Charter School Investor: Georgia Home Prices Rise Near Charter Schools, Michigan Limits on Capital/Debt Spending, & Tax Reform Legislation Impact on Charter School Facilities

Wednesday, November 29th, 2017

By Alan Wohlstetter
School Improvement Partnership Now Works with Twenty Schools in Five States.  On June 1 of this year, School Improvement Partnership began offering Continuing Disclosure Services to charter schools through an easy-to-use platform.  Since that time, School Improvement Partnership has been engaged to provide services to schools in California, Indiana, Michigan, North Carolina and Pennsylvania.  Since School Improvement Partnership fills in all publicly available data, our charter schools are happy to have one less report to worry about.

Georgia Study Finds Home Values Rise In Proximity To Neighborhood Charter Schools. According to a study undertaken by the Georgia State University Center for State and Local Finance, home values rise when they are in proximity to a charter school that has a specific attendance or catchment area. Buyers are willing to spend a 3 to 5 percent premium to live within one-half of one mile of a neighborhood charter school. The premium is even higher in the city of Atlanta. Downey, Maureen. “Georgia State Study: New charter schools boost surrounding home values”, 05/18/2017. Atlanta Journal-Constitution; Bluestone, Peter, et al. “The Effect of Start-Up Charter Schools on Nearby Property Values”, 05/05/2017. Georgia State University Center for State and Local Finance.

Michigan Charter Schools Are Limited By Law In How Much They May Spend on Facilities. Under Section 18 of the Michigan State School Aid Act, charter schools may only spend 20% of the money they receive on capital costs and debt service payments. Mi. Stat. § 18(1) of the State School Aid Act (2017).  The statute creates a dilemma for charter schools that borrow money to pay for facilities. Schools know what their borrowing costs will be in the long-term, however, the schools do not know what their state aid will be from year to year. Since schools are limited to spending 20% of their state aid on capital costs and debt service, the statute forces schools in the impossible task of anticipating what they can afford to pay given the 20% limitation.  Below is a chart that shows the charter schools currently over the 20% limitation, according to the Michigan Department of Education. Public School Academy Contract And Related Documents Between School District City of Detroit and GEE Edmonson Academy, pg. 8-9 (clause limiting aggregate debt payments to 20% of state school aid payments).

District Name  Michigan State School Aid Revenue  Debt Service Transfers  Capital Projects Transfers  Total Debt Service and Capital Projects Transfers % of State School Aid Revenue Transferred to Debt Service And Capital Projects
State Street Academy  $942,555.39  $215,430.40  $-  $215,430.40 22.86%
Lewis Cass ISD  $323,086.89  $-  $100,000.00  $100,000.00 30.95%
International Academy of Flint  $7,053,803.07  $1,210,000.00  $230,281.00  $1,440,281.00 20.42%
Gratiot-Isabella RESD  $731,314.03  $-  $300,000.00  $300,000.00 41.02%
Flat River Academy  $1,154,590.92  $248,072.00  $-  $248,072.00 21.49%
Marquette-Alger RESA  $659,375.72  $-  $300,000.00  $300,000.00 45.50%
Muskegon Area ISD  $1,192,795.09  $-  $430,622.19  $430,622.19 36.10%
Newaygo County RESA  $556,440.97  $130,827.60  $-  $130,827.60 23.51%
Oakland International Academy  $6,383,148.24  $1,330,482.26  $-  $1,330,482.26 20.84%
Bradford Academy  $10,560,615.48  $2,513,139.37  $-  $2,513,139.37 23.80%
Walden Green Montessori  $1,363,997.60  $316,250.00  $-  $316,250.00 23.19%
Saginaw ISD  $1,708,695.27  $254,012.50  $620,000.00  $874,012.50 51.15%
Plymouth Educational Center Charter School  $3,698,553.63  $933,161.00  $-  $933,161.00 25.23%
Voyageur Academy  $8,627,059.49  $1,866,171.40  $-  $1,866,171.40 21.63%
Hope Academy  $3,721,249.84  $743,753.80  $9,200.00  $752,953.80 20.23%
Trillium Academy  $4,479,410.18  $944,280.00  $-  $944,280.00 21.08%

Parents Need An Incentive To Pursue School Choice.  According to a study by Education Next, parents are likely to explore school choice options like charter schools when they move or when a state introduces a new options that include a neighborhood charter school. The study concludes that once parents are settled into a school, they are unlikely to explore other options. Sparks, Sarah. “Study: Do Parents Need a Reason to Go School Shopping?” 11/14/2017, EdWeek.

Indiana Underestimated School Enrollment Causing Budget Shortfall. Indiana funds all public school operations – including charter schools – on a per pupil basis. The Indiana legislature underestimated the number of students attending the states’ public schools, and therefore the funding required.  When the legislature returns to session, it needs to identify approximately $9 million to address the shortfall. Cavazos, Shaina, et al. “Indiana didn’t set aside enough money for schools. Senate leader says a fix is ‘top priority”, 11/21/2017. ChalkBeat.

Tax Reform Packages Hurt Charter School Facilities. For charter schools hoping to expand into their own building over the next few years, The House and Senate tax reform packages are awful and bad, respectively. The chart below highlights some key provisions:

House Version         Senate Finance Committee 11/28 Version

Tax-exempt bonds for                      Eliminated               Preserved
charter schools

The ability to refinance
charter school bonds within
ten years of issuance                       Eliminated               Eliminated

Deduction for state and
Local taxes, making it harder
For states and localities to fund
per pupil payments                          Eliminated                Eliminated through 2026

School Improvement Partnership’s phone number is 215-854-6322.

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