A building need: charter schools in search of good homes - Feature

Education Next, Spring, 2004 by Kim Smith, James Willcox, Julie Landry

Charter schools are also using state and federal programs that provide loan guarantees for "community facilities." For instance, charter schools in rural areas are eligible for loan guarantees under a U.S. Department of Agriculture program. On a local level, some districts have even extended loan guarantees to charter schools. Chicago Public Schools recently guaranteed $4.5 million of a $5.5 million letter of credit for Perspectives Charter School, a charter school serving a diverse, low-income population in grades 6-12 in downtown Chicago. With that help and the backing of local foundations, Perspectives was able to negotiate favorable terms for a new, permanent 30,000 square-foot building (on a lot leased from Chicago Public Schools, which no longer needed the space).

Nevertheless, even with the help of loan guarantees, lenders are still reluctant to do business with any but the most sophisticated of charter school operators. This is where federal tax incentives may help. For instance, the $15 billion New Markets Tax Credits initiative provides lenders with credits against their federal income taxes in return for investing in businesses that serve low-income communities. One of the 2003 allocations went to Self-Help Ventures Fund in Durham, North Carolina, which will use its $75 million allotment to originate loans for commercial and community facilities, including charter schools.

At the state level, Colorado and Michigan now allow bond authorities to issue tax-exempt bonds on behalf of charter schools. States and philanthropists have also been working to increase the available pool of debt by creating "revolving" pools of loan capital. They are "revolving" in the sense that the loans are designed to be repaid quickly, when longer-term debt becomes available as the charter school develops a track record. Perhaps the best-known example is the Illinois Facilities Fund, which Chicago Public Schools seeded with $2 million in 1997 to make low-cost loans to charter schools. Since Illinois passed its charter school law in 1996, Chicago's public school district officials have viewed charters as another path to district improvement, especially for its high schools, and even went so far as to support an increase on the city's charter cap from 15 to 30. The district's relatively small charter office (four full-time employees) relies heavily on its ability to leverage the rest of the district's resources, which may account for the charter office's close relationship with other reform initiatives.

Providing cheap financing to charter schools is also a relatively easy way for philanthropies to get involved. Nationwide, foundations hold about $475 billion in their endowments, but use just $225.6 million of that for charitable loans or program-related investments, according to the Foundation Center. Committing even a small fraction of the remaining endowments to easing charter schools' access to capital would make a huge difference to the charter school movement; what's more, these loans will be repaid over time, allowing foundations to "recycle" the capital.