Venturesome Capital- State Charter School Finance Systems

While no state facilities assistance is provided the

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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 development residents. 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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