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More than one in nine of Minnesota's charter schools have taken advantage of a loophole in state law to buy or build their own buildings using public money intended to help them lease space. The loophole allows charter schools to bypass the voter approval that traditional school districts need before buying or building schools.
The charter school lease aid law was passed in 1997 to help charters rent space and compensate for the fact those schools can't levy taxes or use bond measures to buy property.
Of the state's 180 charter schools, more than 20 have used lease aid to get a permanent site. From PACT Charter School in the northwest metro area to Paideia Academy in the southeast, charters are setting up affiliated nonprofit corporations to own the buildings, financed with corporate bonds, leased back to the schools and paid for with state lease aid.
And an expanding lease aid budget, set against a general education fund struggling to keep up with inflation, could trigger a debate between legislators seeking to rein in the lease aid fund and charters who say it is still a poor substitute for direct ownership of a building.
Roughly 62 percent more students are in charter schools this year than in 2004-05, and the state is paying out nearly $31 million in lease aid this year (compared with roughly $21 million in 2004-05). Gov. Tim Pawlenty's budget forecast calls for double-digit lease aid increases through the 2011 fiscal year, when the figure will top out at more than $45 million.
Rep. Mindy Greiling, DFL-Roseville, chairwoman of the House K-12 Education Finance Division, was one of the lease aid bill's sponsors along with current Department of Education Commissioner Alice Seagren.
Greiling said she still supports lease aid, but added, "Any time you give a group an inch, they can take a mile." Ownership of buildings was an unintended consequence of the law, she said.
Seagren, a Republican who served from 1992 to 2004 in the Legislature, said charter schools owning buildings through nonprofits is a mechanism for charters to obtain suitable space when none is available for rent.
She also pointed out there has been no legal challenge to the practice. But a 2003 legislative auditor's report recommended lawmakers review it.
Deborah Parker Junod, project manager of that audit, said charter schools that use nonprofits to own buildings are "clearly circumventing the law."
Sen. Kathy Saltzman, DFL-Woodbury, said she plans to discuss lease aid reform with the Senate E-12 Education Budget Division this session.
Some charter schools would welcome that discussion.
Most charter school directors say it would be easier for schools to own their own buildings; tying funding to an enrollment-based figure such as lease aid, they argue, rules out some types of expansions that won't necessarily bring in more students.
Charter schools can get aid to cover 90 percent of their lease each year or $1,200 per student, whichever is less. The money is in addition to the per-pupil funding all public schools, including charters, receive from the state.
"We'd love to build a gym in our school. What middle school kids don't have a gymnasium?" said Randi Shapiro, the executive director of World Learner School, a 180-student K-8 school in Chaska.
The problem with an expansion like a gym, Shapiro said, is it would have to be paid for with tax dollars and would cause the property value to go up.
But the presence of a gymnasium wouldn't be enough of a draw to pull in more students, which means lease aid wouldn't rise to cover the increases.
"If you were in another school, you'd just hold a referendum," she said.
Answering to voters?
With overall state education aid lagging inflation, some public schools argue that the practice of using nonprofits to own charter school buildings creates a system where charters can get tax dollars without voter approval and take students away from traditional schools.
The biggest example might be in Stillwater, where more than 20 percent of students in the district's boundaries attend school elsewhere and where projections have enrollment slipping through 2011.
Meanwhile, St. Croix Preparatory Academy has grown to about 450 students in its four years. Its nonprofit, Friends of St. Croix Prep, received Washington County approval in January to build a $19 million, 144,000-square-foot building in Baytown Township that will open in 2009.
The school would top out at a K-12 enrollment of 975 and its building would include a gym, media center, theater, outdoor amphitheater, two baseball fields, a soccer field, a full-size track and space to add a swimming pool. With a full enrollment, St. Croix Prep could generate $1.17 million in lease aid each year.
That has Saltzman questioning whether the building needs to be so big and Stillwater school board chair Kathy Buchholz calling for charters to also go before voters.
"The charter school in our area can limit class sizes to 25, and when we go out to our public for more money so we can have reduced class sizes, that didn't pass," she said, referring to a failed levy question that would have brought about $1 million a year to the district. "They can get about a million in lease aid without asking voters for that money."
But the lease aid system requires charters to think twice before finding a permanent structure, St. Croix Prep director Jon Gutierrez said.
A larger building with more amenities lends legitimacy to the school, he said, but it needs assurances like an enrollment waiting list to ensure extra lease aid will follow. "If you don't have a waiting list to get into your school, you always jeopardize your future," he said.
Lease aid solutions unclear
Seagren said the Department of Education has studied the possibility of charters' owning their buildings. One idea, she said, was to create a statewide pool of money to buy out buildings for charters that have been in existence for five to 10 years and turn them directly to the schools.
"It'd have to be a pretty sizable amount of money," she said. "You're starting to get into the $50 million [a year] range if you were going to buy out leased space."
Both sides of the debate seem to have enough questions about the 11-year-old rule to take a hard look at the status quo.
"The laws have forced charter schools to create those building companies," Shapiro said. "Right now, there isn't another way." Ben Goessling • 651-298-1546