Expand a Proven Finance Solution for All Charter Schools

Less than 10 percent of charter schools reportedly qualify for bank loans sufficient to solve their cash flow needs. In short, we are on our own.
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California public schools, including the charter school that I established in Highland Park, are facing a cash-flow crisis created by the state's deferral of more than 60 percent of our annual budget.

Backed by the state treasury, school districts have more options than independently-operated charter schools. What is troubling is that even though there are viable options that would level the playing field for charter schools, the state's largest school district and the California Charter School Association don't support the best option and, as a result, are undermining our ability to solve our cash crunch.

So at a time when more parents clearly want the individualized benefits charter schools can give their children, it's becoming increasingly difficult for charters to make ends meet. And the issues we in California face are being faced today by educators nationwide. Without the same access that school districts have to reliable sources of the capital, the viability of charters will remain threatened.

In California, for instance, school districts can access funds to cover the deferrals through state-backed loans called tax revenue anticipation notes (or TRANs). The districts get funds from investors in exchange for pledging their future state payments. This past July, for example, the Los Angeles Unified School District received a $540 million TRAN.

Charter schools, however, do not qualify for TRAN funding because the state does not guarantee our payments in the event of a default. And to make matters worse, charter schools are generally not creditworthy in the eyes of the banking community because state payments are so unpredictable. Less than 10 percent of charter schools reportedly qualify for bank loans sufficient to solve their cash flow needs. In short, we are on our own.

And our experience in California is not unique. A study of charter school funding in 40 states by the Center for Education Reform in Washington, D.C. found that on average charter schools receive 21.25 percent less public money than conventional public schools. The study -- entitled Solving the Charter School Funding Gap: The seven major causes and what to do about them -- concluded that charters' lack of access to public debt markets, such as local bond measures, was one of the major causes.

"Charter schools generally lack the access to public debt markets, such as local bonds or public debt financing for capital expenditures," the study found. "This access would provide much needed liquidity giving charters schools better ability to secure facilities and cover other operational expenses."

Among the primary findings of a Fordham Institute study entitled Charter School Funding: Inequity's Next Frontier, which examined charter school funding issues in 16 states and the District of Columbia, were that charter schools are significantly underfunded relative to district schools and that the "primary driver of the district-charter gaps is charter schools' lack of access to local and capital funding."

The study found that the problem most severe in big urban school districts was that charter schools "have been given the short end of the funding stick," with the established public school districts tending to resist, rather than assist the growing charter school movement. "Every penny that flows into a charter school, in their view, is a penny lost to 'public education," the report said.

One solution that has worked for more than 150 charter schools, including mine, is to sell our state receivables to private companies. At Academia Avance, we use Portland-based Charter School Capital (CSC), which has adapted the purchase of receivables model for charter schools. Just like a TRAN, funds are provided based on the delivery of future state payments.

And the best part: Most, if not all, charter schools could qualify for funding using this model. But the primary voice of the charter school movement in California (the California Charter School Association) and the district with the most charter schools (LAUSD) have both tried to undermine the CSC model, instead of helping to expand access to this proven solution.

LAUSD recently sent a letter to charter school administrators warning that selling receivables was "highly dangerous" and would lead to "structural fiscal problems." Such has not been my experience or the experience of Green Dot, PUC Schools and Desert Sands -- all highly-successful charter schools with multiple financing options that chose to sell receivables.

LAUSD often speaks of a partnership with charter schools to address the needs of all students. Why then is the LAUSD leadership opposed to charter schools using the same financing solution that they use to create financial stability for our schools?

CCSA is aware of the cash problem facing its members and has tried to solve the problem by creating its own financing products. Its solution, however, hasn't addressed the financing need for all, or even most, member schools, including Academia Avance. Proposed solutions have not been flexible or provided enough money and funds have often come too late to solve our cash flow needs.

CCSA is a great advocate. It's simply miscast as a financing entity. Its actions are making other financial solutions more expensive and less available. CCSA could serve members more effectively by working with private companies like CSC, who have a proven and affordable model that can literally fund most, if not all, charter schools.

If I could run my school without any kind of financing hassle, I would. But that is not the world we live in.

CSC provided the best option that has allowed our school to thrive during this financial crisis. This partnership has allowed us to run our school as if there were no deferrals at a cost less than any loan we have seen. This has kept us focused on teaching our kids. I wish the same could be true for all charter school operators.

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