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NOTICE: The Charter Vision project is dormant as of January 2008. This website is provided for archival purposes only.

Paying for the Charter School House

One of Minnesota’s most important contributions to the charter idea nationally is its “Building Lease Aid Program.” First adopted in 1996, this program now provides as much as $1,500 per student per year for charter schools to cover up to 90 percent of their eligible lease expenses. Over the last four years, the average per pupil lease aid payment has been about $1,100. In 2003 — as part of overall state deficit reduction — the maximum payment for new schools and newly negotiated leases was reduced to $1,200 per student. But the $1,500 maximum payment still applies to schools that had long-term leases in effect at that time.

This additional cash flow for charter facilities has sent a strong signal to the financial community that charters are an acceptable risk for tax-exempt bonds and other forms of long-term facilities financing. At present, about a dozen Minnesota charters have now accessed tax-exempt revenue bonds to build or buy facilities.

Because Minnesota law prohibits charter schools from using state funds directly to buy buildings, these bond sales have required creation of separate non-profit corporations that actually own the buildings and lease them to affiliated schools. The schools’ lease aid payments are then used to pay rent to the building corporations, which use those funds to pay off the bonds.

Even with last year’s reduction in the maximum payment, Minnesota’s lease aid appropriations are about $17.1 million in the current fiscal year, rising to $21.0 million in 2005. This level of spending is expected to increase in 2006 and beyond with as many as 40 new schools expected to open in the next two years.

Not surprisingly, biennial state appropriations earmarked for lease aid are a vulnerable target for charter school opponents. To address concerns about rising appropriations, charter schools are now proposing repeal of the state’s current prohibition on charter schools using public funds to buy buildings. For many charter schools, being able to gain equity in a building will reduce the state’s facilities costs over time. And removing the current ban on direct ownership will eliminate the need for and cost of parallel non-profit building corporations.