Charter school building costs draw lawmakers' attention

Saint Paul, Minn. -- As the budget squeeze intensifies at the State Capitol, lawmakers are taking a harder look at how some charter school buildings are financed. At issue are lease-aid payments to charter schools, which have grown at a rapid clip in the past decade.

"These are taxpayer dollars," Sen. Kathy Saltzman told KARE Tuesday, "And when an interest rate is higher, or when the payback is longer it's costing us more as a state."

Charters schools, publicly financed schools that operate independently of traditional districts, are not allowed to own their own buildings.  Legislators designed the system that way 20 years ago, so that the experimental new education centers could focus more intently on curriculum.

The state's 153 charter schools do receive up to $12,000 per month in lease aid payments from the state.  Most lease space in structures that were already built, and in some cases were designed for other purposes.

Others, including Saint Croix Preparatory Academy in Washington County, were able to get custom-built schoolhouses by using a creative financing method. School supporters formed an "affiliated building company" to finance and erect a building, which is then leased back to the academy.

"There's not a lot of space out here in Stillwater," St. Croix's executive director Jon Gutierrez told KARE, "We even approached the local district to see if they had any space available, and they didn't. So really this was the only option for us."

Gutierrez said that St. Croix moved from one leased space to another for six years, as enrollment grew from 200 to 900 students grades K through 12.  This fall the school moved into the new 100,000 square foot building, on 58 acres in Baytown Township south of Stillwater.

Because charter school boards have no taxing authority, St. Croix Prep's building company paid for the structure by issuing $21 million in bonds.  Those bonds will carry higher interest rates than traditional public school and municipal bonds. That will translate to higher financing costs over time, and stretch out the number of years the state will make lease-aid payments.

That's why Sen. Saltzman is seeking more controls on the financing process for built-to-order charter school buildings.

"In the long-term is there a different way to fund these?" Saltzman asked rhetorically, "The higher interest rates, the longer payback, the payouts to insiders are very troubling."

Gene Piccolo, who heads the Minnesota Association of Charter Schools, joined Saltzman at a Capitol news conference Tuesday, pointed out that not all charter schools with building companies issued high-interest bonds.

"Some of these schools used traditional financing methods, such as traditional mortgage loans from banks," Piccolo remarked.

He also reminded reporters that last session's education bill for the first time acknowledged the existence of affiliated building companies and make them subject to open records laws.

At the same time Piccolo said his organization wants to work with Saltzman to come up with solutions to curb the growing cost of lease-aid payments.  He said one idea would be to require school districts to make their vacant buildings available for lease to charter schools.

"And yet some districts have policies where they will not lease to charter schools," Piccolo told reporters, "We think when a building's already been paid for by taxpayers, and another public institution wants to utilize that, why should we have these policies?"

The Minneapolis Public Schools has received permission from the legislature last session to start so-called "site governed" schools, designed to have much of the same innovation of charter schools but still have a degree of oversight by the Minneapolis Board of Education.

It new model would also keep the state per pupil student aid flowing through the district, which has already lost significant amounts of state funding due to students transferring to other districts via the school choice law.

Another suggestion floating out there, according to Piccolo, would be to allow charter schools to own their buildings.

"The concern there is what happens if a charter school closes and the bonds aren't paid off for the purchase of the building," Piccolo said, "How do you assure the public does not pay, then, the liability of that?"

At Saint Croix Jon Gutierrez said charter schools are open to any idea that will streamline the process of getting space that suitable to their needs.

"For us, frankly, if there's an easier way to do it and the legislature can provide another mechanism for us," he said, "We'd all be willing to be part of those conversations."

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