Charter Schools:

Limited Access to Facility Financing

HEHS-00-163: Published: Sep 12, 2000. Publicly Released: Oct 12, 2000.

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Cynthia Maher Fagnoni
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Pursuant to a congressional request, GAO provided information on the financing of facilities for charter schools, focusing on: (1) the degree to which charter schools have access to traditional public school facility financing; (2) whether alternative sources of facility financing are available to charter schools; and (3) potential options generally available to the federal government if it were to assume a larger role in character school facility financing.

GAO noted that: (1) charter schools generally do not have access to the most common source of facility financing for public schools--muncipal bonds; (2) charter schools are frequently not part of a local school district and generally have no authority to raise taxes or issue tax-exempt bonds; (3) charter schools that are a part of a local school district might not share in local or state school construction funds because they must compete with other public schools that have their own construction or renovation needs, and local opposition to charter schools sometimes hinders the sharing of funds; (4) state charter school laws vary, and few of them address facility financing or provide funding for constructing, renovating, purchasing, or leasing buildings for use by charter schools; (5) several sources of facility financing exist for charter schools, including the allocation of education funds from the state, loans, and private donations; (6) however, these sources may not be adequate to cover costs or are not widely available to charter schools; (7) the most frequently used source of facility financing for charter schools is the per pupil funding allocation that a state or school district provides for operating public schools (including charter schools); (8) loans are not easily accessible or frequently available to charter schools for facility financing; (9) most charter schools are considered credit risks because they have poor cash flows, lack a long credit history, have short-term charters, or lack business skills; (10) few charter schools have been successful in obtaining a facility from a private donor and surplus buildings that can be made available by local districts free or at reduced rent either need expensive renovations or simply do not exist; (11) if the federal government decides to assume a broader role in financing charter schools facilities, various mechanisms are available; (12) they include grants, direct loans, loan guarantees, loan pools, tax-exempt bonds, and tax credits, each of which could have different fiscal and programmatic implications for the federal government; (13) regardless of the funding mechanism used, all will require federal expenditures and most would add to the role that the federal government has indirectly played in public school construction through the tax code; and (14) moreover, increased federal assistance would change the nature of the federal government's relationship with traditional and charter schools as well as with the local and state governments that are primarily responsible for purchasing, constructing, renovating, and leasing school buildings.

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