Why Is It So Hard for Charter Schools to Tap Into Local Infrastructure and Secure New Facilities? “Infrastructure Insights: Financing Charter School Facilities” Series

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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.

Yesterday, we launched a new series, “Infrastructure Insights: Financing Charter School Facilities.” To dig deeper, today’s post unpacks specific facilities barriers that charter schools face compared to traditional district schools. Although it varies in each state, the big barriers we’ve seen across the country include:

Access to public funding: In most states, charter schools lack access to the state and local funding that district schools rely on for facilities investments and ongoing maintenance and operations (M&O). While some states have implemented programs to support charter schools in accessing facilities funding (e.g., direct per-pupil facilities funds, state bond or loan programs), these programs tend to be insufficient to offset the full costs of school facilities. 

Access to private financing: Traditional lenders are often hesitant to lend to charter schools for a number of reasons. First, because charter schools operate on time-bound contracts and can be closed for poor performance, there’s a perception that they are unstable, leading lenders to shy away from investing in them. Second, the relatively low funding that charter schools receive — due to the fact that state funding is lower than that of traditional public schools and, in many cases, it cannot be supplemented by local levies — often raises questions regarding the ability of charter schools to make loan payments. New charter schools face an even bigger uphill battle, as they lack a track record of student attendance to demonstrate academic results or financial health. Charter schools operating in a young sector are often in an even tougher position given that they reside in an ecosystem in which traditional lenders aren’t yet familiar with charter schools and don’t yet know how to accurately evaluate their risk.

Terms of private financing: Charter schools that do receive private financing are often only offered short-term loans, as lenders tend to match loan periods to charter reauthorization cycles. And so while a charter school would almost always prefer the long-term security and reduced refinancing requirements that come with a 20-year loan, sometimes it can only access 3- or 5-year loans. A bank may find it too risky to hand out a 20-year loan to a school that may be ordered to close in a few years.

This can leave charter schools in the unwieldy situation of holding several short-term loans, which isn’t ideal given the administrative burden on the school leadership and the risk of receiving a higher interest rate when refinancing. Nonprofits such as the Equitable Facilities Fund,* a former Bellwether client, are changing this by offering long-term (30-year), low-cost fixed-rate loans to high-performing charter schools. 

Ability to save for a down payment: Without a public funding source (such as annual per-pupil facilities allowance or facilities grants), it can be incredibly difficult for charter schools to have the cash on hand needed for a down payment to finance their facility project cost. Charter schools in this position have two options: acquire philanthropy to cover some or all of the equity they need or slowly save money from their operating budget. Those following the second approach often open in temporary facilities and stay there for a few years until they 1) have saved enough money for a down payment, and 2) have a track record that can allow them to access philanthropy and/or affordable debt. Nearly half of charter schools surveyed by The Charter Schools Facilities Initiative in 2017 were in school buildings that could not accommodate their anticipated enrollment in the upcoming five years.

Technical assistance: Charter leaders often lack the specialized expertise required to manage complex facilities projects. As a result, they end up diverting time away from school leadership to do the facilities work, whereas school leaders in traditional district schools benefit from central office staff’s expertise and support systems. This is especially true for leaders in standalone charter schools (as charter schools that are part of networks may have some support from the network’s central or home office staff). 

Access to buildings below market cost: In some cases, charter schools are able to partner with their neighboring school district to rent or purchase a vacant district building for minimal cost. However, these partnerships are limited, as state policies that give charter schools access to district buildings are often vague, lack teeth, and leave decision making to districts, which have few incentives to provide this support to charter schools that compete with the district for students and resources (learn more about this in CRPE’s 2017 report). 

Lower per-pupil funding in general: In addition to the discrepancies mentioned above, charter schools in general receive lower state per-pupil funding versus traditional district schools. A 2018 University of Arkansas report found that, across cities with large charter sectors, charter schools receive an average of $6,000 less in public funding per student than district schools. Higher annual per-pupil funding could be used to pay for annual M&O costs or could be saved over time and for use as equity on a future facility project.   

Stay tuned for more in our weeklong “Infrastructure Insights: Financing Charter School Facilities” series. Up next, the four key ingredients of a healthy charter facilities ecosystem.

(*Some organizations listed include past or present clients or funders of Bellwether.)