Looking For Solutions to Charter Schools Funding Inequity and Access to Financing

May 9, 2011

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In California, there is a persistent and clear pattern of funding inequity for charter schools. It is an issue that has been exacerbated by the tough economic times the state has gone through for the past decade, and highlighted in recent studies by Bellwether Education Partners and Ball State University.

According to the Ball State study, the funding disparity between charters and traditional schools, on average, is higher than nine percent in California, with even wider gaps in Los Angeles and San Diego. More recent data, since the economic downturn that has slashed school funding overall, suggests the gap has widened even further. For example, the majority of charters typically must pay for facilities out of general operating funds, and have limited access to public buildings--unlike school districts, which can access bonds for school construction and modernization.

In addition to real dollar inequities, charter schools must deal with ongoing cash flow problems due to the now familiar state deferrals, which leave charters little choice but to seek external financing. Many charters have limited access to loans compared to school districts; most charters, unlike districts, are not government entities and do not have the security of state takeover in case of bankruptcy. In short, charter schools are viewed by lenders as more risky. Add on top the precarious state of the economy, and many banks won't approve loans to charter schools.

Restricted access to funding coupled with increased costs for charter schools represent a chasm between traditional and charter schools. The ones who ultimately lose out are the public school students served by charter schools, though charters are gaining momentum in spite of the gap in funds. That is why addressing funding inequity is one of the top priorities for CCSA, which not only advocates for the charter movement as a whole, but also offers resources and guidance to members to ensure both academic and operational success.

CCSA continues to work on increasing charter access to working capital options that allow schools to address their financial needs so they can focus on educating students. Efforts include:

  • CCSA's Government Affairs team in Sacramento is engaging daily in the budget battle and regularly meeting with budget staff and legislative leadership is an effort to ensure that all of K-12 education is adequately funded, and that charter schools are treated equitably in all budget actions. Already this year, we have been successful in maintaining growth funding - the continuation of new school grant supplement for charter schools, increasing funding for the Charter School Facility Grant Program (SB 740 Program) and ensuring equitable charter school inclusion in any new revenues generated by revisions to the state's redevelopment system. While we cannot be certain these gains will remain if additional and severe education cuts are enacted, we remain vigilant in protecting all forms of charter school funding and in reducing inequity in funding levels between charter schools and traditional public schools.
  • In addition, The California Department of Education (CDE) recently posted the third apportionment for the Charter School Facility Grant Program (SB 740 program). This apportionment provides nearly six million dollars more in funding for 45 more schools for reimbursement of facility costs incurred during the 2009-10 school year. CCSA worked with CDE on this issue, and we appreciate the hard work of CDE staff in getting this money out the door. We understand that CDE is now processing current year payments, and will soon release apportionments for some of the 2010-11 costs. This will be the first year that schools will receive a portion of their costs during the fiscal year they are incurred, and a huge step forward for the program.
  • In the summer of 2010, CCSA brought diverse partners together to collaborate and close Revenue Anticipation Note (RAN) deals for Birmingham Community Charter High School and Aspire Public Schools. These offerings were the first-ever working capital programs to use a state-intercept mechanism through the California School Finance Authority. Moving forward, this RAN structure has the potential to assist more charter schools, particularly larger schools, across the state.
  • In the fall of 2010, CCSA convened charter school leaders, members of the banking community, representatives from philanthropic foundations, the California School Finance Authority and the California Department of Education for in-depth conversations about charter school funding equity and access to working capital financing.
  • At least 28% of public schools' anticipated 2010-11 ADA funding is being delayed until at July and August. CCSA, together with Nonprofit Finance Fund, Enterprise Community Partners and Low Income Investment Fund, created an Emergency Loan Program to assist our members with these anticipated apportionment funding delays.

Another bright spot is the recent signing of a compact between charters and the Los Angeles Unified School District. Among other things, the compact commits the district to including charter schools in any revenue generated by Tax Revenue Anticipation Notes or parcel tax initiatives. Our hope is that other school districts will also recognize the value in providing charter schools--and their students--equitable access to funds.

This is not a theoretical discussion. Charters are a growing presence in California, with 115 new charter schools opening this school year alone. That means that California is now home to 912 charter schools and well over 316,000 students, all of whom deserve better than schools facing an untenable cash flow situation caused by State deferrals, apportionment funding delays and difficulty in securing affordable short-term loans.

There is no doubt that our state leaders could also be doing more so that charters have more options available to them. Though our governmental advocacy, product development and partnerships with private finance providers, CCSA and our members will remain focused on this issue to ensure that charter school students receive the same funds as their traditional public school counterparts, and have more alternatives to access working capital when they need it most.

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