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Weekly UpdatesCharter school appraisals are often required as pert of a lease negotiation as well as for establishing the value of the real estate for finance or establishing a cost basis for highly specialized program, such as New Markets Tax Credits. This article considers the special real estate issues associated with an appraisal assignment of a charter school. Charter schools have time limitations on their charters, and they have a wide variety of settings, tenure types, and ownership structures. Understanding the history of the charter school movement, the basic charter school organizational structure, and the operational characteristics and issues helps the appraiser in analyzing the characteristics of the charter schools, and selecting and applying the appropriate methodologies.
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The charter school movement has taken root throughout the nation and has become an innovative factor in American education. For those concerned with real estate, a charter school presents issues that differ from mainstream conventional educational facilities. Charter schools have a variety of settings, tenure types, and ownership structures. Evaluating these issues is likely to become more important and complex as charter schools become more commonplace.
On March 10, 2009, the charter school movement received an important endorsement from President Barack Obama. In his remarks to the Hispanic Chamber of Commerce, Obama called for increased creativity in addressing educational conditions and recognized charter schools as having a special role:
With support from the White House and the U.S. Department of Education, charter schools are likely to become an increasingly significant part of the American education system. To evaluate the nature of the real estate of a charter school, appraisers should understand the history of the charter school movement, the basic organizational tenets of the program, and the nature of the real estate as well as the operational characteristics and issues.
What is a Charter School?
Charter schools are semiautonomous public schools that are typically founded when a combination of educators, parents, community groups, or private organizations petition a local school board or county board of education for a contract, or charter, to operate independent of the rules and regulations that normally affect public schools. According to The State of Charter Schools 2000, a report released by the Office of Educational Research and Improvement, the three reasons most often cited to create a charter school are to realize an alternative educational vision, to gain autonomy and flexibility, and to serve a special population. (2)
The basic principle that governs the charter is a bargain between autonomy and accountability. (3) The charter details the organization and management of the school; which curriculum students will be taught and expected to achieve; and the responsibility of school operators to meet certain measures of performance and success. (4) The agreement with the local board of education holds charter schools accountable to the market, for economic viability and parent satisfaction, and to government, for financial stability and student performance.(5) In return, the charter schools can receive exemptions from most state codes and district rules regarding curriculum, instruction, and budget to allow the flexibility to innovate. (6) These charters are typically granted for 3-5 years and at the end of the term, the entity granting the charter may, or may not, renew the contract. (7)
Proponents of charter schools cite a number of benefits for students, parents, and educators alike. The charter school system increases opportunities for learning and access to quality education through high academic standards, small class size, and innovative approaches. It encourages community and parent involvement in public education because parents and students have a choice within the public school system. Charter schools also create new professional opportunities for teachers and social entrepreneurs. (8)
The Charter School Movement
The charter school movement grew from a variety of reform ideas, including alternative schools, site-based management, magnet schools, public school choice, privatization, and community-parental empowerment. (9) Between the 1970s and the late 1980s, the term charter evolved from a suggestion by a New England educator that small groups of teachers should receive contracts to explore new approaches in actual schools-within-schools in Philadelphia. In 1991, Minnesota took the idea a step further by passing the first charter school law and developing charter schools based on the principles of opportunity, choice, and responsibility for results. By 1995, this number had grown to 19 states. Today, the movement has bipartisan support from governors, state legislators, and past and present secretaries of education. (10)
Despite the financial struggles of operating a charter school and a general lack of awareness among registered voters, (11) these enterprises continue to appear across the country. As of September 1997, 29 states and the District of Columbia had passed charter school laws. (12) Today, there are charter school laws in 40 states plus the District of Columbia. Since the mid-1990s, charter schools have experienced double-digit annual growth, with the number of schools rising rapidly from 250 in 1995 to 4,303 in 2008. (13) However, growth fell a few percentage points to 9% in 2008 due to market constraints like charter school caps and moratoriums on new schools. Even with these constraints, 362 new charter schools opened in the 2007-2008 school year. Over 1.2 million students from diverse backgrounds are currently enrolled in charter schools across the country. These students comprise 3% of all K-12 students in the United States, representing a 1% increase in market share from 2007. (14)
New Orleans has the highest charter market share of any community in the nation, with 57% of its students enrolled in charter schools. According to the "Top 10 Charter Communities" list by the National Alliance for Public Charter Schools, public charter schools have played a critical role in rebuilding the New Orleans public school system in the aftermath of Hurricane Katrina. In Southfield, Michigan; Dayton, Ohio; and Washington, DC, charter schools hold a 27% market share, while in Pontiac, Michigan, and Youngstown, Ohio, they have a 23% market share. An indicator of growth since the last release of the report is the expansion of the list to include ten communities in nine states. (15)
The demand for charter schools at the micro level is dependent on basic demographics (i.e., population of school age children), the quality of educational alternatives, population trends, and the local charter school culture. Several of the communities identified in the top-ten list have grown comfortable with charter schools and they have developed a stable local following. In other communities, public, private, or parochial education is effective and popular; consequently the demand for charter schools is constrained. This factor is important to consider when evaluating the value of specially designed real estate and alternative uses in the event a charter school terminates its operations.
Support for charter schools is not universal and the movement has its critics. The relatively small enrollments limit the statistical significance of performance improvements relative to traditional school populations. There are numerous episodes where charter schools fail, closing after several years of poor performance or poor management. These incidents have prompted criticism and tarnished the movement. Schools that were at one time successful may lose their edge. Innovation fades over time and institutions can lose their personality as the school becomes routine and structured. However, even considering the criticism, the momentum for charter school development has grown, and we are likely to see many new charter schools developed throughout the nation.
Charter School Funding
Charter schools are able to offer longer school days, longer school years, and innovative curricula not available in traditional public schools, even though they do not receive the same amount of funding from federal, state, and local government. School administrations across the United States fund charter schools at a level that is 39% lower than their district counterparts. (16) Furthermore, charter schools spend more money on students than they receive, in addition to the costs of salaries, benefits, supplies and services, and capital expenditures. In fact, obtaining and paying for permanent facilities is one of the biggest challenges facing charter schools.
As a result, charter schools must look beyond the per-pupil allocations from federal, state, and local aid to fill the funding gap left by already low costs, which can be as high as $450,000 for a school serving 250 students. (17) One way charter schools have funded operations is through capital campaigning. This strategy can combine public and private grants, individual donations, and online fundraising, among other mechanisms to reach a target. (18)
Bridging the finance gap through public and private grants is a highly competitive process. The federal grant programs to which charter schools have access include the U.S. Department of Housing and Urban Development's Community Development Block Grant, and the U.S. Department of Agriculture's Housing and Community Facilities Program. (19) During his campaign, President Barack Obama pledged to double federal spending on charter schools. (20) With his stated commitment to educational innovation, federal funding is likely to increase and the stimulus plan will permit funding for charter schools. This will be a major boost to charter school development and operations. The amount of additional funding will depend on competing priorities as well the appropriations dedicated to schools in the package. Private local and national foundations receive countless requests for grants, but conditions like economics or location limit the competition for foundation money. (21)
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