Charter Schools: New Charter Schools Across the Country and in the District of Columbia Face Similar Start-Up Challenges
Published: 2003-08-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As of the 2002-2003 school year, nearly 2,700 charter schools operated in 36 states, the District of Columbia, and Puerto Rico. Charter schools are public schools that are exempt from certain state and local regulations in exchange for agreeing to certain student performance goals. To increase their understanding of problems faced during the start-up process, Congress included a provision in the Omnibus Appropriations Bill for Fiscal Year 2003 (P.L. 108-7), which required GAO to report on charter school start-ups, including a comparison with charter schools in the District of Columbia. This report examines (1) the challenges faced by charter school start-ups across the nation and the resources available in various states to address these challenges and (2) how the District of Columbia compares in terms of charter school challenges and resources. To address these objectives, GAO analyzed federal, state, and D.C. charter school laws and interviewed Education and District officials, including representatives of the D.C. charter school authorizing boards, the D.C. public school system, and various city offices. GAO also conducted a discussion group consisting of District charter school experts and D.C. charter school founders.
section_title: What GAO Found
paragraphs: Securing a facility, obtaining start-up funding, and, to a lesser extent, acquiring the expertise necessary to run a charter school are the three greatest challenges facing new charter school founders nationwide, although the extent of the challenges varied from state to state. Charter school advocates report that charter schools need buildings that allow them to grow as their enrollment grows and that they have limited access to financing for facilities--both of which make securing facilities one of the most difficult aspects of opening a new charter school. Additionally, charter schools report that obtaining start-up money, particularly early in the charter application and planning periods, is difficult. In gaining approval for charters, they may incur significant expenses, such as hiring experts to review charters, purchasing curriculum programs, and placing down payments on facilities, before becoming eligible to receive most forms of public funding. Another challenge facing new charter school founders is acquiring the expertise--business, legal, managerial--necessary to open and run a charter school. Several federal, state, and local programs are available to help charter schools address these challenges across the country and in the District of Columbia. At the federal level, the Public Charter Schools Program has awarded about $1 billion in grants since 1994 to charter schools to help offset their start up costs. The program has also provided additional funding for a limited number of grants to organizations to increase charter schools' access to facilities financing. Some states also provide assistance to charter schools to address these challenges. The challenges facing D.C. charter schools are similar to those around the country; however, obtaining facilities is particularly difficult in D.C. due to the cost of real estate and poor condition of available buildings. To offset this challenge, the District provides charter schools with various forms of assistance, including a limited preference to buy or lease surplus public school buildings and a per-pupil allotment for the cost of facilities. To address challenges associated with start-up funding, the District provides charter schools with some funding prior to schools' opening. Although the District chartering authorities provide some guidance to charter applicants, they do not provide them with general technical assistance.

section_title: Letter
paragraphs: The growing popularity of educational choice was highlighted in a May  2003 study by the Department of Education’s National Center for  Education Statistics that reported a shift in public school enrollment away  from public, assigned schools into public, chosen schools from   1993-1999. Charter schools are one of the primary ways that parents can  exercise choice in the public school system. While their impact on student  achievement is still being debated, charter schools are a form of  educational reform that has enjoyed bipartisan support from Congress and  other policy makers. Since 1994, the federal government has provided  about $1 billion in grants to charter schools in addition to financial  support provided by state and local governments.
Currently about 1.5 percent of students nationwide, and 15 percent in the  District of Columbia, are attending charter schools. Charter schools are  public schools that are exempt from certain state and local regulations in  exchange for accountability for improving student achievement. Like  traditional public schools, charter schools receive funding from state and  local governments on a per-pupil basis; however, unlike traditional public  schools, charter schools are responsible for a wide range of functions that  are usually administered by the local school district, such as managing  faculty payroll and securing and maintaining school facilities. Other  resources available to charter schools depend on specific state laws, local  school district decisions, and the availability of private or nonprofit  assistance.
The opening of a charter school can present challenges to the founders.  While the challenges are similar, the extent of these challenges varies from  state to state, depending on state laws and procedures and the resources  available to assist in the start-up process. This report provides information  on (1) challenges faced by charter school start-ups across the nation and  resources available in various states to address these challenges and   (2) how the District of Columbia compares in terms of challenges and  resources.
To obtain information about charter school start-ups across the country,  we analyzed federal and state charter school laws. We conducted  interviews with Department of Education (Education) officials, charter  school policy experts, and charter school advocates in various states,  including a charter school founder. We also reviewed a variety of national  studies and surveys of charter schools, including those done by the  Education Commission of the States and for the Department of Education.  To obtain information about charter schools in the District of Columbia,  we analyzed District of Columbia and federal laws affecting charter  schools in the District. We interviewed officials from the Mayor’s office  and the City Council, the District of Columbia Public Schools, and both  charter school authorizing bodies—the District of Columbia Public  Charter School Board and the District of Columbia Board of Education— from whom we obtained much of our information about the facility status  of currently operating charter schools. We conducted a discussion group  consisting of District representatives from charter school advocacy  groups, researchers, charter school founders, and other individuals  knowledgeable of charter school issues in the District of Columbia. We  also visited 1 of the 39 charter school campuses operating in the District in  the 2002-2003 school year. See appendix I for a more complete description  of our scope and methodology. We conducted our work between February  and September 2003 in accordance with generally accepted government  auditing standards.
subsections: section_title: Background
paragraphs: Since the opening of the first public charter school in Minnesota in   1992, approximately 2,700 public charter schools have opened across the  country. As shown in figure 1, 40 states, the District of Columbia, and  Puerto Rico have enacted charter school laws, although, as of July   2003, no charter schools had opened in 4 of these states—Iowa, Maryland,  New Hampshire, and Tennessee. In the 2002-2003 school year, public  charter schools enrolled nearly 700,000 students or approximately   1.5 percent of America’s 48 million public school students in pre- kindergarten through 12th grade. Students enrolled in charter schools are  more likely to be members of minority groups than students enrolled in  traditional public schools according to a 4-year study of charter schools  conducted for Education.
Charter schools are public schools established under contracts that grant  them greater levels of autonomy from school regulations in exchange for  agreeing to certain student performance goals. Charter schools are often  exempt from certain state and school district education laws and in some  states may receive waivers for exemptions from other laws; however,  charter schools must comply with select regulations, including those  pertaining to special education, civil rights, and health and safety  conditions. While charter schools are free from many educational  regulations, they are accountable for their educational and budgetary  performance, including the assessment requirements of the No Child Left  Behind Act. Charter schools may have their charters revoked by the  authorizing body if they fail to perform adequately.
Charters to operate a school are awarded by various entities, depending  on the state’s laws, but may include local school districts, state education  agencies, institutions of higher education, municipal governments, or  special chartering boards. The majority of charter school authorizing  bodies have formal procedures to regulate the charter application process,  including formal application deadlines and public hearings. The ease of the  authorizing process for charter schools varies from state to state,  depending on the specifications in state law governing charters and local  support or resistance to charter schools. For instance, some states limit  the number of charters that may be awarded either in total or by year.  Also, some state laws specify multiple authorizers, while others restrict  approval authority to a single entity, for example, a local school board, and  provide for appeal when a charter is denied.
In addition to awarding charters, authorizing bodies are responsible for  monitoring school performance in areas such as student performance,  compliance with regulations, financial record keeping, and special  education services. If charter schools do not meet expected performance  measures, authorizing bodies may revoke a school’s charter or decide not  to renew the school’s charter when it expires. Since 1992, more than   100 charter schools have been closed, either through charter revocation or  nonrenewal. According to a recent study published by the Thomas B.  Fordham Institute, the majority of these closings have been due to  financial mismanagement, while the rest have been closed due to  unsatisfactory student achievement or other performance failures.
A wide range of individuals or groups, including parents, educators,  nonprofit organizations, and universities, may apply for a school charter as  nonprofit organizations. Similar to other nonprofit organizations, charter  schools are governed by a board of trustees, which is selected by the  school founders. Although requirements for charter school board  membership vary across states, charter school boards are responsible for  school oversight. Specifically, charter school boards oversee legal  compliance, contracts with external parties, financial management and  policies, and facilities and equipment acquisition and maintenance.  Charter school board members are also responsible for identifying real  and potential risks facing the charter school, such as financial and school  liability risks and emergency preparedness, and taking steps to reduce or  eliminate these risks.
Charter schools may be established in one of two ways. First, an existing  school may be converted to a public charter school. Traditional public  schools may convert to charter schools to focus on a specific segment of  the student body, such as at-risk students, to apply a new curriculum or  educational approach, or to operate in a less regulatory environment.  Charter schools may also be established when a new school is created and  awarded a charter. The majority of charter schools are newly created  schools rather than conversion schools. According to a study done for  Education, in the 2000-2001 school year, 76 percent of new charter schools  were newly created. Charter schools that are converted from existing  schools generally remain in their buildings, while newly created charter  schools must acquire facilities. These newly created charter schools may  operate in a variety of facilities, including surplus school buildings, shared  space with other groups, such as the YMCA or other charter schools, and  converted commercial buildings, including office and retail space. In  September 2000, we reported that new charter schools often experience  difficulty financing the purchase or lease of their facilities.
With approximately 15 percent of its public school students attending  charter schools, the District of Columbia has one of the highest  concentrations of public students in charter schools in the country. Like  most charter schools, District charter schools have lower average total  enrollments and student to teacher ratios than traditional public schools.  Additionally, District charter schools, like their national counterparts,  serve a higher percentage of minority and low-income students than  traditional public schools. Charter school applicants in the District may  apply to either of two authorizing entities, the District of Columbia Public  Charter School Board or the District of Columbia Board of Education. As  of the 2002-2003 school year, the D.C. Public Charter School Board has  authorized charters for 23 schools, 1 of which closed voluntarily. The D.C.  Board of Education has authorized charters for 21 schools, 6 of which  closed for performance and management reasons. Three new charter  schools, 1 authorized by the Board of Education and 2 by the D.C. Public  Charter School Board, are expected to open in the 2003-2004 school year.
section_title: Facilities, Funding, and, to a Lesser Extent, Expertise Pose Challenges for New Charter Schools, but Some Assistance Is Available
paragraphs: New charter school founders across the country share common  challenges: securing adequate facilities, obtaining start-up funding, and,   to a lesser extent, acquiring the expertise necessary to run a charter  school, although various forms of assistance are available to help with the  start-up process. Securing adequate facilities is one of the greatest  challenges facing new charter schools, according to research articles and  national charter school experts. The federal government and 27 states  provide limited assistance to address this problem. Charter schools also  report facing difficulties obtaining funding during the application and early  implementation periods, although the federal government and a small  number of states provide funding for charter school start-up grants. The  wide array of knowledge and skills necessary to open and operate a new  charter school, such as business, law, management, and education  expertise, also presents a challenge, according to charter school founders.  Few federal programs exist that specifically address this challenge;  however, some assistance is available from state, local, and nonprofit  sources.
subsections: section_title: Securing Adequate Facilities Is a Major Challenge; Limited Assistance Provided in Most States
paragraphs: According to research articles and national charter school experts,  securing adequate facilities is one of the most challenging aspects of  starting a new charter school. Unlike traditional public schools that rely  on school districts for support, charter schools are responsible for  locating, securing, and renovating their school buildings. Locating an  appropriate facility can be difficult for new charter schools. Because new  charter schools often open with few classrooms or grades and a limited  number of enrolled students, charter schools frequently expand  significantly, sometimes by several grades, during their first few years of  operation. As a result, new charter schools either look for a smaller  building that will meet their current size needs or a larger one that will  accommodate future growth. Both options can pose problems for new  charter schools, as opening in a smaller building requires an ongoing  search for a larger facility and the expense of a future move, while  selecting a larger facility, if one can be found, may not be financially  feasible in a school’s early years. Additionally, schools have facilities  requirements—they need facilities that will enable them to subdivide  space into classrooms and also contain common space to serve as  gymnasiums, cafeterias, or auditoriums. Transforming commercial space  into educational facilities with classrooms and common rooms can be  expensive. Some charter schools are able to acquire existing school  buildings to use for facilities, which can reduce transformation costs;  however, the number of excess school buildings available is generally  limited.
In addition to encountering difficulties locating appropriate facilities,  charter schools have difficulty financing the building purchase or lease  and renovations. Traditional public schools generally rely on school  districts for facility financing, which is often provided either by raising  taxes or issuing municipal bonds. Charter schools, however, are generally  not part of a local school district and rarely have the authority to raise  taxes or issue tax-exempt bonds independently. Charter schools’ access to  other facility financing options, such as private lending, is also limited.  Charter schools are often considered credit risks because they may have  limited credit histories, lack significant cash flows, and have short-term  charters that can be revoked. As a result, private loans are not easily  accessible to charter schools for facility financing. Because municipal  bonds and private loans may be inaccessible to charter schools, many  charter schools finance their facilities through per-pupil allocations  provided by the state or district. These per-pupil allotments are provided  to all public schools, including charter schools, to cover operating  expenses, such as teachers’ salaries and the purchase of books and  supplies. Additionally, some charter schools finance their facilities  through private donations.
Several states provide financial assistance to charter schools that is  specifically designated for facilities. Eleven states and the District of  Columbia provide direct funding to charter schools for facilities, either  through grant programs to help cover building acquisition costs or lease- aid programs to help cover building maintenance and facility lease or  mortgage payments. Of these 11 states, 5 — Arizona, California, Florida,  Massachusetts, and Minnesota — and the District of Columbia have  provided charter schools with a designated annual revenue source to  offset facilities expenses. Approximately half of all charter schools operate  in these 5 states and D.C., where charter schools receive a supplemental  per-pupil allotment that is designated to cover facilities expenses. For  example, charter schools in low-income areas in California may receive up  to $750 per student to cover lease expenses, while charter schools in  Florida may receive up to approximately $1,300 per student to offset  facilities costs. Additionally, at least 5 states — Colorado, Georgia,  Missouri, North Carolina, and Texas — and the District of Columbia have  enacted legislation that would enable the state bonding authorities to issue  tax-exempt bonds on behalf of charter schools.
In addition to providing charter schools with funding for facilities, states  may provide charter schools with other forms of facilities assistance.  Eighteen states and the District of Columbia have enacted laws that allow  charter schools access to vacant public buildings. The extent to which  these laws enable charter schools to gain access to public buildings varies  considerably both in terms of how proactive the states are in providing  access and in terms of the cost of this access to charter schools. Some  state laws, such as those in Alaska, simply make it legal for charter  schools to operate in excess public space if it is available, while other state  laws provide charter schools with preferential access to available space or  mandate procedures for informing charter schools when public space  becomes available. For instance, Arizona law requires that an annual list of  appropriate public buildings be made available to charter schools.  Additionally, the amount charter schools must pay for this space varies. In  Virginia, charter schools do not have to pay rent for available school  buildings, while in Louisiana, charter schools must pay fair market value  to use excess public facilities. Table 2 summarizes the various types of  facility assistance provided. Appendix II provides greater detail about  facilities assistance provisions in state laws.
Some federal support also exists to help public charter schools acquire  facilities. Under the Public Charter Schools Program, the federal  government provides a limited number of grants to public or private  organizations for the development of facilities-related “credit  enhancement initiatives.” Organizations use credit enhancement grants to  leverage additional capital for charter schools for the acquisition,  construction, or renovation of facilities. Charter schools do not receive  this grant money directly; instead the grant money is provided to  organizations that use the funding for a range of activities to help charter  schools improve their credit. These activities include insuring or  facilitating the issuance of bonds, subsidizing interest payments, creating   a facilities loan pool, or serving as a loan guarantor. Grant recipients  generally provide support to charter schools in specific states or regions  or to specific types of charter schools. For example, one 2001 grant  recipient, the Raza Development Fund, a nonprofit Hispanic advocacy  organization, is using its grant to increase 30 Hispanic charter schools’  access to direct loans. The credit enhancement program has received  funding twice, in fiscal years 2001 and 2003. Under the Public Charter  Schools Program, the federal government is also authorized to provide  grants to states to establish or enhance per-pupil facilities aid programs;  however, as of July 2003, this program has never received funding. Like  traditional public schools, charter schools may access federally  administered Qualified Zone Academy Bonds (QZAB), which provide  financial assistance for public school renovations. To qualify for these  bonds, public schools must be located in an empowerment zone or  enterprise community or have at least 35 percent of their students eligible  for free or reduced-price school lunch. In addition, federal law permits  local school districts, including charter schools, to enter into public- private partnerships that allow private entities to take advantage of tax- exempt bonds—often referred to as private activity bonds—for school  construction and renovation. However, as we reported in a 2000 study of  charter school facilities financing, the credit worthiness of most new  charter schools and concerns about their ability to repay remain a concern  for bond raters and buyers.
section_title: Obtaining Sufficient Start- Up Funding Is also a Major Challenge; Assistance Provided Primarily by Federal Programs
paragraphs: According to national studies of new charter schools, obtaining sufficient  start-up funding is one of the two greatest challenges facing charter  schools during the planning and early implementations stages. Charter  schools incur many start-up expenses during the planning and early  implementation stages, such as hiring lawyers and business consultants to  review charter plans and applications, buying curriculum programs and  instructional materials, purchasing school furniture and supplies, hiring  key staff, purchasing insurance, and placing down payments on facilities.  Unlike traditional public schools, most charter schools do not receive  financial support from local school districts during the early planning  stages, and many are not eligible for local funds until the school opens.  While the timetable for disbursing funds varies by location, charter  schools can incur a variety of expenses—for example, attorney and  consultant fees—before they are eligible to receive most sources of public  funding. To help meet these early expenses, many charter schools rely on  funds raised through private sources, such as individual fundraising or  awards from private foundations.
Charter schools become eligible for financial assistance under the Public  Charter Schools Program after the application has been submitted and  certain other requirements met. Through this program, charter schools can  receive funding to help defray planning, design, and implementation  expenses. Grants are awarded under this program by Education to state  departments of education to be distributed directly to charter schools for a  period of not more than 3 years, of which no more than 18 months may be  used for planning and program design and no more than 24 months may be  used for implementation. Education recommends that states provide  charter schools with $450,000 over the 3-year period to be distributed in  $150,000 annual allotments. Charter schools that are still in the early  planning stages and have not yet submitted an application may apply for a  waiver to the program’s eligibility requirements to receive a “pre-planning”  subgrant. Education recommends that states awarding pre-planning  subgrants provide sums of $10,000 to $20,000 and requires that pre- planning grants count towards a charter school’s 3-year subgrant time  limit. According to an evaluation of the Public Charter Schools Program  conducted for Education in 2001, almost two-thirds of charter schools are  recipients of Public Charter School subgrants. The data also indicated that  of those schools not receiving subgrants through the Public Charter  Schools Program, about half did not apply. According to Education  officials, charter schools that are turned down for subgrants through this  program may have applied for the funding after they had completed their  early planning and implementation stages, which would make them  ineligible.
An analysis of data collected by the Education Commission of the States  showed that in 2003 approximately one-fourth of states with charter  school laws had established programs to assist new charter schools with  start-up costs through grants or loans. Nine states, Alaska, California,  Georgia, Illinois, Louisiana, Minnesota, New Mexico, Oklahoma, and  Pennsylvania, and the District of Columbia made start-up loans or grants  available to new charter schools. The size and timing of these grants and  loans varied from state to state. In Georgia, for example, new charter  school founders were eligible for $5,000 grants during the school planning  phase, while new charter school founders in Pennsylvania were eligible for  $25,000 grants to cover expenses during the charter application process.  Additionally, Louisiana had established a $3 million loan fund to provide  charter schools with money during the start-up period, and charter schools  in California are eligible to receive loans for as much as $250,000, which  could be repaid over a 5-year period. Although these grant and loan  programs had been authorized, funding for these programs is uncertain.  For example, Minnesota will not fund its charter school start-up grant  program for fiscal year 2004 for budgetary reasons.  Additionally,  according to the Education Commission of the States data, Nevada, which  has authorized a loan program, has never funded it.
section_title: Lack of Specific Expertise also Poses Difficulties; Some Assistance Is Available from Local or Nonprofit Sources
paragraphs: The wide array of knowledge and skills necessary to open and operate a  charter school often presents a challenge for charter school founders. For  instance, according to charter school advocates with whom we spoke  many charter school founders may have extensive educational experience  but limited knowledge of legal and business issues. In order for a charter  school to be successful, charter school founders must coordinate a wide  range of activities: planning the school’s educational system and  curriculum, hiring leadership and teaching staff, assembling a board of  directors, ensuring the school’s compliance with all laws and regulations,  locating and acquiring school facilities, creating the school’s budget and  accounting systems, and managing the day-to-day operations of the school.  As figure 2 shows, to successfully achieve these tasks, charter school  founders must have expertise in a variety of areas, including educational  systems, legal issues, and general business practices; however, few  individuals are well versed in all of these subjects. National surveys of  charter school founders cite their limited knowledge of certain areas as a  challenge to opening new charter schools.
The federal government provides limited assistance to charter school  founders to help them acquire expertise. Education sponsors a Web site,  www.uscharterschools.org, that provides an overview of state charter  laws, lists state charter school advocacy groups, and promotes exchanges  between charter school founders. In addition, 5 percent of the Public  Charter Schools Program grant money may be used by the states to cover  administrative expenses, which can include funding for technical  assistance programs. For example, the Florida Department of Education  uses a small percentage of its approximately $26 million Public Charter  Schools grant to fund a resource center that provides new charter schools  with technical assistance throughout the chartering process. The Florida  program provides charter schools with assistance in management,  governance, and budgeting and fosters mentoring relationships between  new and established charter schools. Under the Public Charter Schools  Program, some states provide subgrants to high-performing charter  schools that have been open for at least 3 consecutive years to share best  practices with new charter school founders.
Technical assistance programs that help charter school founders learn  more about how to open and operate a school are generally administered  by state or local governments. According to the Education Commission of  the States, 28 states and Puerto Rico provide some technical assistance to  charter schools through their state departments of education or local  school boards. The extent and type of this assistance varies. Some states  conduct periodic workshops, others provide targeted assistance to  individual charter schools upon request, and some states provide both  types of assistance. For example, the Pennsylvania Department of  Education conducts monthly regional workshops and provides assistance  to individual charter schools upon request. Additionally, states or local  school boards may provide charter school founders with assistance during  the charter application period or after the charter school has opened.  Types of assistance that are designed to help charter school founders  operate their schools include staff development and management, use of  student data, technology training, and curriculum development.
Charter school founders also rely on nonprofit organizations to help them  gain expertise. Charter school resource centers, which are primarily  nonprofit organizations, assist charter schools in specific states or regions  in the opening and operation of the school. According to data from a  national charter school advocacy organization, these resource centers  operate in approximately half of the states with charter school laws. The  resource centers address founders’ lack of expertise by providing new  charter schools with a wide range of services, such as budgeting  assistance, board development, and classroom management. The type of  services provided by these resource centers varies significantly. For  example, a charter school resource center in Wisconsin helps charter  schools with board development, networking, business management, and  legal compliance. The Massachusetts Charter School Resource Center  provides a fellowship to a small number of charter school founders.  Charter school founders selected to participate in this competitive  program are paid $50,000 for 1 year, as they learn how to effectively found  and operate a charter school through a training and internship program.  According to resource center representatives with whom we spoke,  charter school resource centers also may help potential founders make  decisions about moving forward with the application and chartering  process. By helping potential charter school founders better understand  what is involved with founding a new charter school, resource centers can  also offer potential founders advice as they decide whether or not they  should attempt to open a charter school. The funding and operation of  charter school resource centers also varies significantly. Charter school  resource centers may be funded by private donations, supported by fee- for-service arrangements, sponsored by university programs, or financed  by state or local governments.
In addition to more formal resources, charter school founders rely on  other charter school founders and their own boards of directors to help  them gain needed expertise. Charter school founders often rely upon other  charter school founders who had opened schools in the same state or  region for expertise and advise. One charter school founder we  interviewed said that the insights and expertise provided by people who  had also gone through the local chartering process enabled him to more  fully understand what was required to charter and open a school.  Additionally, charter school founders seek expertise and assistance from  their boards of directors. As nonprofit organizations, all charter schools  must have a board of directors responsible for school governance issues.  Charter school boards often include members with varying areas of  expertise, such as lawyers, accountants, management consultants, and  community organizers. Founders, therefore, have an additional resource  available to assist them with issues that may be outside of their own area  of expertise.
section_title: District of Columbia Charter Schools Face Similar Challenges, but More Facilities Assistance Is Available
paragraphs: Charter school founders in the District of Columbia, like charter schools  nationwide, face challenges with facilities, start-up funding, and expertise,  and except for receiving greater assistance with funding facilities, have  generally similar resources. Although D.C. charter schools receive greater  facilities assistance, charter school founders report that real estate costs  and the current unavailability of public buildings make securing  appropriate buildings difficult. New charter schools in the District also  report incurring substantial costs early in the design and planning stages  and cite obtaining start-up funding as a significant challenge to starting a  new charter school. However, in addition to design and planning funds  available through the Public Charter Schools Program, new charter  schools in the District can receive partial access to local funds prior to the  opening of the school. Finally, new charter school founders in the District  reported that developing the expertise needed to successfully open and  operate a charter school presents a problem that has been exacerbated by  the recent closing of the nonprofit organization, the D.C. Charter School  Resource Center.
subsections: section_title: District Charter Schools Have Additional Resources to Address Facilities Problem, but Real Estate Costs in the District Continue to Limit Options
paragraphs: According to D.C. charter school founders and other knowledgeable  sources with whom we spoke, securing appropriate facilities is the  greatest challenge to opening a charter school in the District. Charter  school officials and charter school authorizing officials told us that in  recent years the expense of real estate in the District of Columbia has  limited the options available to new charter schools. National reports on  commercial real estate markets show that commercial property in the  District is among the most expensive in the nation and that there is  continued strong demand for commercial property. Additionally, D.C.  charter school founders reported that available buildings tend to be older,  in need of extensive and costly renovations, or not fit to be used as  schools. For example, one charter school organization that purchased an  unoccupied District of Columbia Public Schools (DCPS) building  estimated that the cost of renovating the building would be over   $5 million.
To help alleviate some of this strain, the D.C. charter school law provides  charter schools with a limited preference in acquiring surplus DCPS  buildings. Specifically, the law provides charter schools with a preference  to purchase or lease DCPS surplus buildings at below market rates,  provided that doing so will not result in a significant loss of revenue that  might be obtained from other dispositions or use of the property. In March  2000, DCPS conducted an inventory of all its schools and designated   38 surplus school buildings. As of June 2003, charter schools are using   14 of these buildings: 11 set aside for their exclusive use by order of the  mayor in October 2000 and 3 others. According to District officials, of  these 14 buildings, charter school groups have purchased, or are in the  process of purchasing, about half at a 25 percent discount from fair market  value. The other half are being leased to charter schools at discounted  rates—about 50 percent of fair market value. As of June 2003, DCPS had  designated no additional surplus buildings. However, as a part of its  Facilities Master Plan, a comprehensive plan for renovating or  modernizing its schools, DCPS is currently finalizing a facilities  assessment. This assessment, which DCPS expects to complete by  September 2003, could potentially identify additional surplus school  buildings. If such buildings were identified, a list of them would be sent  to the mayor’s office, which would determine how to dispose of them.
In addition to these preferences, DCPS designated one of its public school  buildings as a “hub school,” where charter schools can lease space for up  to 3 years. Since 1998, the hub school has housed a total of 6 charter  schools, 3 charter schools at a time, with each charter school occupying its  own floor. All the schools in the building share common space, such as the  auditorium, gymnasium, and outdoor field space. The two authorizing  boards notify charter schools when space in the hub school becomes  available, and charter schools can submit an application to the Mayor’s  Office of Property Management for consideration.
In addition to the hub school, DCPS occasionally provides charter schools  with other temporary space. It provides such space when a DCPS school is  not using part of the building it occupies or when DCPS has a vacant  building that it has not designated as surplus. In such cases, DCPS allows  charter schools to lease the space on a year-to-year basis. According to an  official in the DCPS realty office, 2 charter schools rented excess space in  an occupied DCPS school building under this type of agreement in school  year 2002-2003. Currently, DCPS has no formal process for making  temporary space available to charter schools. In providing charter schools  with temporary space, the District and DCPS meet some needs particular  to charter schools. Specifically, the hub school and the DCPS temporary  space allow charter schools, which are often initially smaller than  traditional schools, to benefit from the economies of scale realized by  sharing space, such as cafeterias and gymnasiums, with another school.  Temporary space also allows charter schools to focus on the educational  component of their school first rather than focusing on finding a  permanent facility.
Recent legislation increased the potential for additional shared space  arrangements. This legislation requires DCPS to present a plan to the City  Council for the co-location of charter and other public schools where  underutilized DCPS space exists. As of July 2003, the co-location plan had  not been completed, but DCPS was finalizing a use and capacity study of  all its school buildings, which should identify any underutilized space that  currently exists.
In addition to the District, two nonprofit organizations have provided D.C.  charter schools with assistance in sharing facilities. The Appletree Charter  School Incubator—a charter school start-up facility operated by a  nonprofit organization—provided temporary space to 2 District charter  schools between 1998 and 2002. The Appletree Institute rented space in a  federally leased building at a discount for 4 years and then provided space  to District charter schools at a discounted rate. The Incubator closed when  the lease expired in 2002 and as of June 2003, both schools were leasing  space in other buildings. In 2003, another nonprofit group, the Charter  Schools Development Corporation (CSDC), purchased a surplus DCPS  building, which it is renovating and will use to permanently house   2 charter schools, according to a CSDC official.
Besides providing some access to facilities, the District of Columbia also  provides financial assistance to help charter schools acquire facilities  through a variety of mechanisms. One of these is a per-pupil facilities  allotment. In addition to a per-pupil allotment that covers operating  expenses, District charter schools receive a per-pupil allotment for  facilities expenses. In the 2002-2003 school year, charter schools in the  District received a facilities allotment of approximately $1,600 per pupil  for traditional students and about $3,600 per pupil for students at public  charter boarding schools.
Another way the District provides financial support for facilities to charter  schools is through its Credit Enhancement Revolving Fund. Under the  authority of the D.C. Department of Banking and Financial Institutions,  this program provides loan guarantees and collateral to help finance the  purchase or new construction of charter school facilities. The Credit  Enhancement Revolving Fund was first appropriated $5 million in fiscal  year 2000. It was not until 2003 that it received its second appropriation  totaling $8 million. To date, the Credit Enhancement Revolving Fund has  been able to enhance 6 charter school loans.
In addition to the Credit Enhancement Revolving Fund, in fiscal year   2003, the District allocated $5 million to a new direct-loan program. Under  this program, the District can provide low-interest loans directly to charter  schools, rather than through private lenders. Charter schools can use the  proceeds from these loans as collateral for a larger loan on a purchase,  new construction, or renovation of a building. This program will  potentially benefit new charter schools the most because private lenders  often do not lend to charter schools that have not begun operating. District  officials told us that as of August 2003, the District has obligated funds  from the direct loan program to 7 charter schools for varying amounts, but  the loan process has not yet been completed.
The District also provides financial assistance to help charter schools  acquire facilities by allowing charter schools to raise revenues through  tax-exempt bonds. The District will issue bonds on behalf of charter  schools if the charter school meets certain eligibility requirements,  including that the charter school holds nonprofit status, has sufficient  collateral, and has been operating as a school for at least 2 years.  According to the D.C. official overseeing the bond program, new charter  schools have not been able to benefit from this source of funding because  they have not been operating long enough to qualify. As of August   2003, the District has issued 7 bonds on behalf of 6 charter schools,   which has allowed District charter schools to borrow over $39.4 million   in bond revenues to use for their facilities.  One additional charter school  has a bond issue pending.
In addition to tax-exempt bonds, two other federal bond programs are  available to both traditional schools and charter schools in the district— QZAB and private activity bonds. According to District officials, as of June  2003, no charter schools had applied for either of these programs.
Figure 3 shows a summary of the kinds of facility assistance received by  D.C. charter schools operating during the 2002-2003 school year. Some of  this assistance was received at start-up, such as temporary housing in the  hub school, some was received after start-up, for example, tax-exempt  bonds for facilities, and some is received on an on-going basis, for  example, the per-pupil facilities allotment received by all schools. For a  list of charter schools operating in the District in the 2003-2003 school   year and their facility status, see appendix III.
section_title: The District, Like a Few States, Provides Early Access to Funds to Lessen Start-Up Funding Issues
paragraphs: Like new charter schools in other parts of the country, new charter  schools in the District also incur high start-up costs early in the design and  planning stages. A variety of District charter school founders and others  knowledgeable about charter school issues said that there were limited  options for obtaining start-up funding to plan a new school, but that once  the charter application was approved, more funding options became  available. The D.C. Public Charter School Board and the D.C. Board of  Education have similar application processes, which usually start over a  year before the school’s intended opening. Figure 4 shows a typical  timeline, including when a charter school might expect to become eligible  for public funds. Charter schools in the District must apply for their  charter by June for the school year that starts in September of the  following year. Between July and August, both chartering boards hold  public hearings to ask questions of the charter schools and to allow the  community to provide input on the charter school. In August, preliminary  decisions are made on the charter. At that point, charter applications  receive a preliminary approval, a full approval, or a denial. According to  officials from both authorizing boards, many of their applications receive a  preliminary approval before a full approval.
Until fiscal year 2003, charter schools were not eligible for public funds  prior to receiving preliminary approval. As a result, charter schools relied  on private sources of funding to cover their expenses. For example, one  recently approved charter school founder reported spending close to  $200,000 in private foundation funds during the early planning stages of  the charter school to pay for fees and feasibility studies on a facility she  planned to use for her charter school. Another charter school founder said  that he had to take out a personal loan to put a deposit on a facility.  Charter school founders said that early funds would be helpful in paying  for such things as compensation for the time professionals spent on  writing the charter application and initial inspections of facilities.
Beginning in fiscal year 2003, D.C. began awarding pre-planning subgrants  for up to $10,000 from its federal Public Charter Schools Program grant,  making some funds available earlier in the process. Potential charter  school applicants can obtain these grants prior to the submission of the  charter application. The D.C. program specifies that these funds may be  used for up to 12 months of pre-planning activities, such as the  professional development of the charter school planning team and  informing the community about the school. In fiscal year 2003, nine D.C.  charter school groups received these grants.
D.C. charter school applicants that have received preliminary approval are  eligible to apply for Public Charter Schools Program subgrants for up to  $110,000 to be used the first year following preliminary approval. In the  second and third years, charter schools can receive subgrants in amounts  from $95,000 to $200,000 to be used for implementation purposes. In fiscal  year 2003, DCPS awarded 4 first-year subgrants for $110,000 each and   5 second/third year subgrants for $200,000 each. Applicants can apply for  one or all of these subgrants— pre-planning, first, second, and third year—  but the total period of time in which these funds are received cannot  exceed 36 months.
The District also provides charter schools with access to some local  funds—a short-term loan against their annual funds and early payment of  their first-quarter funds—after the charter is fully approved and prior to  the schools opening. To receive either type of funding, schools must have  obtained full approval of their charter, secured a facility, and hold  nonprofit status. According to District officials, no charter schools have  applied for the short–term loan in the past 3 years because the District  changed its policy and now disburses its first-quarter payment in July,  approximately 6-8 weeks prior to the start of the school year. The timeline  for receiving the first-quarter payment is now consistent with when many  charter schools can meet the eligibility requirements for receiving this  loan.
section_title: The District Charter School Resource Center’s Closing Has Diminished Access to Start-Up Knowledge, although Some Local Resources Are Available
paragraphs: New charter school founders in the District are similar to charter school  founders across the country in that they must have expertise in a wide  range of areas to successfully open and operate a charter school. In our  discussions, some D.C. charter school experts said that one of the  challenges that many charter school founders encounter is acquiring the  business and legal knowledge necessary to run a school. D.C. charter  school experts said that many charter school founders have a vision for  the education they want to provide their students but do not always know  how to manage the many tasks involved with administering a school. To  address this issue, the District chartering authorities provide some  assistance with the application and other technical assistance to school  founders during the chartering process. However, this support is often  limited to assisting charter school groups with the application process and  does not always include support once the application has been approved.  For this reason, many charter schools turn to private and nonprofit  resources to assist them with these issues.
The nonprofit D.C. Charter School Resource Center offered assistance to  charter school groups until it closed in the spring of 2003. According to  individuals familiar with the D.C. resource center, since 1998 it offered  classes on how to fill out the charter application and put charter school  groups in contact with organizations that would potentially provide some  monetary assistance. Local charter school advocates told us that the  nonprofit D.C. Charter School Resource Center’s recent closing has  limited the amount of assistance available to help new charter schools  founders acquire necessary expertise.
section_title: Concluding Observations
paragraphs: The clear consensus among those with whom we spoke and in the  literature we reviewed was that start-up funds and obtaining an adequate  facility remain significant obstacles for charter schools, especially in those  locations like the District of Columbia, where the cost of and demand for  property is high. Relative to charter schools in many other locations,  District charter schools benefit from a greater variety of facilities-related  support, such as a per-pupil facility allowance and preference to surplus  school buildings. In addition, recent steps taken to identify surplus  property and underutilized school buildings have potential for making  additional space available to charter schools. However, although the law  provides for giving charter schools a limited preference in acquiring  surplus DCPS property, it also contains the stipulation that the preference  is only to be given provided that doing so will not result in a significant  loss of revenue that might otherwise be obtained.
subsections: section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Education for its  review and comment. Education’s Executive Secretariat confirmed that  Education officials had reviewed the draft and found the information in  the draft to be helpful. Education officials had no comments except for a  few technical clarifications, which we incorporated as appropriate in this  report.
We also provided a draft of this report to officials at both of the D.C.  charter school authorizing bodies - the D.C. Board of Education and the  D.C. Public Charter School Board. In addition, we provided portions of the  draft report pertaining to the District of Columbia to officials from D.C.  Public Schools, the Executive Office of the Mayor, the Department of  Banking and Financial Institutions, and the Office of the Chief Financial  Officer.  Officials from these offices provided technical comments, which  we incorporated as appropriate in this report.
We are sending copies of this report to the Secretary of the Department of  Education, relevant congressional committees, relevant District of  Columbia officials, and other interested parties. We will also make copies  available to others upon request. In addition, the report will be available at  no charge on GAO’s Web site at http://www.gao.gov. Please contact me at  (202) 512-7215 if you or your staffs have any questions about this report.  Other major contributors to this report are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To obtain information about the challenges faced by charter school start- ups across the country and the resources available, we analyzed federal  and state charter school laws. We conducted interviews with U.S.  Department of Education officials, charter school policy experts, and  charter school advocates in various states. Specifically, we interviewed  representatives from the Charter School Friends National Network, the  Progressive Policy Institute, and other advocacy and research groups. We  also interviewed representatives from charter school resource centers in  some states—Florida, Massachusetts, Minnesota, Pennsylvania,  Tennessee, and Wisconsin—that were identified as having proactive  resource centers by those knowledgeable about charter schools. We also  conducted a review of all state laws on charter school facilities. We  reviewed the Department of Education’s 4-year studies on the state of  charter schools and Education’s Public Charter Schools Program  evaluation. Additionally, we analyzed Education Commission of the States  data published in the Collection of Charter School ECS StateNotes.
To obtain information about charter schools in the District of Columbia,  we analyzed District of Columbia and federal laws affecting charter  schools in the District. We interviewed officials from the District of  Columbia Board of Education Public Charter Schools Oversight Office, the  District of Columbia Public Charter School Board, the District of Columbia  Public Schools, and several other D.C. government offices, including the  Executive Office of the Mayor, the Department of Banking and Financial  Institutions, and the Office of the Chief Financial Officer. We conducted a  discussion group consisting of District representatives from charter school  advocacy groups, researchers, charter school founders, and other  individuals knowledgeable of charter school issues in the District of  Columbia. We also interviewed founders of D.C. charter schools, as well as  other representatives from the D.C. charter school community, including  the AppleTree Institute, Friends of Choice in Urban Schools (FOCUS), and  the Charter Schools Development Corporation. We also visited César  Chávez Public Charter High School for Public Policy, 1 of the 39 charter  school campuses in the District.
section_title: Appendix II: Charter School Facility Assistance Provisions, as of July 2003
subsections: section_title: State requirements pertaining to facility assistance for charter schools.
paragraphs: Law permits operation of schools in existing school district facilities upon approval of district’s administrative  staff.
State has a “stimulus fund” which provides financial support for start-up costs and costs associated with  facilities’ renovations or remodeling. The Arizona Department of Education must publish an annual list of  existing vacant and unused buildings, and unused portions of buildings available to charter schools. (No  lease/purchase preference is given to charter schools.)
No facilities assistance provisions.
State has established a “Charter School Facilities Account” funded by bond proceeds (K-12). Additionally, the  state has set up a charter school facility grant program for charter schools located in low-income areas which  awards up to $750 per student to provide assistance for up to 75 percent of the charter school’s annual  facilities rent and lease costs. Each school district must make any vacant school facilities available to charter  schools at minimum charge.
Charter schools must be able to use district facilities “deemed available” by the school district at no cost, except  for operations and maintenance expenses. The state must distribute a portion of its education funds to charter  schools to help cover capital construction costs. A charter school may ask its local school board to issue bonds  to fund capital construction expenses.
State has established a grant program that provides charter schools with up to $500,000 for assistance with  capital expenses; to be eligible, the charter school must have been operating during the prior fiscal year.
School districts must make unused buildings or space available for charter schools, and must “bargain in good  faith” over the cost of rent, services, and maintenance. The Delaware Department of Education must publish an  annual list of facilities available for charter school use.
District of Columbia  District of Columbia offers charter schools a limited preference to lease or purchase surplus public school  buildings provided that doing so will not result in a significant loss of revenue that might be obtained from other  dispositions or uses of the facility or property. An “enhanced credit fund” has also been established to help  charter schools finance the purchase, construction, and/or renovation of facilities. District charter schools also  receive an annual per-pupil facilities allowance.
State agencies may issue revenue bonds to provide for charter school facilities assistance. Charter schools are  also eligible for facilities assistance from a state capital outlay fund. Charter schools are offered a preference to  use surplus school buildings.
Georgia State Board of Education may require a local referendum to decide whether a local board of education  must provide funds from school tax levies or incur bonded indebtedness or both, to support a charter school.
State oversees annual maintenance and repairs for charter school facilities and establishes a priority-of-need  list for charter school facilities requiring assistance.
A charter school’s board of directors may borrow money to finance the purchase of facilities for charter schools.
A charter school may negotiate and contract with a school district, a state college or university, or any other  public, nonprofit, or for-profit entity for a school charter site. If a charter school uses an existing school building,  the school is only required to pay the building operation and maintenance costs—no rent is required.
No facilities assistance provisions.
No facilities assistance provisions.
No facilities assistance provisions.
Local school boards must make any vacant facility available to charter schools at fair market value. Facilities  that were constructed at no cost to the school board must be provided to the charter school at no cost.
State requirements pertaining to facility assistance for charter schools.
No facilities assistance provisions.
Massachusetts funds charter schools on a per-pupil basis. As part of this payment, the state includes the  charter school’s cost of leasing a facility, as well as facility maintenance and operation expenses, in the  payment.
No facilities assistance provisions.
The state provides building lease aid grants to charter schools. A charter school may lease space from an  eligible charter school sponsor or from another public or private nonprofit nonsectarian organization.
No facilities assistance provisions.
A state school district may incur bonded indebtedness or “take other measures” to provide for physical facilities  and other capital items to charter schools that it sponsors or contracts with.
No facilities assistance provisions.
Charter schools and their “host” school district are encouraged to enter into “mutually advantageous”  contracting relationships resulting in the sharing of facilities. A charter school is not eligible for facility  assistance unless the school is leasing a building owned by the school district, and the lease does not include  an option to purchase the building.
No facilities assistance provisions.
Charter schools are not required to pay rent for available school district facility space. New Mexico has  established a “Charter School Stimulus Fund” for the initial costs of renovating and remodeling existing  buildings.
State must publish an annual list of available state buildings for use by charter schools. State established a  charter school “stimulus fund” for acquisition, renovation, and construction of charter school facilities.
If a charter school that has applied for approval to the State Board of Education is unable to find a building, the  Board can approve the charter school to operate in an “adjacent local school administrative unit” for one year.  At the request of a charter school, a school district must lease “any” available building or land to the charter  school, unless the lease is not economically practical or feasible, or the district does not have adequate  classroom space to meet its enrollment needs. A school district may lease a building to a charter school free of  charge, except for maintenance and insurance expenses. North Carolina Capital Facilities Finance Agency (or  its successor) may issue bonds on behalf of charter schools.
Charter schools may use a school district facility under any contract terms that the district agrees to. Charter  schools may use loans obtained under the state facilities loan guarantee program for the construction of new  school buildings. If a board of education decides to dispose of property suitable for classroom space, it must  first offer the property for sale to start up community schools.
State has established an “incentive fund” for charter school renovation and remodeling of existing building.
To the extent such information is readily available, education service districts must make lists of vacant  buildings available to the public; however, there is no preference or obligation to lease to a charter school.
No facilities assistance provisions.
No facilities assistance provisions.
Public charter schools sponsored by school districts are eligible for reimbursement of “school housing costs.”  Public charter schools not sponsored by school districts are eligible for 30 percent reimbursement of “school  housing costs.”
State requirements pertaining to facility assistance for charter schools.
State must publish an annual list of vacant state buildings. Charter schools have a “right of first refusal” for  vacant school buildings.
No facilities assistance provisions.
Nonprofit revenue bonds may be issued for facilities assistance.
No facilities assistance provisions.
Charter schools do not have to pay rent for available school buildings.
No facilities assistance provisions.
Charter schools are not required to pay rent for school property “deemed available” in school district.
section_title: Appendix III: Charter Schools Operating during 2002-03 School Year in D.C. and Facility Status
subsections: section_title: Charter schools campus
paragraphs: Village Learning Center PCS  (elementary school)
Village Learning Center PCS (middle  and high school)
section_title: Appendix IV: A Comparison of Number of Charter Schools and Select Resources Available
paragraphs: Number of charter  schools 2002-03  school year  ($ for FY 02)
Size of federal Public  Charter School State Grant  ($ for FY 02)
section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: The following staff also contributed to this report: Anjali Tekchandani,  Behn Miller Kelly, Ronald La Due Lake, and Patrick Dibattista.
section_title: Related GAO Products
paragraphs: Public Schools: Insufficient Research to Determine Effectiveness of  Selected Private Education Companies. GAO-03-11. Washington, D.C.:  October 29, 2002.
School Vouchers: Characteristics of Privately Funded Programs.   GAO-02-752. Washington, D.C.: September 26, 2002.
School Vouchers: Publicly Funded Programs in Cleveland and  Milwaukee. GAO-01-914. Washington, D.C.: August 31, 2001.
Charter Schools: Limited Access to Facility Financing.   GAO/HEHS-00-163. Washington, D.C.: September 12, 2000.
Charter Schools: Federal Funding Available but Barriers Exist.  GAO/HEHS-98-84. Washington, D.C.: April 30, 1998.
Charter Schools: Recent Experiences in Accessing Federal Funds.  GAO/T-HEHS-98-129. Washington, D.C.: March 31, 1998.
Charter Schools: Issues Affecting Access to Federal Funds.  GAO-T-HEHS-97-216. Washington, D.C.: September 16, 1997.
Private Management of Public Schools: Early Experiences in Four School  Districts. GAO/HEHS-96-3. Washington, D.C.: April 19, 1996.
Charter Schools: New Model for Public Schools Provides Opportunities  and Challenges. GAO/HEHS-95-42. Washington, D.C.: January 18, 1995.