The Credit Enhancement For Charter School Facilities Program PDF Download

The number of charter schools has grown rapidly from 250 in 1995 to about 4,000 by 2007, now enrolling more than 1.1 million students in the United States. Charter schools face many challenges when they attempt to purchase or lease permanent facilities and frequently operate in temporary space that is poorly suited for delivering educational services. Unlike regular public schools, they typically do not have separate facilities funding from their school districts. Moreover, charter schools generally cannot issue bonds backed by property taxes to finance facilities. Finally, since charter schools often lack tangible assets and an operating history that could be used to support a loan application, securing facilities financing may be particularly problematic. In response to this problem, the U.S. Department of Education established the Credit Enhancement for Charter School Facilities Program, which makes available grants on a competitive basis to eligible entities which use Program funds for credit enhancements so that lenders will make loans for: (1) Acquisition of an interest in improved or unimproved real property that is necessary to commence or continue the operation of a charter school; and (2) Construction of new facilities, or the renovation, repair, or alteration of existing facilities, necessary to commence or continue the operation of a charter school. The purposes of this study are to describe how the Grantees implemented their activities, as outlined in their Program document. Findings include: (1) the Program provides for improved access of charter schools to capital markets for facilities (Credit enhancements funded by the Program reduce lenders' exposure to losses in the event that a charter school defaults on its loan, improving charter schools' access to capital markets and resulting in more lending than would have occurred without the Program); (2) the Program provides for better rates and terms on financing than would otherwise be available for the charter schools served by the Program Grantees (Many of the assisted schools, according to representatives of Grantees, commercial lenders, investment banks, and rating agencies, would not have received facility loans at any price before the Program, because lenders believed that these schools reflected a prohibitively high level of risk); (3) Results regarding the differences between a Vertically Integrated model and a Fully Distributed model of service are preliminary: analysis does not provide conclusive evidence that favors one model over another, but data suggest that both models of service play a significant role in facilitating capital investment in charter schools that otherwise would not be able to secure conventional financing (lending volume to date may be lower for Grantees using a Vertically Integrated model of service, but they appear more willing to serve slightly more risky charter schools than those supported by the credit enhancements provided by Grantees using a Fully Distributed model); (4) Grantees used selection criteria to choose assisted schools that include: extent to which the applicant selects geographic service areas in which a large proportion or number of public schools have been identified for improvement, corrective action, or restructuring; extent to which the applicant selects geographic service areas in which a large proportion of students perform below proficient on state academic assessments; and extent to which the applicant selected communities to serve with large proportions of low-income students; (5) Based on a review of loan-level data and information provided by Grantees and assisted schools, there was evidence that Grantees are using innovative methods, especially related to helping charter schools borrow directly from private lenders; and (6) Overall, the Grantees and assisted schools were highly positive about the Program and believe that it is making a difference in the market. Five appendixes are included: (1) Glossary of Terms; (2) Interviews Conducted; (3) Discussion Guides; (4) Characteristics of Census Tracts and Counties in Which High Schools Assisted by Grantees between FY 2003 and FY 2005 Were Located; and (5) Program Grant Recipients: FY 2002-FY 2007. (Contains 15 footnotes and 31 exhibits.).