Innovations in Education: Making Charter School Facilities More Affordable: State-driven Policy Approaches
December 2008
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Legislative Efforts to Improve Affordability

Lawmakers in several states and Washington, D.C., have enacted policies intended to broaden charter schools' access to affordable financing options. Although there are significant overlaps, generally speaking, most fall into one of two categories: the first category relates most directly to making affordable financing more easily available to charter schools, and the second focuses on addressing lenders' concerns about the risk of investing in charter schools, thereby encouraging investors to loan money at lower interest rates.

Efforts aimed at improving affordability and accessibility include:

  • Authorizing tax-exempt conduit financing, which allows charter schools to indirectly issue tax-exempt bonds;

  • Allowing charter schools to participate in the federal bond program, Qualified Zone Academy Bonds, that pays investors with tax credits rather than interest; and

  • Setting up low-cost loan programs for charter schools.

Policy efforts aimed at increasing the affordability of financing for charter school facilities by making investments less risky include:

  • Allowing school districts to incorporate charter facilities in their own tax-exempt, general obligation bond requests to voters;

  • Giving charter schools access to a moral obligation provision for their bonds, which adds security to a bond;

  • Creating an intercept mechanism through which part of a charter school's per-student state revenue can be diverted directly to pay lenders;

  • Giving charter school operators access to a debt-service reserve fund; and

  • Clarifying charter schools' "public entity" status to help ensure their ability to pursue litigation if the operators believe their charter has been unreasonably cancelled or not renewed.

All of these policy strategies are discussed below.

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Last Modified: 02/05/2009