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Charter schools face long wait for county funding: State, local money based on outdated mechanism

April 7, 2008

The property tax reform plan recently signed into law by Gov. Mitch Daniels is expected to provide relief-eventually-for most homeowners. Unfortunately, the tax crisis wasn't fixed fast enough for charter schools.

Because property taxes haven't been calculated yet this year, schools didn't get funding advances from Marion County, something 15 of the county's 21 charter schools needed last year.

At least one school-Irvington Community Academy-has received help from the Greater Educational Opportunities Foundation in getting an emergency bridge loan of $100,000. GEO Foundation is a local not-for-profit whose mission is to improve K-12 education statewide. It operates two charter schools in the county and two elsewhere.

Another school-Southeast Neighborhood School of Excellence-tapped into a line of credit it has with Chase Bank in order to make payroll.

Neither school thought borrowing the money was a good solution, but it was their only option, said Tim Ehrgott, principal and founder of the Irvington school, which has 530 students.

Ehrgott and others, including Kevin Teasley, president of GEO Foundation, say the state's complicated and archaic school funding mechanism creates a huge shortfall for charter schools at the start of each year. Those shortfalls lead to cash-flow problems throughout the year that the advances from the county help alleviate.

Charter schools are public schools that operate independently and free of select government regulations if they reach certain student-achievement benchmarks. Like traditional public schools, funding for charters is based on a formula that equates to roughly $6,400 per student. Two-thirds of that money comes from the state and the rest from the county.

Teasley said it's the sporadic timing of the payments that makes the county advances so crucial.

"A school can operate on $6,400 per student," Teasley said. "You've got schools that are doing it. But [with the current system] a train wreck is coming. Schools are going to have to make tough decisions. Can I afford to have this principal? What about this teacher? If you let principals and teachers go, you'll lose students. Parents are wedded to these principals and teachers. It's not easy. It's just not easy."

The state pays its share monthly, but schools don't get a payment until January that reflects current school-year enrollment, and new schools don't get anything at all until January.

The county makes only two payments to the schools-at the end of June and December. This year, the county isn't expected to make its first payment to schools until September-a full nine months after it made its last payment in December.

Last year, the county advanced the June payment, doling out the money in April and May. And because they were advances, they were interest-free. Without that option this year, schools already carrying heavy debt on their books were forced to add to that weight with interestbearing loans.

Indeed, many charter schools are in debt to the state before they ever open their doors because they have to borrow against the first year's funding.

"So, the state loans you the money they owe you, which you then repay with interest," explained J.C. Lasmanis, principal of Southeast Neighborhood School of Excellence, which has 250 students.

The school, which has an annual budget of $2 million, borrowed $450,000 from the state to open its doors four years ago. It is paying 4-percent interest on that loan over 20 years. It also increased its debt to Chase to $300,000 when it couldn't get the advance from the county this year.

"That would have been interest-free," Lasmanis said of the county advance. "So the Chase loan takes away from money that could have gone to instruction." Still, Lasmanis is grateful he has the Chase option.

"If we didn't have these loans, we wouldn't be in business," he said.

The Irvington school is paying off a $1.4 million loan to the state and owes another $5.8 million for its two buildings. Its operating budget is $4 million a year.

Both the timing of payments and the state-provided loan of taxpayer dollars are unusual funding mechanisms compared with those of other states, said Todd Ziebarth, vice president for policy with the National Alliance for Public Charter Schools in Washington, D.C.

"Most states provide advances," Ziebarth said. "It's a good idea to provide stop- gap funding, but to charge interest is definitely unusual and makes a tight budget even tighter."

And most states don't make schools wait so long for their first payment, Ziebarth said. Instead, they make the first payment at the start of the school year on good-faith enrollment estimates and reconcile any differences later.

Charter schools say their funding is tougher to manage than funding for traditional public schools because charters can't raise money by selling bonds, the proceeds of which public schools typically use to fund building and transportation costs.

They also find it difficult to get credit, especially when the schools are new. A state loan-provided by the Common School Loan Fund set up just for charters-is sometimes their only option. The state charges 1-percent interest if the school pays the debt within three years or 4 percent for 20 years. Schools also can borrow more in any year their enrollment increases more than 15 percent.

But even with three or four years under their belts, charters often aren't a sureenough bet for banks.

In fact, to help the Irvington school get its $100,000 loan from Old National Bank, GEO Foundation collateralized the loan.

"Credit has been an issue from day one," Ehrgott said. "The only place I found credit when we started was at the local Kmart. I told some of my teachers, 'You're not working for Carmel when the head of your school is buying your furniture at Kmart.'"

Teasley, with GEO, expects other schools will need help since the county can't make the advances that would have been paid this month.

Teasley plans to leverage a $1 million gift GEO recently received to borrow $5 million. He'll provide that to charters in lieu of the county advance to get them over the hump before they get their money from the county.

The Charter School Service Center within GEO also has found group insurance for schools and is working on other efficiency measures to cut costs.

Charter schools say they don't necessarily need more money-although they'd like more and to have their state loans forgiven. What they need is for payments to come sooner and more regularly, and to have easier access to capital.

"There were a lot of comments about how Indiana had the best charter school laws in the county when we all got going," Ehrgott said. "That may be true, but the trouble was, it was grafted on a very clumsy and archaic funding mechanism. For a charter school, we just don't have any resources. One of our mantras is to be more efficient. I just want smooth funding and to know when it's going to come in."
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