Solving the charter facilities conundrum

Charter school students deserve every opportunity to learn in facilities built to meet their needs. Sadly, however, many of them attend schools lacking the amenities that parents normally expect—things like playgrounds, gymnasiums, science labs, and cafeterias. Most Ohio charter students, as a 2016 report finds, learn in cramped spaces that are smaller than the state’s recommended guidelines.

Charter schools’ inadequate facilities are the result of deficient policies. A January report released by former Auditor of State Dave Yost highlights the challenges facing charters—and the lengths to which some go to secure facilities. The auditor issued this “public interest report” in response to complaints about the leasing agreements of Ohio charter schools affiliated with the Concept, Imagine, and National Heritage Academy management companies. But before diving into the particulars of these cases, the auditor’s report lays out four facility barriers facing charters:

1. Charters don’t have the same levers as school districts to raise money for facilities. Unlike districts, charters cannot ask local taxpayers to support bonds that provide the tens of millions needed for capital projects. Moreover, charters cannot access the state’s major school construction programs that have disbursed billions in state aid over the past two decades.

2. Unlike districts, charters can be closed for academic underperformance. The risk of closure due to fiscal stress is also a possibility, as Ohio charters receive significantly less funding than nearby districts. These realities limit access to credit markets because lenders may be unwilling to loan millions to schools that could close before the dollars are repaid.

3. Districts are often reluctant to offer unused space to charters. As the auditor notes, Cincinnati Public Schools used to put deed restrictions on disposed properties that prohibited charters from using them. The Ohio Supreme Court stopped that practice, but stories from Cleveland and Columbus suggest that districts still sometimes take steps to deny facilities to charters.

4. The state provides austere charter facility support. The auditor’s report notes the $200 per-pupil allowance for charter facilities—which covers just a fraction of maintenance and leasing costs—and a modest $25 million grant that has supported renovations in a dozen or so schools. Yet beyond this there are no other state aid programs that support charter facility needs.

Taken together, these policies force charters into less conventional facility arrangements. The figure below shows that the vast majority of Ohio charters rent space, which the report attributes to difficulties in obtaining financing or grants. Less than 20 percent of charters have cobbled together the funds needed to purchase a facility. Some of these fortunate schools have already become pillars in their community, and with a building of their own, their prospects for the future are bright.

Figure 1: Charter school facility arrangements

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While there is nothing inherently wrong with leasing space, the auditor’s report also describes the questionable leases of nine Ohio charter schools. These schools entered into unfavorable leases with real-estate firms tied to their management companies. As one of the few (if not only) suppliers of a viable facility, the management company held tremendous leverage over the school boards—and won leasing terms reflecting that power. The charter boards couldn’t easily walk away from the management company offer—no matter how bad the terms—and pursue other avenues.

This situation raises several concerns. First, the expensive leases—in some cases, roughly double the market rate—eat into the resources available for classroom instruction. Second, the high rents raise worries that taxpayer money is inappropriately benefitting real estate firms instead of schools. Third, leases such as these weaken charter school boards’ ability to sever ties with poor-performing management companies, as doing so could result in the school losing its building.

Fortunately, there are ways to fix this. Ohio has already undertaken serious reforms aimed at curbing these types of abuses, and the auditor offers additional suggestions—most notably, subjecting leases to competitive bidding.[1] Yet as the auditor recognizes, regulation alone can’t solve charters’ broader facility challenges. To this end, Ohio should pursue policies that would better enable charters to obtain suitable spaces at affordable prices. The most critical include the following three.

Strengthen state supports. Because charter schools lack access to local taxpayer support, the state needs to step up and support charter facilities. With only a meager $200 per-pupil facility reimbursement, charters have to use operational dollars—already stretched thin by inequitable funding—to pay for things like maintenance, utilities, and rent. Charters shouldn’t be forced to dip into instructional dollars just to make ends meet, and Ohio should increase the amount of dedicated facility funds to one that more closely matches the cost of maintaining a building. At the same time, legislators should also re-appropriate funds for the Community Schools Classroom Grant, so that more charters can undertake capital improvement projects.

Create a credit-enhancement program. To improve charters’ access to credit, Ohio should implement a “moral obligation” program. Already adopted by Colorado, Idaho, and Utah, this program would allow qualifying charters to use the state’s superior credit rating when seeking debt financing for capital projects, enabling them to secure funds at lower interest rates and save thousands of dollars over the life of a loan. Should a charter default, the state would pledge—and this is the moral obligation—to repay lenders. (Participating Colorado charters also cover some of the costs by paying into a reserve fund.) Ohio already has a loan guarantee program on the books for charters, but there is no evidence of use, nor any money appropriated to support it. To jump-start state backing for facility purchases and capital improvements, legislators should revive this law by appropriating reserve funds, increasing the amount of liability that the state can back, and allowing qualifying charters to substitute the state’s credit ratings when seeking loans.

Encourage use of underutilized buildings. Mothballed schools that have already been paid for by taxpayers are an obvious solution to charter facility woes. While Ohio does have a “right of first refusal” law, policymakers should go further to ensure districts actually make space available to charters. To do this, Ohio could take a cue from Indiana and publish a list of unused buildings that charters can potentially buy or lease. State lawmakers could also consider California’s approach, which requires districts to make underutilized space available to charters. This could encourage co-location in half-empty buildings, which can benefit not only charter students, but also pupils attending district schools. Given demand for facility space, there is no reason that any publicly financed building should go vacant or underutilized.

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Cramped classrooms and dubious leases are symptoms of Ohio’s inadequate charter facility policies. To ensure that all charter school students have the opportunity to learn in spaces built for learning, legislators should work to cure the underlying disease.