New Dem Play | Financing school buildings for charter schools
Where It's Working | California; Delaware; Washington, D.C.; and around the country
Players | State and local officials
For a charter school to successfully educate children, its administrators must first overcome the challenge of financing the school building itself. Unlike district schools that use existing public school buildings, charter school administrators must typically find a facility on their own with little or no funding from the state or district. The problem is that ordinary financing options do not work. Most charter schools cannot issue bonds as school districts do, and the brief credit histories, length of charters, and increased risk inherent in the competitive charter school model make borrowing difficult. As a result, many charter schools pursue their teaching mission burdened with high rent and substandard facilities.
To help expand high-quality charter school options, state and local officials should consider the innovative financing pioneered by a number of states, nonprofit organizations, and public-private partnerships. Several jurisdictions, including Minnesota and the District of Columbia, provide facilities funding for charter schools on a per-pupil basis. California's charter school revolving loan fund makes low-cost loans to charter schools for facilities.
Credit enhancement or loan guarantees can also allow charter schools to obtain private financing from the market. In Delaware, for example, the Innovative Schools Development Corporation -- created by the Rodel Charitable Foundation -- provides loan guarantees for the full amount of equity lenders require, making it possible for charter schools to borrow to buy or build. Other organizations helping charter schools obtain credit include the Charter Schools Development Corporation, the National Council of La Raza's "Raza Development Fund," and community development banks and institutions around the country.
State and local officials do not have to wait for private or nonprofit organizations to help charter schools finance facilities. They can create their own loan guarantee or credit enhancement programs, often by tapping into community development and other financing programs already operating. For example, the District of Columbia's Public Charter School Credit Enhancement Fund provides grants to charter schools and nonprofits for innovative ways to enhance the credit charter schools need for obtaining loans. There is even help available from the federal government for states to create these programs: the U.S. Department of Education's Credit Enhancement for Charter Facilities program, created through bipartisan legislation sponsored by New Democrat Sen. Tom Carper (Del.) and Republican Sen. Judd Gregg (N.H.), offers competitive grants to states, local governments, nonprofits, and public-private partnerships for projects to help charter schools finance facilities.
In lean economic times, helping charter schools develop innovative financing is an especially smart move for state and local officials. Rather than pay for entire facilities, officials can leverage charter schools' competitive advantage over ordinary public schools. Thanks to their flexibility and reformist approach, charters can more cost effectively build facilities, and persuade private organizations and philanthropies to fund school construction. Thus, investing in financing for charter schools is a smart way to support promising education reform while economically easing the school construction crisis.
U.S. Department of Education Credit Enhancement for Charter Facilities Program
www.ed.gov/programs/charterfacilities/index.html
U.S. Department of Housing and Urban Development, Office of Community Planning and Development
www.hud.gov/offices/cpd/index.cfm
California Charter School Revolving Loan Law
www.cde.ca.gov/sp/cs/as/csrevloantoc.asp
National Alliance for Public Charter Schools: Charter Facilities Project
www.publiccharters.org/section/issues/stateleg/facilities
Charter Schools Development Corporation
www.csdc.org/
Charter School Facilities: A Resource Guide on Development and Financing, NCB Development Corporation (NCBDC) and the Charter Friends National Network (CFNN)
www.uscharterschools.org/gb/dev_fin/toc.htm
Sara Mead, Building a Third Way on School Construction, Progressive Policy Institute, November 2002
www.ppionline.org/ppi_ci.cfm?contentid=250999
&knlgAreaID=110&subsecid=900023
Dr. Bryan Hassel
Director
Public Impact
504 Dogwood Drive
Chapel Hill, NC 27516
(919) 967-5102
(919) 928-8473 (fax)
bryan_hassel@publicimpact.com
Dr. Paul A. Herdman
President and CEO
Rodel Charitable Foundation of Delaware
100 West 10th Street Suite 704
Wilmington, DE 19801
(302) 504-5233
pherdman@rodelfoundations.org
C. Peter Svahn
Director
Innovative Schools Development Corporation Loan Guaranty Fund
Charter FS Corporation
131 Apple Street
Essex, MA 01929
(978) 769-7697
psvahn@charterfs.com
Sara Mead
Senior Research Fellow
Education Policy Program and Workforce and Family Program
New America Foundation
mead@newamerica.net
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