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MINNESOTA CHARTERS BREAKING NEW GROUND ON FACILITIES
by Jon Schroeder
Minnesota Journal, August 19, 1997

Six years after passing the nation’s first charter school law, Minnesota is again breaking new ground on one of the toughest challenges facing these results-oriented, more autonomous public schools. The latest breakthrough – a dedicated state-financed revenue stream for charter facilities – has long-range implications for district public schools, as well.

The new Minnesota program is called "Building Lease Aid" and is modeled after an earlier program allowing school districts to levy extra property taxes to pay rent for programs located in privately owned buildings. Just under $3.0 million was appropriated for charter lease aid for the next two years. That’s enough to provide charters up to $425 to $550 per year for each student they enroll – depending on their grade level and the school’s actual lease costs (see box on page __ for an explanation of how the aid is calculated).

Minnesota’s lease aid program is being closely watched around the country because – for the first time – charters can access a significant state revenue stream dedicated explicitly to facilities. Here-to-fore, charters have been expected to finance their facilities entirely out of private donations and public operating revenues diverted from the classroom.

This expectation has had varying impacts on Minnesota charters -- now housed in former district and private school buildings, store fronts, industrial or office buildings, and at least one city park and recreation center. Rents range from little or nothing to well-over $100,000 per year. Some charters even pay property taxes passed-through by commercial landlords – raising an important public policy issue still needing attention by state officials.

Implications for district schools

The new charter lease aid program also has policy implications for district public schools -- as the state further expands school choices and offers new opportunities to trade accountability on student performance for greater control of school operations and funding at each site.

These trends run head-long into the tradition of financing public school facilities with property taxes authorized by voters in a district-wide bond referendum. That tradition made sense when all public schools were directly controlled by districts with their own taxing authority and attended only by students who live in the same geographic area as the voters who authorize -- and are paying off -- the bonds.

But, charters are created outside the framework of districts – with neither an explicit group of voters to go to for approval nor a defined geographic area to tax. Clearly, inventing some new way of financing charter school facilities was an inevitable necessity.

But, that need doesn’t just follow the advent of this new type of public school.

Increasingly, students are crossing district lines to attend public schools that were built and paid for by others. Some districts are responding by closing enrollment to outsiders, to avoid expanding facilities to accommodate students who live outside the districts’ taxing authority.

And, down the road, more district schools will resemble charters – if they and their school boards take advantage of the expanded site-based funding and management opportunities also included in this year’s K-12 education bill.

Those schools will eventually need new, expanded, or remodeled buildings. But, what group of voters should authorize the sale of bonds? And, what group of property owners should be taxed to pay them off?

Expanded state role raises new issues, opportunities

All these trends – toward public schools that do not have their own direct taxing authority and that serve students from different taxing jurisdictions -- argues for a larger, more explicit role for the state in financing facilities.

The state is already involved, of course, in helping equalize property tax levies for school facilities and requiring the Department of Children, Families, and Learning to review and comment on building proposals before voters are asked to authorize bonds.

But, just as we’re now doing for charters, some type of capitated, explicit state aid for facilities may also be inevitable for what we now know as district public schools.

Such an approach – perhaps based on average per student expenditures for facilities – raises both new issues and new opportunities. Experience and discussion now going on among charter operators may be helpful as these issues gain relevance among districts with open enrollment pressures or site managed and funded schools. At least six important issues or opportunities are already becoming evident as these discussions begin to take place:

Accountability: Except in Minneapolis and St. Paul -- where district boards may authorize the sale of construction bonds -- new or significantly expanded school buildings have traditionally required voter approval. That’s been considered a check on whether they were appropriate, affordable, and really needed. Are we prepared to replace this traditional accountability mechanism with a guaranteed state-funded per-student revenue stream for facilities? What if that amount were inadequate to meet a school’s definition of its need? Is it OK if public schools begin to pursue private fundraising, partnerships (see below), and other nontraditional means of raising revenue for facilities?

Collateral/risk: School districts are able to use existing assets, future operating revenues, and their own taxing authority as collateral in accessing tax-exempt bond financing for new and remodeled facilities. But, individual charters don’t have the assets, taxing authority, or track record to satisfy traditional lenders. Options for filling these gaps include state-backed bonds for charters, or loan guarantees offered by the state, sponsoring school districts, cities, or private foundations.

Economies of scale: Efficiencies and economies of scale have been two traditional factors arguing for larger, centrally managed school facilities. At the same time, a growing body of research is making the case for smaller, more personalized teaching and learning environments. Most charter schools are responding to that research – backed up by the experience and preferences of their parents and teachers – by limiting their size and needing less space. Will that trend be feasible to finance – especially as charters mature and move beyond their initial, often temporary locations? What are its implications for smaller-scale district schools that are site funded and managed?

Ownership vs. leasing: Schools have historically been located in buildings owned and managed by districts. Most educators, however, would rather not be in the property management business. Many charter operators have stated an outright preference for leasing their facility and focusing entirely on their instructional program – perhaps even enjoying the flexibility to move and expand elsewhere. Being a tenant can have downsides and risks, however, including non-renewed leases, rising rent and other operating fees, and even passed-through property taxes.

Partnerships: Often because they are small, charter schools are quickly learning that partnerships with other organizations and even sharing space with other tenants can be a necessity. Cities, community development agencies, other non-profits, housing or commercial developers, and other for-profit businesses are all partnering with charters around the country. Beyond making facilities feasible, these partnerships can also add value to a school’s instructional program – through on-site internship and service learning opportunities, more comprehensive services for students and their families, and a ready reserve of adjunct teaching resources. Partnerships with other agencies can also be used to avoid or share the burden of financing some of the most expensive parts of a school – like a gymnasium, cafeteria, or library/technology center.

Flexible use facilities: School buildings have traditionally been designed with no other purpose in mind and the intention of remaining a school for their useable lifetimes. Charter schools have a fixed term, however, that may or may not be renewed. The entire premise of charter schools is that – fully exposed to the marketplace – some will fail. Others will start small, gradually adding grades or curriculum offerings, and will need expandable space. That’s why locating and designing schools for multiple uses, and easy expansion or conversion to other uses are among the strategies now being used in the emerging world of charter school facilities. They may have application in the changing world of district schools, as well.

There’s not enough experience yet with charter schools to know whether Minnesota’s new lease aid program could also be a model for increasingly autonomous district schools. It’s not even certain if the new program will fully meet the facilities financing needs of charters.

It is certain, however, that more student choices and more responsibility for operations and finances at the school site will continue to change the role of districts – as administrative units, as landlords, and as governing and taxing authorities for public schools. These changes produce both challenges and opportunities. And, because they are out-front in facing many of these issues, charter schools could help show the way.

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How Charter Building Lease Aid is Calculated

Applications for charter lease aid for the 1997-98 school year must be made to the Minnesota Department of Children, Families and Learning (CFL) by September 1. The amount of aid received by each school is the lessor of 80 percent of approved costs or the number of pupil units in the school times the sum of state average debt redemption fund revenue and various extra capital expenditure levies permitted under state law. The Department of CFL has estimated that this per pupil unit aid for 1997-98 will be $425. For high schools this is multiplied by 1.3 to total approximately $550 per student enrolled. Following are examples of how the aid will be calculated for two hypothetical charter schools for the coming school year:

Source: Minnesota Department of Children, Families, and Learning

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Jon Schroeder is director of Charter Friends National Network, a project of the Center for Policy Studies in cooperation with Hamline University.

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