August 5, 2021

How Federal Funds and State Policy can Support Charter School Facilities “Infrastructure Insights: Financing Charter School Facilities” Series

By Bellwether

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Photo courtesy of Mary Taylor for Pexels

As the Biden administration’s historic infusion of federal education funds are spent in states, coupled with a potential $1 trillion bipartisan infrastructure package making its way through Congress — a package that could include money for K-12 building safety and technology upgrades — we must ensure that charter school facilities are included in the policy debate. Join us in an “Infrastructure Insights: Financing Charter School Facilities” weeklong series, where Bellwether Education Partners will share insights into a range of issues facing charter school facilities.
My colleagues have noted many of the challenges and potential supports for charter schools that struggle to access facilities. Many of these solutions are funded by philanthropy or by private sector investors; the public sector also supports access to facilities through federal and state policy. These programs provide a patchwork of solutions that are each an essential step toward more systemic support for charter school facilities. 
Charter schools can leverage several federal programs to support facilities access. These programs provide loans and grants, various forms of credit enhancement, access to bond markets, and incentives to encourage per-pupil funding at the state level. 
As with most education policy, however, most of the action is at the state level. Although state policies to support charter school facilities access vary significantly in their design and implementation, in general, they fall into four categories: 

  1. Access to existing school facilities
  2. Moral obligation and credit enhancement
  3. Loan and grant programs
  4. Direct per-pupil funding

Access to Existing School Facilities

In some states, charter laws ostensibly help charter schools access existing school facilities by requiring districts to share, lease, or sell underutilized district buildings, often at or below fair market value. For example, D.C. law requires that the mayor give charter schools the “right of first offer” to purchase, lease, or otherwise use an excess school facility. First preference is given to existing charter school tenants that have occupied most or all of the facility or property, followed by any charter schools that the DC Public Charter School Board has determined to be high-performing and financially sound. Unfortunately, these programs are rarely implemented as intended. 
Some districts have adopted charter schools as important partners, such as Denver. Even here, however, efforts to distribute facilities equitably between district and charter schools have become more contentious as empty school buildings become more scarce. 

Moral Obligation and Credit Enhancement

Other states offer charter schools credit enhancements, by creating some sort of payment guarantee on charter schools’ debt. Payment guarantees, backed by the state, reduce charter schools’ risk of default, leading to lower interest rates from lenders and allowing schools to access additional capital to purchase, lease, renovate, or construct facilities. Arizona has created a credit enhancement fund for public schools, including charter schools, which can be leveraged to provide low-cost financing. In addition, the Arizona Credit Enhancement Board guarantees the bonds of charter schools who have earned an “A” on the state’s academic performance rating.
One specific type of credit enhancement are moral obligation bonds, which are revenue bonds backed by a state’s pledge to make up for missed payments with funds appropriated through the budgeting process. While these pledges are not legally binding, states take them seriously. If a state fails to honor its pledge, it risks a downgrade of its credit rating, which could trigger increased borrowing costs across the board. Similar to other credit enhancement programs, the moral obligation bond provides charter schools with higher credit ratings and lower interest rates. States use these bonds for a variety of purposes across multiple sectors; however, only a handful of states (Colorado, Idaho, Indiana, and Utah) currently use them to support charter schools.

Loan Funds and Grant Programs

States can also establish loan funds or grant programs that specifically support charter school facilities. Colorado’s Building Excellent Schools Today (BEST) program provides competitive, need-based grants to public schools (district and charter) to use toward major capital projects. BEST funds can be used for the construction of new schools, as well as general construction and renovation of existing school facility systems and structures. Since 2008, BEST has awarded approximately $2.5 billion in grants to more than 525 Colorado schools, including many charter schools. Other states, such as Utah and South Carolina, have loan programs that provide funding for school facilities projects. Similar to private sector loans, as schools repay the loans, lenders (in this case the state) can recycle the funding to provide additional loans to more schools. 

Direct Per-Pupil Funding

Rather than offering various financing mechanisms, states can also fund charter schools’ facilities based on their enrollment. Florida provides per-pupil charter facilities funding on a formula basis for eligible charter schools, which include those that have been in operation at least two years, are part of an expanded enrollment feeder pattern, or are accredited. Similarly, Indiana provides a facilities allotment for charter schools of $750 per pupil, which must be used primarily for facilities and transportation purposes, provided the schools meet performance expectations. California, meanwhile, created the Charter School Facility Grant Program, which provides up to $1,117 per pupil in lease reimbursement for charter schools where 55% of students — either at a particular charter school or within its local elementary school attendance area — qualify for free and reduced-price meals.
In assessing how best to support charter schools’ access to facilities, state policymakers have numerous trade-offs to consider. For instance, providing access to existing facilities is perhaps the best way to protect taxpayer dollars, since it limits the instances in which charter schools are paying to refurbish and rent a facility when a suitable facility sits empty. But these programs typically only work with the partnership of district leaders, who are often disinclined to help charter schools open and operate. Meanwhile, grant programs and per-pupil allocations are often the most flexible sources of funding for schools, but are also mostly likely to be funded through line items in state budgets — making them politically vulnerable during periods of austerity like that which will unfold in the wake of the COVID-19 pandemic. 
The characteristics of a state’s sector also have implications for which policies have the greatest impact. In cities with a growing student population and few underutilized district facilities, policies that require districts to share excess space with charter schools may be moot. In sectors with fewer schools operated by seasoned charter management organizations, moral obligation bonds may feel too risky. Where charters receive particularly low per-pupil funding for general school operations, meanwhile, a per-pupil facilities allocation provides helpful flexibility that school leaders can use to creatively meet the needs of their school and students. 
No single policy “best” supports charter schools’ facilities access; the best approach is a quilted one, with numerous policies in place that can support charter schools in accessing facilities, in the way that makes sense for them and their needs.  
Stay tuned for the final post in our “Infrastructure Insights: Financing Charter School Facilities” series, examining one promising solution to help charter schools secure facilities.

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