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Unformatted text preview: d, the Michigan charter school law
specifically allows charter schools to issue tax-exempt securities. Based on an Internal
Revenue Service ruling that did not specifically disallow the practice, numerous charter
schools have successfully obtained tax-exempt financing to purchase or build facilities.
Typically, an investment company secures financing for the charter school for which it
earns a fee. In addition to interest, the lender receives points and holds a reserve of about
10 percent. The fees and reserve are capitalized into the financing so no down payment or
other up-front money is required. The universities that authorize charter schools usually
must agree to forward payments directly to lenders on behalf of the charter school.
In 1999, the Texas legislature specifically allowed charter schools to issue tax-exempt
securities. North Hills Prep became the first charter school in Texas to secure tax-exempt
financing. Charter schools directly issue the securities with the help of investment banking
firms as in Michigan, rather than through a conduit bonding authority as in Colorado.
Revolving Loan Funds for Charter Schools. In Connecticut, the Health and Educational
Facilities Authority makes direct loans to Connecticut charter schools in amounts up to
$150,000. The five-year loans carry interest rates of 5.9 percent. The privately established
Financial Foundation for Texas Charter Schools provides working capital rather than
facilities. With an interest rate of 4-5 percent, the loans are administered by a national
bank. The Chicago school district established a $2 million revolving loan fund 74 Facilities and Capital Outlay Financing administered through the Illinois Facility Fund, a nonprofit community development loan
institution. Revolving loan funds also exist in California and Louisiana.
Incentive To Supply Facilities. Some states encourage local school districts, other
governmental entities, property owners, employers and real-estate developers to provide
facilities for charter schools. In Washington, D.C., charter schools can bid on favorable
terms when vacant schools go on the market. If school districts provide vacant facilities to
charter schools in Colorado, no rent can be charged. Florida allows employers to establish
charter schools and to reserve school seats for children of employees if the employer
invests substantially in school facilities. Only excess seats are available for other students.
Arizona has considered legislation that would allow developers to claim a substantial tax
credit for subsidizing charter school facilities and then give admissions preference to
Lengthening Term of Charter. Investors called upon to make 15- to 30-year
commitments to charter schools are often concerned about charter renewals every 3 to 5
years. Arizona lengthened the term of charters to as many as 15 years. Florida recently
enacted legislation that allows school districts to issue 15-year charters. Policymakers in
other states may regard such long...
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- Spring '09