POLITICS

Surprise charter school loan program raises new questions

Tony Cook, and Kris Turner

In the final days of this year's legislative session, Republican lawmakers dropped into the massive state budget bill a provision giving charter schools access to $50 million in low-interest state loans.

The measure was a last-minute effort to appease Gov. Mike Pence, who had sought more funding for charter schools, and it received virtually no public scrutiny.

Now some critics — including the Senate's chief budget writer — are sounding an alarm about the new program, given the significant debt of many charter schools.

The main concern: Who will be on the hook if charter schools don't repay the loans?

"Some of these charter schools have some pretty enormous debt pictures right now," said Senate Appropriations Chairman Luke Kenley, R-Noblesville. "I don't think they have the ability to retire that debt. It's really a problem."

Pence dismissed the potential risk to taxpayers. He noted that the new law gives the state a security interest if charter schools use the loan money to build or purchase new facilities.

Charter school officials say the loan program is needed to put them on more equal footing with traditional public schools — and they argue that borrowing to construct new buildings is a better long-term financial deal than leasing.

But if history is any guide, Kenley has reason to worry.

In 2013, the state forgave and paid off more than $90 million in charter school loans. The move drew protests from traditional public schools whose loans were not forgiven and consequently charter schools were no longer given access to the loan money.

Kenley said Pence and House Speaker Brian Bosma plan to do the same thing again with the new loan program — an assertion that neither denied outright.

"It's always a possibility in the future," Bosma said.

Loan program part of compromise

The new program slipped into the budget during the waning hours of the legislative session in late April.

Throughout the session, Pence and Bosma had pushed for a $1,500-per-student grant for charter schools. The intent was to give them money for construction and other capital expenses that traditional public school districts receive through local property taxes.

But the proposal hit a snag in the Senate, where GOP lawmakers balked at the $20 million-a-year price tag.

Ultimately, they settled on a $500-per-student grant and the new loan program, which gives charter schools access to up to $50 million in loans from the state's common school fund.

The fund has about $170 million available — money that would normally be reserved for traditional public school loans for construction and technology purchases. Now, charter schools can access nearly a third of the funds at an interest rate of just 1 percent.

Charter schools are public schools that don't fall under the jurisdiction of a public school corporation. They are operated by managers who are chosen by a governing board, which reports to an authorizing organization. The state appointed universities and the Indianapolis mayor as Indiana's authorizers.

The charter loan program came as a surprise to Dennis Costerison, executive director of the Indiana Association of School Business Officials, which lobbies on behalf of traditional public schools.

"This issue was never really discussed at any time," he said. "The question is, 'Have they shown the need and will there be a study of all these issues?' This should have come after a study showing if there was a need."

Pence said the loan program aligns with his longstanding goal of helping charter schools pay for facilities, since they don't benefit from local property taxes.

"I think the combination of the increase in per pupil funding as well as making resources available through the common school fund really gives our charter schools a set of options that will let them meet the facility challenges and also create an environment where we're attracting more charter school operators to the state of Indiana in the years ahead," Pence said.

Most charters have debt

An Indianapolis Star review of school financial records found that some charter schools that plan to tap the new loans already have significant debt loads.

Thea Bowman Leadership Academy in Gary is the state's most-indebted charter school, with more than $18 million in outstanding obligations.

Despite that figure, the school is considering applying for a loan under the new program.

Interim President Ben Clement said the school should be able to take on additional debt without a problem, though he said no final decisions have been made.

"If I just had to answer anecdotally, I think we can, but I wouldn't want to answer that without input from our treasurer," he said.

Indianapolis-based Tindley Accelerated Schools plans to apply for a $5 million loan – the maximum allowed under the new program – to help fund an expansion at its high school and purchase two buildings.

Tindley currently carries about $5 million in debt. Doubling that won't be a problem, said Marcus Robinson, the school's chancellor and chief executive officer.

"We are in better shape taking a loan on the buildings than leasing the buildings," he said.

Overall, 43 of the state's 79 charter schools already have outstanding obligations, for a collective debt of about $120 million.

Traditional public school districts carry much larger debt loads, but those loans are typically backed by property tax levies, making them relatively safe bets. Of the 655 outstanding common school fund loans to traditional public schools, none are behind on payments, according to the state treasurer's office. Nor have any traditional public school loans been forgiven.

Charter schools, on the other hand, are less predictable. Several of the charter schools whose loans were forgiven in 2013 ceased operations shortly thereafter.

"In the last couple years, there have been about 15 or more school closures in Indiana alone," said John O'Neal, policy and research coordinator for the Indiana State Teachers Association. "I think it's definitely something to question whether it's a good use of tax dollars when these schools can just pick up and leave."

All of the loan fund should have been allocated to traditional public schools, said Kathy Friend, chief financial officer of Fort Wayne Community Schools. Linking the loans to the grades charters receive – only those that receive an A, B or C are eligible to receive funding unless they receive an exception from the Indiana State Board of Education – was a smart move, she added.

Still, Kenley said, protecting the state's financial interests was "a very real concern" in his budget committee.

"If you give them a loan, you have to structure it in a way that they can't just take the money and run," he said. "I'm not sure how you do that."

Ultimately, it will be up to the State Board of Education, which is charged with administering the new program when it goes into effect July 1.

Marc Lotter, a spokesman for the board, said it's too early to tell how the loan program will take shape.

"Obviously, it's only been signed into law for a couple of weeks now," he said. "We know the charter schools are anxious to access these funds."

Lotter said the board is likely to partner with a state agency with financial expertise to help orchestrate the loans.

Call Star reporter Tony Cook at (317) 444-6081. Follow him on Twitter: @indystartony.