Charter Schools Face Financial Challenges

By Bill Turque
Washington Post Staff Writer
Saturday, October 11, 2008

The rapid growth of the District's charter school movement, which accounts for more than a third of the city's public school enrollment, is starting to see signs of cooling because of the national financial crisis, experts in the field say.

Efforts to expand schools face longer roads to completion, hobbled by a smaller pool of potential investors and higher costs for access to capital. Charter officials also worry that recently opened small schools might have trouble securing lines of credit to meet regular business expenses.

The city's 60 charter schools, spread over 92 campuses, receive a per-pupil allotment and an annual facilities allowance from the District, which will total about $360 million this year for an enrollment of about 26,000. The private nonprofit groups that run the schools use those funds for operating costs and often turn to bank loans, along with grants, fundraising and investor tax credits, to finance the construction or renovation of buildings.

Local school officials said they have not heard of a project that has been scuttled. But even charter schools with track records as effective alternatives to traditional public schools find economic conditions more challenging. KIPP DC, which operates four schools in low-income neighborhoods, is trying to line up financing for a $23 million renovation of the former Douglass Transition Academy, a closed public school in Ward 8. It has leased the building as a home for a new high school and early childhood center it wants to open next fall.

Allison Fansler, KIPP DC's president and chief operating officer, said this week that financing for the renovation of leased properties is difficult in the best of circumstances because of the lack of collateral for a bank to fall back on if a loan goes bad. But Fansler said the charter community's traditional banking partners, such as Bank of America, PNC and M&T Bank, have been tentative.

"We're reaching out to build as many relationships as we can," said Fansler, who remained optimistic that a deal can be struck. "There are a lot of ways we can mitigate this, but it's just more complicated and expensive."

Other ventures have been delayed by the economic uncertainty. César Chávez Public Charter Schools for Public Policy had hoped to have a third campus, at the old Bruce School building in Petworth, up and running this fall. Bryan Patten, chief financial officer, said the original plan involved generating money for the renovation through the sale of tax-exempt bonds. In mid-2007, he said, "it was an attractive option, but every time we talked to the bank, the interest rate went up." Eventually, the school secured a conventional construction loan, but it will not be able to occupy Bruce until next fall.

Nationally, the situation is much the same -- schools aren't shut down but delayed, charter operators said. Mike Piscal, founder of the Inner City Education Foundation in Los Angeles, said last week that its campuses would expand from 13 to 35 over the next eight years.

"So far, deals that would be done with 20 percent down now require 30 percent. Deals that would take two to three months are now taking five to six months," he said.

The market meltdown comes at a moment of unusual opportunity for the local charter community. Last month, the District government revised its plans for the use of school buildings closed for low enrollment last year. It issued a new request for expressions of interest in the properties exclusively from charter schools. An earlier request had been opened to other private businesses and had limited the number of charter schools that could participate.

It's not clear how the climate will affect interest in the buildings. Offers are due by Oct. 27.

Charter school officials said they were particularly concerned that some of the new schools that opened this fall with small numbers of students and no track record might have difficulty securing credit for working capital.

At least two in Northeast Washington, Thea Bowman Preparatory Academy and Washington Yu Ying, have fallen short of their projected enrollment, which means their quarterly payment due from the District this month will be lower than anticipated.

"Downward adjustments can have a dramatic impact on cash flow," said Jeremy Williams, finance manager for the Public Charter School Board, adding that he was concerned that the schools would have difficulty borrowing operating capital.

Washington Yu Ying, which offers a Chinese immersion program for prekindergarten, kindergarten and first-grade students, is about 20 short of its projected enrollment of 150. Executive Director Mary Shaffner said she had begun the application process for a line of credit and would raise private money.

Thea Bowman, which has attracted 47 of the 100 fifth- and sixth-graders it expected, has laid off three staff members and cut salaries to make its budget. Principal Mark Cosenza said that the school was at no immediate risk but that he would begin fundraising.

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