The Bond Buyer reports that charter schools in California are seeking access to bonds for school construction, putting them into direct competition with public schools for the same money. Public schools have the advantage of stability and longevity; charter schools come and go with frequency. Public schools have higher bond rating than charter schools. Caprice Young, quoted in the article below, is a former president of the California Charter School Association, a powerful and wealthy lobby, and she now is CEO of Magnolia charters, which is part of the Gulen (Turkish) school chain.
The Bond Buyer reports (behind a pay wall):
LOS ANGELES — As California charter school enrollment has increased, so have conflicts over their access to school construction bond funds.
Enrollment at charter schools increased from 3.4% of the state’s K-12 population in 2005-06 to 9.2% in 2015-16, according to an Aug. 2 report from the state Legislative Analyst’s Office. The number of schools has grown from 560 to 1,207 over the past 10 years, according to the LAO report.
Some of these conflicts over state and local bond funds have come to the fore in Southern California, home to a large share of the state’s charters.
Rather than being subject to a state-oriented compliance-based accountability model, charter schools develop local charters, which are legal agreements between schools and their authorizers, and must comply with the terms of their charters, according to the LAO report.
The schools are exempt from most state regulations, but must meet three basic state requirements: provide nonsectarian instruction, charge no tuition and admit all interested California students up to school capacity.
Increases in charter school enrollment and declines in birth rates have caused Los Angeles Unified School District’s student enrollment to fall to 542,000, a 100,000 drop in a six-year period, according to school district figures released last year following an independent audit.
Charter schools were designed to offer parents an alternative, but in California, they fall under the jurisdiction of the school district in which they are located, which loses state per-student funding for each student that enrolls in a charter.
There has been friction between the district and charter schools over bond funding.
Los Angeles Unified officials say there is a level playing field, but charter school advocates disagree.
A district spokeswoman pointed to three school buildings occupied by Aspire charter schools. The buildings are brand new construction among the 130 new school buildings that have risen on school district property.
The school that Aspire Juanita Tate Academy occupies was built using $33.8 million of the district’s Measure R and Measure Y bond money, from voter approved measures that authorized a combined $7.855 billion of general obligation bonds.
The remaining $30.3 million came from grants funded by state general obligation bonds.
Aspire Firestone Academy and Aspire Gateway Charter Academy’s school buildings — both located on the same campus — were built using $59.5 million of the district’s Measure R, K, and Y money, local bond measures that together authorized $11.2 billion of debt. They also used $25.9 million from state bond funds.
None of the above Aspire schools were built using what the district calls the Charter School Bond Allocation, according to Los Angeles school officials.
The California Charter Schools Association filed a lawsuit against LAUSD on January 11 claiming that the school district has reduced an agreed upon allocation amount from 2008’s $7 billion Measure Q. The petition for writ of mandate asked Los Angeles Superior Court to compel LAUSD’s compliance with the California Public Records Act and void the school board’s decision to cut $88 million dollars from the charter school facility allocation under Measure Q.
The actual 2008 bond measure did not include a dollar amount for the charter school allocation, according to Emily Bertelli, a CCSA spokeswoman. But a separate document adopted by LAUSD’s board at the same time said that it would allocate $450 million to charter school projects – and they have since reduced that funding allocation more than once, she said.
In November 2015, CCSA sent a letter to the LAUSD board objecting to another reduction and requesting records justifying the reduction and showing how bond proceeds have been spent for charter schools. That day, LAUSD cut $88 million dollars from Measure Q for charter facilities, reducing the funds allocated for charters to $225 million and breaking its commitment to voters, according to a case summary on CCSA’s website.
“We have only just started to issue Measure Q bonds,” said John Walsh, LA Unified’s deputy chief financial officer. “We have issued just south of $650 million – and it is a $7 billion program. We don’t just earmark the first $450 million to go to charter schools.”
The language of Measure Q does say money will be allocated for charter schools, Walsh said, though not a specific amount.
Under the state’s 2000 Proposition 39, which allowed the state’s school districts to pass bonds with a 55% voter approval rate instead of the previous two-thirds threshold, districts were mandated to offer unused space at schools to charter schools.
“There are ways that we have used bond funds through the district’s facilities program to the advantage of charter schools,” Walsh said.
Allowing Aspire Schools to occupy the new buildings is one example of that, according to district officials.
L.A. Unified doesn’t approve a pot of money for charter schools, but handles funding on a project-by-project basis, Walsh said.
The danger for charter schools is that its relationship with a school district depends on the make-up of the school board.
There is an issue around competition for students, said Caprice Young, chief executive officer of Magnolia Public Schools, which operates ten independent charters.
“We have been thankful in California that we have a great partnership with the state treasurer’s office, which allows us to issue bonds that are tax-exempt,” said Young, who served on the Los Angeles Unified school board from 1999 to 2003 before founding the California Charter School Association in 2003.
Charter schools can issue revenue bonds through the California School Finance Authority, a conduit issuer that falls under the umbrella of the state treasurer’s office. School districts can also share the proceeds of general obligation bonds issued for school construction.
“With CSFA we pay for the bonds out of operating funds and that can be a lot more expensive,” Young said. “If we are given access to San Diego or Los Angeles GO bonds, there is a revenue stream from property taxes that we don’t have availability to. It cuts out a huge portion of public schools when we are not included.”
When school districts tax the public to create school facilities, charter schools should be included, Young said.
“And the way dollars are allocated needs to be fair and reasonable,” she said.
The difference in interest rates from issuing charter school bonds, which are typically rated BBB at the highest, and more often below investment grade, tend to be more in the 7% to 9% range versus the low 1% to 3% interest rates that LAUSD and SDUSD GOs are pricing at in today’s low interest rate environment, she said.
More than 60% of charter schools and charter school enrollment is in Los Angeles County, the San Francisco Bay Area, and San Diego County, the LAO report said.
In the San Diego Unified School District, enrollment has stabilized at around 132,000 since 2007-08, but that is down from its peak of 142,260 in 2001-2001, according to district documents.
San Diego Unified has been largely a benevolent partner to its charter schools, charter school advocates said, though CSMA filed a lawsuit against that district too, at one point.
San Diego schools designated $350 million from its $2.8 billion Proposition Z of 2012 for charter school construction. “Facilities are a major challenge for all schools, but they are a particular challenge for charter schools,” said Miles Durfee, Southern California regional director for the California Charter Schools Association.
The law states that charter schools should get an equitable share of all bond issuances, Durfee said.
When Proposition Z passed, charter schools made up 12.5% of San Diego’s enrollment, but enrollment has grown to 15%, Durfee said. He thinks charter school’s share of the Proposition Z money should also grow. The percentage change would give charter schools an additional $20 million.
The language of Proposition Z says the percentage dedicated to charter schools could be reevaluated , but the language of the bond measure does not indicate a time frame, according to San Diego school officials.
Durfee said $40 million of the charter school allocation of Proposition Z has been spent on projects that are underway or almost complete and $304 million has been allocated to charter schools, but not spent. That leaves $6 million of the charter school pot not dedicated to a project.
That leaves San Diego charter schools that want to expand without many options.
The district established a Charter Schools Facilities Committee to advise on projects proposed by individual charter schools prior to consideration by the Board of Education.
Local charter school leaders help determine the best use of capital resources to address the facilities needs of local charter schools, according to San Diego school officials. Additionally, a representative of the charter schools is a member of the Independent Citizens’ Oversight Committee for the bond program.
Unlike traditional schools, if a charter school faces a financial crisis it doesn’t get bailed out by the state; it just closes, Young said.
“Charter schools have to be nimble and they have to have balanced budgets, which isn’t the case for traditional school district schools,” Young said.
A charter school has to purchase a property immediately after it identifies it as a good location, and build right away, Young said.
“If we don’t buy the land, someone else will,” Young said. “If we don’t build right way, we have an operating expense that is not being offset by revenues from students.”
A charter school does not have the luxury that a district has to take its time acquiring a property and then take years to build a school, Young said. If it operated in that manner, she said, a charter school would close.