Charter School Real Estate?

Do charter schools make money off their real estate at the expense of taxpayers?

This question is actually based off a few assumptions. The first assumption is that charter schools own their real estate (the physical building and land), when in fact very few startups have the capital to purchase land, or even a building, and are forced to rent from the district or a private entity (often a church with plenty of space on the weekdays). But let’s assume a charter school was able to purchase its building and land, just for the sake of argument. The second assumption is that charter schools that own their own land somehow charge exorbitant rental rates to the LEA and “make money” off that. This is completely false, mainly because the amount that a charter school receives as part of its “capital outlay” funding is paltry, it is always less than the district, and in some states like Texas, charter schools do not receive any capital outlay funding at all. The final assumption is more of a belief among people unfamiliar with the topic, and that is the belief that charter schools purchase their land and buildings up-front with taxpayer dollars. This is also untrue. Very few organizations can purchase a $2 million piece of property outright (a nice gymnasium alone costs that much). Charter schools go through the same bonding process as all municipal entities, and in fact, landed and successful charter school operators have an investment grade rating, meaning they frequently get lower interest rates than the district itself. These established charter operators are actually using less taxpayer money than the district to build better and newer facilities.

The real question here is this: “Is it true that privately managed charter schools use part of their public money to pay for property that will eventually belong to the school and not the public sector?” This question is better worded than the loaded one above, but also invites a barrage of criticisms from anti-Choicers. The irony here is that they are, in a way, correct: charter schools are paid through public funds, and a portion of those funds can (in some states) be used toward their real estate, which does not technically belong to the public sector; rather, it belongs to the chartered entity that signed the lease and is involved in the bonding process.

But, as usual, we must then ask a few important questions. First, how much is it costing taxpayers for a charter school to bond the deal compared to if the district did the same thing? Besides the lower interest rate for established charter operators, we tend to forget that charter schools are on a very strict budget, even if it is public money. It’s not as if these schools are given a blank check, otherwise you’d see lavish charter schools all over the place. Instead, you see tiny charter schools in shop fronts, or at best, in old district buildings. Only the most successful charter managers can afford to take out a loan for a multi-acre plot of land with a brand new 50,000 square foot building on it. Even then, these operators are shopping relentlessly for the lowest price possible, and taking numerous bids and negotiating the price down to something manageable.

Some may think it unfair to say this, but public schools are not held to the same fiscal accountability, and no-bid contracts are very common. Moreover, public schools will buy land based on need, not based on the market, so public school systems that need a high school on short notice will shell out $50 million, while a charter school recognizing need for a high school will try to make ends meet until an affordable opportunity presents itself. A single Google search on district overspending turns up a depressing number of examples: Seattle in 1996; Missouri in 2010; and more recently, New Orleans and North Dakota in 2012, and Massachusetts and Ann Arbor, MI in 2013.

Second, what is the relationship of the charter school to the taxpayer? Charter schools are basically just outsourced public schools, so taxpayers are essentially purchasing a service from the charter operator. That service is education, and the school building is part of that education. For someone to claim that it’s unfair for a charter school to use tax money to go toward a building that is being used by the taxpayers’ own children is just as unfair. The alternative would be for the district to own it, but in the event the charter school closed the district would be stuck with an empty building to maintain. Chicago and DC are good examples of districts that went over enrollment cliffs and were stuck with millions of dollars of empty real estate. Public districts actually stand to make a lot of money from selling land to private operators; so much money, in fact, they are being encouraged to do so in some states, especially for those properties that have been a part of their physical portfolio for years and remain unoccupied.

Finally, given that charter schools run a tighter and cheaper ship than public schools on a month-to-month basis (mainly because they have to), the real dilemma at hand here is what happens when the land/building is paid off? Rent is no longer an issue, so capital outlay payments could either stop altogether (if the state law is written that way) or diverted to some other aspect of school operation. What critics of capital outlay funding appear to be worried about is that the charter school will simply let the school slide into operational disarray and pocket the capital outlay. A blood-sucking tactic to be sure, but this makes no sense at all because a poorly performing school would risk losing students and, therefore, the very lifeline that keeps the school there. Why would a charter operator want to endanger the only form of revenue it has just because it happens to own the land? If anything, physically owning  the charter school creates more incentive for a school to do well, otherwise the charter operator is left with an empty building and paying property taxes on a useless plot of land.