A state law forbidding such schools from owning property has led to abuse, its critics say.
Minnesota lawmakers will begin probing the use of state lease aid money that charter schools have used to fuel a building spree paid for with high-cost junk bonds.
To curtail "abuse" of the fast-growing program, lawmakers will begin a series of hearings next week aimed at tightening controls and reducing costs for charter school projects, Sen. Kathy Saltzman, D-Woodbury, announced Tuesday.
A recent Star Tribune investigation revealed that some school insiders have benefited from questionable fees, and showed how charter school projects moved forward with little of the vetting that typically accompanies other public works. One school project was being led by a convicted sex offender until last month, when the newspaper exposed his past.
"These reported incidents are very disturbing to the public and are examples of how laws loosely drawn and a lack of oversight lead to financial abuse within the system,'' said Saltzman, chair of the Senate Subcommittee on Charter Schools.
The notion of revising Minnesota's lease aid program is supported by the state's leading charter school trade group, whose leader appeared with Saltzman at a news conference on Tuesday.
"We want to ensure that Minnesota citizens get the best value for their investment in public education,'' said Eugene Piccolo, executive director of the Minnesota Association of Charter Schools.
There are about 150 charter schools in Minnesota, and annual lease aid payments have climbed from $1.1 million to $42.4 million over the last decade, making the program one of the fastest growing expenses in the state.
Saltzman and Piccolo said one of the key issues that needs to be addressed is the law that bans charter schools from owning property. Charter school proponents have skirted that ban by using affiliated nonprofit building companies to buy or build new schools by issuing high-interest bonds that are later repaid with lease aid dollars.
By allowing charter schools to own their own facilities, the state could end what Saltzman described as private profiteering at the expense of school children. Piccolo and Saltzman said the upcoming hearings will review many options, among them letting charter schools own property and eliminating the need for building companies and junk-bond deals. They also said the process needs more oversight.
In the end, charter schools should be owned squarely by public entities, not private nonprofit corporations, as the law currently allows, they said.
Piccolo agreed that recent junk bond offerings have wasted state resources. Altogether, 18 charter schools have been built with $178 million in junk bonds in the past decade, with financing costs on some deals chewing up nearly a quarter of the funds raised.
"No one here is going after a specific school,'' Saltzman said. "It's about the financial transactions using public money.''
Saltzman said the hearings will address the overall glut of school buildings in Minnesota. Since 2000, at least 64 metro area school buildings closed because of shifting enrollment, but some districts have refused to rent to charter schools because they view them as competitors.
Piccolo and Saltzman said one idea worth exploring is whether charter schools could occupy unused public schools, possibly paying a reduced rent, so that taxpayers wouldn't have to shell out for new facilities a second time.
If charters are allowed to build their own facilities, something must be done to keep taxpayers off the hook in case the school fails, they said. Piccolo said lawmakers should explore whether it's possible to help charter schools obtain mortgage insurance, which would be one way to protect against potential defaults.
Minnesota's landmark charter school law prohibited charter schools from owning property to keep the focus on education and prevent taxpayer exposure to mortgage defaults if a school failed. In 1998, the law was amended to add a lease-aid program of cash grants after lawmakers discovered many startups were renting unfit space.
Tony Kennedy • 612-673-4213