Administrators WORK WITH PARENTS & THE COMMUNITY
Innovations in Education: Making Charter School Facilities More Affordable: State-driven Policy Approaches
December 2008
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Allocation Models for Per-pupil Funding

As shown in table 2 on p. 6, direct cash assistance to mitigate facilities costs is available in 10 states, plus Washington, D.C. This section features the funding models in five jurisdictions that provide a minimum of (or an average of at least) $700 per student in facilities funding. Although each of the five sites offers relatively high per-pupil facilities aid, collectively, their funding models vary. In discussing these models, the section also introduces two key issues that policymakers may want to consider when developing their facilities-aid formulas: 1) if and how to keep funding levels current with changing enrollment and facilities-related costs and 2) how flexible or restrictive the funding should be.

Adjusting for Changing Enrollment and Facilities-related Costs

A number of the funding models discussed here, though not all, were developed with the intent of ensuring that the level of facilities-related aid appropriations keeps pace with changes in student enrollment, in facilities-related costs, or both. Of the five sites featured in this section, Washington, D.C., (the District) ties funding levels most tightly to these variables, while New Mexico's formula seems to have the loosest connection.

Washington, D.C. The District has offered a per-pupil funding program for charter school facilities, the Facilities Allowance for Public Charter Schools (Facilities Allowance), since 1998 and, at $3,109 per pupil as of fiscal year 2007-08, it provides the nation's highest level of funding for charter school facilities aid. The formula for calculating its annual appropriation is designed to adjust the total funding available annually based on changes in capital costs and in the number of charter school students. It is based on a five-year rolling average of capital expenditures for the District of Columbia Public Schools (DCPS). The District's funding model is intended to ensure that charter schools can count on a relatively stable per-pupil revenue stream from year to year and that their funding is equitable to the amount spent on facilities for other DCPS schools.

Stefan Huh, director of the Office of Public Charter School Financing and Support in the Office of the State Superintendent of Education in Washington, D.C., says that without the Facilities Allowance, many charter schools in Washington, D.C., would be unable to open. He calls this aid the "cornerstone" that has "enabled schools to leverage financing on a long-term basis and to exercise some autonomy, choice, and discretion in how they go about securing sites." But Robert Cane, executive director of Friends of Choice in Urban Schools (FOCUS), reports that there has been discussion in the District about decoupling the facilities aid from the DCPS capital budget, in which case a new formula for the Facilities Allowance would be negotiated. If so, Cane says, the new formula should "be as close as possible to what we have now," providing the maximum amount of flexibility for individual charter schools to use the money to meet their needs, and also including incentives for schools to be efficient in their use of money. However, Cane identified one drawback to the current method for calculating the per-pupil charter school facilities grant each year. Specifically, because the formula is based on a five-year rolling average of DCPS capital expenditures, charter schools that secured facilities many years ago may not need the entire allowance, whereas those with recent or upcoming major construction may need more.

Massachusetts. Similar to the District's approach, state law in Massachusetts requires that the per-pupil facilities allocation to charter schools be determined annually. Its formula is based on the statewide per-pupil average expenditure that districts paid in debt service during the most recent year that these expenditures were reported. Debt service includes payments of principal plus interest on bonded debt for capital costs associated with school construction, renovation, purchase, acquisition, or improvements. However, Cliff Chuang, coordinator of Charter School Research and Finance at the Massachusetts Department of Elementary and Secondary Education, explains that since 2006, the second year of this program, the state legislature has overridden the statutory formula. In the course of reorganizing its funding program for all public school facilities, the state found that large, one-time payments to pay off existing local debt caused an unexpected spike in the calculated per-pupil facilities figure. In response, the legislature allocated a flat amount for charter school facilities aid (based on the previous year's figure plus an inflation factor) within the annual state budget appropriation, a practice that has continued. Although the amount of aid has risen each year by the inflation factor, the actual funding received by the charter schools has been lower than what would have been provided had the statutory calculation been used. Chuang says that, as of early summer 2008, preliminary calculations suggested that under the legislated perpupil facilities-aid formula, the per-pupil grant for 2007-08 would have been about $1,350, whereas the actual grant was $849 per pupil. All Commonwealth charter schools in the state receive this support.16

Despite any discrepancies between the actual per-student facilities grants and those that might have been available under the statutory formula, Marc Kenen, executive director of the Massachusetts Charter Public School Association, says, "We feel lucky with what we have." Now that the per-pupil allocation has reached what he sees as a minimum threshold, it has been crucial to charter schools' overall success in securing facilities in the state, he says. Moreover, Kenen adds, as important as the actual amount of funding the program provides is the fact that by giving charter schools "a set guaranteed revenue stream that they can earmark for debt service, [the program] allows them to borrow."

Arizona. In Arizona, the state's per-pupil base support formula is calculated similarly for traditional public schools and charter schools, according to Jay Kaprosy, former legislative liaison for the Arizona Department of Education and currently a government relations consultant for the Arizona Charter Schools Association (ACSA). But on top of the base support, Arizona charter schools receive additional assistance, which Kaprosy describes as a statutorily defined per-pupil amount. This means that as the number of charter school students increases, so, too, does the overall state budget allocation for the additional assistance.

Arizona's per-pupil additional assistance funding for charter schools is differentiated by grade level because of the higher costs associated with secondary school facilities.17 In fiscal year 2008, for example, charter schools received $1,445 for each student in grades kindergarten through 8 and $1,684 for each student at the high school level for facilities.18 Yet because the assistance has not kept pace with rising construction costs, existing charter schools are falling behind and others cannot open, asserts ACSA chief executive officer Eileen Sigmund. She estimates that a third to a half of the 25 schools authorized in 2008 were unable to open. Noting that operators point to facility costs as the impediment, Sigmund says, "They simply cannot have a break-even school based on the amount of [facilities funding] available."

Minnesota. Minnesota's facilities aid currently provides charter schools 90 percent of their lease costs, up to a maximum of $1,200 per pupil. The requirement that charter schools contribute a share of their lease payments (i.e., the other 10 percent) is intended as an incentive to encourage them to look for reasonably priced facilities. When the state legislature enacted the per-pupil Building Lease Aid program in 1996, the cap was $1,500 per student, but it was reduced subsequently to the current level.19 According to an independent consultant on charter school facilities issues, Norman Chaffee, who formerly worked for both the Minnesota Department of Education (MDE) and the Minnesota Association of Charter Schools, this reduction resulted, in part, from a state budget crisis and from complaints from traditional public schools that the cap was too high. Chaffee says that, at around the time of the reduction, an MDE study found the debt service of all public institutions to be about $850 per pupil, significantly lower than the $1,500 per pupil that charter schools were receiving. To close the gap between the lease aid and debt service, a compromise was reached whereby charter schools that established leases under the $1,500 per-pupil cap would continue to receive that amount, while those approved to open in 2003 and after would be subject to the new $1,200 per-pupil cap.

Minnesota operates with a two-year state budget, within which the lease aid program is a line item for which a specific amount of money is allocated. The MDE bases its budget request for the program on the average per-student lease aid payments in the prior two years, combined with its projections of charter school enrollment for the next two years. In recent years, legislative appropriations have been sufficient to fully fund the amount for which each school qualifies. However, there have been years when appropriations were insufficient and per-student payments were reduced on a prorated basis. In theory, if budgeted funds proved to be insufficient due to changing circumstances (e.g., unexpected enrollment growth, dramatic marketwide increases in lease costs), the legislature could make a midcourse supplemental appropriation.

Jon Schroeder, cofounder and former director of the Charter Friends National Network and now a senior associate at Minneapolis-based Education Evolving, a nonprofit established to help public education nationally with reform efforts, says charter school supporters in Minnesota realize they have one of the more generous state facilities aid programs. He describes the state's lease aid program as "an important factor in the overall relative fiscal equity enjoyed by Minnesota charter schools." Even though Schroeder believes the maximum grant amount should be periodically adjusted for inflation, he says he is grateful that the state has stood by its fiscal commitment to charter schools. Norman Chaffee notes that the vast majority of charter schools take advantage of the state's lease aid program. Chaffee asserts that the state facilities assistance substantially covers lease costs and sees the program as having been crucial to the expansion of charter schools in Minnesota.

New Mexico. Under New Mexico's Lease Payment Assistance program, charter schools receive varying levels of per-pupil grants based on the square footage of their facility. Program funding comes from a capped annual appropriation in the state budget, with no built-in mechanism to adjust the total allocation available from year to year for charter school enrollment growth. Nor does it directly adjust for shifts in local market costs, such as the price of real estate or construction. But New Mexico has increased funding each year, the result being that the average per-pupil grant has more than tripled from the original $200 when the program was created in 2004. In school year 2007-08, the average grant was $700, and New Mexico Coalition for Charter Schools (NMCCS) has asked for $1,000 per pupil for school year 2008-09. Lisa Grover, executive director of the NMCCS, says that with actual lease costs ranging from approximately $1,100 to $1,300 per pupil, the current state funding offsets a large portion of the lease burden. NMCCS also reports being successful in having the program extended to 2020 from its originally scheduled sunset date of 2010.

Successful Efforts to Establish and Augment Facilities Aid:Arizona, Massachusetts, Minnesota, New Mexico, and D.C.

Many respondents from these five jurisdictions speak of having to overcome a high level of political resistance in order to create their facilities assistance programs and to maintain or increase the level of public support for charter school facilities aid. Collectively, they offer the following strategies, which they found to be effective in their efforts.

  • Educate legislative leadership. According to Marc Kenen, executive director of the Massachusetts Charter Public School Association, the key to implementing a per-pupil facilities allocation in the state and, then, to gaining subsequent increases in funding, is connecting with and communicating information directly to legislative leadership. Pivotal to success in Massachusetts, he says, was "being able to turn one or two key legislative leaders into charter school advocates—and that has paid dividends to us for many years."

  • Emphasize equity concerns for charter school students. Respondents in three of the five jurisdictions profiled in this section point to the importance of focusing on equity issues when seeking facilities funding.

    • Lisa Grover, executive director of the New Mexico Coalition for Charter Schools (NMCCS), says her organization takes an equity perspective when seeking support for the Lease Payment Assistance program, reminding policymakers that when charter schools have to divert instructional dollars to pay for facilities, students may not be well served. Noting this approach has been helpful in winning support from the governor and legislature in New Mexico, she adds: "Every session we hear from some legislators saying, 'We want to pull charter school [funding].' So we go back to, 'Why are we pulling [money] for charter school kids? Should we pull [the funding] for the rural students? Should we pull money for students in high-growth areas?'" Noting that it took two years for New Mexico to pass the lease assistance legislation, Grover says that justifying the need for it in equity terms was ultimately effective in moving policymakers to support it.

    • Grover's views are echoed by Jon Schroeder, a senior associate at Minneapolis-based Education Evolving. He says the most effective strategy for overcoming resistance to charter school facilities support has been to educate legislators about the realities of charters, letting them know that some charters in Minnesota have been in "pretty inadequate space because they couldn't afford better." Then, he says, it's a matter of reminding them that "it's a matter of equity and it's about the kids....Our charter school students here tend to be disproportionately lowincome, students of color, English language learners, and special education students. So why shouldn't those students have the same money following them, including facilities, as [do the students in] the district system?"

    • Robert Cane, executive director of Friends of Choice in Urban Schools (FOCUS), describes a strategy his organization uses in Washington, D.C., to educate those who make funding decisions. He indicates that FOCUS takes charter school parents and students to city council meetings and hearings to talk about their facilities. In essence, he says, they have created a public relations campaign "trying to get people to understand that there is a good reason for [trying to establish] equity."

    • Include provisions especially advantageous to charter schools in legislation that benefits all public schools. Another strategy that has been effective in New Mexico, according to Grover, is to put forward proposals for which all schools are technically eligible, but which are especially beneficial to charter schools. New Mexico's lease assistance program was crafted as part of a capital omnibus bill (i.e., wrapped up with other funding for public schools) because the NMCCS gauged that the funding program would not pass as a stand-alone bill. This grant program is open to all public schools, but 97 percent of the schools that take advantage of it are charters.

Determining Degree of Flexibility in Use of Facilities-related Aid

State policymakers who are designing policies to offset charter school facilities costs also need to consider how flexible or restrictive they want these policies to be. Will the monies be provided as a categorical funding stream, available only for facilities costs, or will they be more flexible? Will charter schools be restricted to using facilities aid only for leases, or be allowed to use this revenue to purchase or improve their buildings?

Providing Greater Flexibility

Arizona and Washington, D.C., offer fungible assistance to charter schools. This funding is intended primarily to offset expenses associated with facilities, but schools are given the discretion to use the money as they deem necessary for education purposes. In addition, this flexibility may encourage charter schools to be economical with facilities expenses, since they can use leftover funds for other purposes. However, Massachusetts, Minnesota, and New Mexico offer categorical facilities aid (i.e., aid that may be used only for facilities). In the latter two states, the laws governing this aid further restricts it to covering lease costs rather than purchase, construction, or mortgage repayment costs. Notable aspects of the policies of the states mentioned above that may be useful to policymakers as they consider enacting or amending facilities aid legislation are discussed further below.

Arizona's charter law explicitly makes charter school aid flexible. It stipulates that funds intended to offset the facilities costs of charter schools be included in general state aid without categorical distinctions between operations and capital. This aid for Arizona public schools (both charter and traditional) is called "equalization assistance." For charter schools, the aid consists of a "base support level" and "additional assistance," which is intended to fund charter schools' capital expenses and transportation.20 Charter schools receive this assistance as a per-pupil allocation that can be spent as a school sees fit.

According to Jay Kaprosy, former legislative liaison for the Arizona Department of Education and currently assisting ACSA with government relations, when the original charter school legislation was enacted in 1994, there was support for creating flexible funding mechanisms for the schools because they were seen as "laboratories of change." Subsequent amendments adopted since have been aimed at increasing that flexibility. Kaprosy says the most notable change came with the consolidation of four funding categories—three for capital and one for transportation—into a single and flexible lump sum per pupil, absent any operational or capital distinctions.

Kaprosy adds that the equalization assistance has been a key tool for providing charter schools with increased operational flexibility. Allowing charter school operators to use funding dollars as needed, he argues, permits them to run the schools as businesses and to make decisions that are in the best interest of the students and families they serve.

Similarly, in Washington, D.C., the School Reform Act of 1995 gave charters the discretion to make decisions about how to use their Facilities Allowance. According to Robert Cane, executive director of FOCUS, the statute specifies that charter schools and their boards have "exclusive control" over expenditures, administration, personnel, and instructional methods, within specified limitations.21 Charter administrators, says Cane, use this statutory language (i.e., "exclusive control over expenditures") to justify their right to direct per-pupil facilities assistance as they deem necessary. In Cane's view, the advantage of funding that can be used in multiple ways is that some charters use their entire facilities allowance on their buildings, while others "put some of that money aside to help develop their balance sheets." 22 Cane explains that charter schools typically start out by leasing space when enrollment and revenue are low, with the ultimate goal of purchasing and moving into a larger or permanent facility as they grow. The ability to save some of their facilities aid allows charter schools to build an asset base (i.e., develop a balance sheet), thus making it more likely that lenders will finance future facilities purchases.

Imposing Restrictions on Use of Facilities Aid

Other states have taken a more restrictive approach. In Minnesota, state legislators stipulated in the Per-pupil Building Lease Aid program that charters are prohibited from purchasing or owning their buildings. Schroeder recalls that when the original charter legislation was passed, facilities financing was barely considered. In other parts of the country, legislators assumed that charter schools would finance their facilities out of their operating revenue. Early on, Schroeder says, "There was really a feeling that this was a new form of public education—untested—and that, particularly until it got established and was proven permanent and sustainable, [the state] didn't want to get into [the] business of being a landlord" that would have to dispose of assets if charter schools closed. Thus, the state staked out the position that charters could not use public funds to buy buildings, and it initially provided no explicit funding or financing for facilities. Even when the burden of facilities costs for charter schools quickly became apparent and the state enacted its lease aid program, it stood by that original position, specifically prohibiting public funds from being used to purchase or build a facility.

According to consultant Norman Chaffee, this prohibition poses a challenge to Minnesota's charter schools as they strive to buy or to pay for needed improvements in buildings they lease. Unable to use the lease funds, they either have to divert money from operational revenue, raise new money, or find creative solutions. One such solution is for a charter school to establish a partnership with a nonprofit building corporation or to create its own nonprofit building corporation. Using this strategy, the building corporation buys and improves a facility for the school and, in turn, the charter operators pay their state lease aid to the building corporation as rent payments. Chaffee says some 20 to 30 percent of charter operators across the state (approximately 30 to 40 schools) are moving in this direction. However, the basic policy debate around whether charters should be allowed to use state aid to construct or improve buildings has not been resolved yet.

A Closer Look at Direct Cash Assistance Friendship Public Charter School, Washington, D.C.

Since it was founded in 1998, Friendship Public Charter School has used a variety of funding sources to renovate and operate its five school facilities in Washington, D.C.

To renovate its first four campuses in preparation for opening them between 1998 and 2005, Friendship School sought financing through Edison Schools, a charter school management company, and Bank of America. In 2003, the school borrowed nearly $45 million through the District of Columbia's tax-exempt revenue bond program to improve its school buildings (including constructing a new addition to one), invest in information technology, and repay its loans to Edison and the bank. Three years later, Friendship School obtained another $15 million through the bond program. These funds were intended to pay for new construction and improvements to a fifth school, as well as new technology, fixtures, furniture, and equipment.

Like other charter schools in Washington, D.C., Friendship School receives substantial assistance from the District's facilities allowance of $3,109 per pupil. This allowance is one of three per-pupil grants the school receives from the District government (it also receives a base allotment and a special education allotment). The facilities allowance is generally intended for facilities costs, but schools are given considerable discretion over how it is spent and can, if needed, also use the funds for educational programming. In the case of Friendship School, virtually all of these funds have been needed to cover the full cost of facilities—including loan payments, utilities, maintenance, repairs, and replacement reserves.

According to the schools' operators, this direct cash assistance is a reliable and painless source of revenue. They receive payments on a regular basis and are given relatively wide latitude in how they spend it. The only drawback, Friendship School operators say, is that there is no guarantee that the allowance will be maintained indefinitely at the same or a higher level. (There is a mechanism to adjust for rising capital costs from year to year, but some District council members have suggested that these payments should be capped over the long term, rather than continuing to increase along with the per-pupil capital investment in other District public schools.) This lack of certainty makes the schools somewhat less attractive to lenders or investors who would prefer to see that stream of funding locked in place.

Overall, however, the direct assistance is an invaluable asset for Friendship School and its operators are hardpressed to say how they would cover their facilities expenses without it. By covering (or substantially offsetting) facilities costs, this direct assistance provides the organization with a basic level of financial security that charter schools in many states do not have. Moreover, it has allowed Friendship to build up equity to serve as valuable collateral, making it easier for the organization to borrow millions of dollars from bond investors.

Friendship Public Charter School: Selected Statistics

Source: Data in first six columns are from "Appendix A: Friendship Public Charter Schools Inc.: General Information," in untitled Friendship School bond transaction document. Information in last column is from District of Columbia Public Charter School Board, School Performance Reports (December 2007).

Year Opened Grade Levels Number of Students Number of Campuses Student Ethnicity Special Education Free and Reduced-Price Lunch
1998 Pre-K-5
Pre-K-8
6-8
9-12
K-8
3,830 total in all 5 schools 5 95% African- American across all 5 schools 5.7% in grades K-5 and 9.8% in grades 6-12 across all 5 schools 66% across all 5 schools

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Last Modified: 02/05/2009