement program, a state basically extends its superior bond rating to a charter school, and that in turn helps boost the school’s rating. A better bond rating enables the school to access the bond market and get a lower interest rate. According to the report, only three states have such a program: Colorado, Texas, and Utah.

How it Works

“When I went to buy my first car, I was just out of college and didn’t have much credit. They may have sold it to me, they may not [have], but they would have charged me a higher interest rate,” Christopher R. Bleak, a board member of the Utah Association of Public Charter Schools, told Education Week in an interview. “Instead, I brought my dad with me, who had a credit history and assets,” and that’s basically what the state does for qualifying charter schools in a credit-enhancement program.

But the operative word there is “qualifying.” To reduce the risk to the state, charters have to prove they’re financially and academically sound. The LISC study also found a high correlation between scholastic performance and risk: Schools are more likely to default if they aren’t doing well academically.

For schools, the interest savings from a credit-enhancement program can add up quickly. In 2002, Colorado pioneered the first such program, which it calls a Moral Obligation Program in reference to the type of bond that’s used.

“The Moral Obligation Program has allowed us to help the 32 participating charter schools secure a rate that is, on average, 2 percent lower than what they would have been able to get on their own,” said Walker Stapleton, the Colorado state treasurer, in an email to Education Week. “That amounts to millions of dollars in savings on interest payments,” which can then be spent on salaries, supplies, and other needs.

More States Needed

“There are not enough private resources out there to solve this issue, so the tax-exempt municipal bond market is a long-term solution in the absence of a public solution. ... We need more states to be doing it,” said Ms. Abraham.

The LISC report also highlights other state initiatives such as per-pupil funding specifically for facilities—of which only three states provide more than $1,000 per student—and what it calls “bold new laws” that require cities and school districts to supply charters with space, but it notes those initiatives have been “difficult due to local politics.”

Such policies, like co-locations, through which regular district schools and charters share the same building, have been at the heart of a high-profile battle over the last year in New York City between the new mayor and the founder of the fast-growing Success Academy charter network.

Although finding and financing facilities have been hurdles for public charter schools for a long time, state policymakers and advocates have been more focused on lifting caps on the number of charter schools that can open in a state or expanding the kinds of groups that can charter and oversee the schools. But with several successes claimed now on those fronts, some proponents suggest the facilities issue will start to move front and center.

“There is no silver bullet to solving the charter-facility challenge,” said Todd M. Ziebarth, the vice president for state advocacy and support at the National Alliance for Public Charter Schools. “It’s going to take states enacting a wide diversity of policies.”

A version of this article appeared in the September 24, 2014 edition of Education Week as Charter Financing Found to Lag in Race for More Space

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