Education Funding

Banking Giant Offers Financing for Charter Schools

By Mary Ann Zehr — May 28, 2010 3 min read

JPMorgan Chase & Co., a global financial-services company, has announced a $325 million effort to support building, expanding, and renovating charter school facilities.

In a press release, the company said it would give $50 million in grants to community-development financial institutions to support charter schools. The company will also provide about $175 million in debt financing and about $100 million in “new markets tax-credit equity” for charter schools. It estimates the financing will help underwrite about 40 charter schools. The program is aimed at schools that already have a strong academic track record and have had their charter renewed at least once, or at established charter operators that want to launch new schools.

The company took out a full-page advertisement in The New York Times on May 27 announcing the initiative. It also ran an ad in The Washington Post.

The financing for charter school buildings and renovations is welcome, said William Haft, the vice president for authorizer development for the Chicago-based National Association of Charter School Authorizers. Mr. Haft said that paying for a building is one of the biggest challenges in operating a charter school.

He echoed concerns that the financial-services company expressed in its press release that charter schools are having difficulty accessing credit in the current slow economy. “They’ve been hit like everyone else with the downturn of the real estate market. Credit has tightened up considerably,” he said.

He added that charter schools typically don’t have access to public funding in the same way that regular public schools do, such as access to bonds.

Profit Motive?

But Alex Molnar, a professor of education policy at Arizona State University in Phoenix and a skeptic of the value of charter schools, said he wonders whether JPMorgan Chase’s plan to finance charter schools is a way for the bank to make money from public education rather than provide charity to it.

For the $100 million that the bank is providing in “new markets tax-credit equity,” he said, it’s his understanding JPMorgan will receive a tax credit through a federal government program established at the end of the Clinton administration.

The New Markets Tax Credit Program permits taxpayers to receive credits against federal income taxes for qualified investments in designated community-development entities, according to a description of the program on the U.S. Department of the Treasury’s website. The credit for the investor equals 39 percent of the cost of the investment and is claimed over seven years, the site says.

“Essentially, it amounts to a loan,” Mr. Molnar said. “They are making money from the government because they are able to offset these funds with this tax credit.”

A JPMorgan Chase spokeswoman did not respond to Mr. Molnar’s characterization of the financing.

Mr. Molnar contends that charter school statutes have opened the door for fiscal manipulations by banks in the real estate market that may not be beneficial for schools.

Unequal Funding

It’s not uncommon for charter schools to have their charters revoked by authorizers because of poor financial performance, according to a report released by the National Association of Charter School Authorizers last month. Nearly half the time, it’s the primary reason an authorizer yanks a charter during the renewal process, the report says. It’s the top reason 61 percent of the time when a charter is revoked outside the renewal process, the report adds. It examined the practices only of large authorizers, those with 10 or more charter schools in their portfolios.

Mr. Haft said the charter school authorizers’ association urges authorizers to require annual financial audits. The report says 87 percent of authorizers mandate charter schools to provide annual audits performed by an independent, qualified auditor.

Another report released last month finds that charter schools get fewer public dollars on a per-student basis than regular public schools do within the same states and districts. That report was released by researchers at Ball State University in Muncie, Ind.

At least one charter school, the Learning Community Charter School in Jersey City, N.J., has already received considerable financial support from JPMorgan Chase. Last year, JPMorgan lent nearly $7 million to the school, according to the company’s 2009 “corporate responsibility report.”

In explaining the company’s goals in 2009 for supporting K-12 education, the JPMorgan report says the company aims to “increase disadvantaged children’s access to high-quality educational opportunities.”

A version of this article appeared in the June 09, 2010 edition of Education Week as Banking Giant Puts Up $325 Million to Finance Facilities for Charters

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