An exposé by the Star Tribune and a legislative hearing put charter school building practices in the limelight this week. Background: MN law establishing charter schools said they could not own real estate, i.e. school buildings. The rationale, according to the Strib, was “to keep the focus on education and prevent taxpayer exposure to mortgage defaults if a school failed.”
But the ban on owning schools has just led to end runs around the law, like the fancy footwork described in the Strib’s investigative report:
[Two years ago] the Otsego City Council balked at financing a charter school. Undeterred, school promoters went 35 miles down the road to Falcon Heights, where officials were persuaded to authorize the bond issue in exchange for a $45,000 “processing fee.” As is standard in such deals, the city of Falcon Heights was indemnified against default, merely acting as a “conduit” to give the bonds tax-exempt status.
The elementary school was built in Otsego, and Falcon Heights banked the money for a new firetruck.
And the money trail doesn’t stop there. The building owners, building companies, consultants and supervisors all get a cut. According to today’s Strib article:
Altogether, 18 charter schools have been built with $178 million in junk bonds in the past decade, with financing costs on some deals chewing up nearly a quarter of the funds raised.
Legislators are looking for solutions, including changing the law to allow charter schools to own their own buildings. Currently, the state pays lease aid to charter schools, and that money is sometimes used to pay for the construction and high-interest bonds.
There are about 150 charter schools in Minnesota, and annual lease aid payments have climbed from $1.1 million to $42.4 million over the last decade, making the program one of the fastest growing expenses in the state.
If the law were changed to allow ownership instead of the current complicated lease scenario, what would guarantee more responsible use of the public money?