How to Finance your Charter School Facility

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Spring 2011, 2011; Source: Community Development Investments | If you’re operating or planning to operate a charter school, the latest issue of the Office of the Comptroller of the Currency’s electronic newsletter contains a few short but very useful articles on where to get the financing for charter school facilities. Elise Balboni of the Local Initiatives Support Corporation and Ann Margaret Galiatsos of the U.S. Department of Education provide an overview of the facilities financing challenges of charter schools, including the provision of very limited (or no) funding for charter school facilities in most charter school authorizing laws, meaning that most charter school operators “have to find, develop, and finance their own buildings.”

As a result, they say that only about one-third of charter schools are in permanent facilities. They discuss the operations of Education’s charter school credit enhancement program funding and identify, using LISC’s 2010 survey of the charter school financing field (PDF), 29 nonprofit organizations that are providing direct financing for charter schools. As of the end of 2009, these organizations had provided $1.1 billion in facilities financing.

Two other articles in the newsletter discuss the use of New Market Tax Credits in charter school financing. Laura Vowell from U.S. Bancorp Development Corporation offers a synopsis of how the NMTC works and can be used on charter school facilities and Scott Sporte from NCB Capital Impact goes into some detail on a leveraged NMTC transaction.

These articles are a convergence of federal policy interests. The OCC’s interest is that most NMTC charter school deals are likely to qualify for Community Reinvestment Act credit for banks that buy the credits, and the Department of Education has a strong commitment to expanding the number and scope of charter schools consistent with the Obama Administration’s Race to the Top initiative.

Balboni and Galiatos in another article, “Why Charter Schools,” take the mixed research on charter school performance and give it a subtly more pro-charter school slant than charter school critics might find comfortable, but this OCC newsletter wasn’t meant as an academic debate about charter schools, but a review of the different ways of financing charter school facilities.

An inherently interesting aspect is how nonprofit syndicators of Low Income Housing Tax Credits have latched onto ways of selling the New Market Tax Credit for investors in charter school facilities and so far, are showing defaults of 1 percent or less.—Rick Cohen