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State holdback of funds will kick charter schools especially hard

Yesterday afternoon, I called Eric Mahmoud, founder and director of Harvest Prep-Seed Academy, two Minneapolis charter schools that have an outstanding record of more or less closing the achievement gap. Would he have a moment to talk about the effect the proposed state shutdown settlement, which would balance the budget by holding back 40 percent of education funding?

There was the audible intake of breath on the other end of the line, followed by a pause and then the sound of Mahmoud laughing — both heartily and ruefully, as it turned out.

Yes, he knew exactly how much devastation the budget-balancing sleight-of-hand at the Capitol would mean for his 800 pupils. Mahmoud just happened to be sitting in his office with the schools’ CFO, trying to puzzle through exactly how to deal with the blow, just two weeks from the start of the new academic year and more than two months after completing his 2011-12 budget.

If the deal is eventually approved by the Legislature, school districts will receive just 60 percent of the state aid they are owed over the next year in fiscal year 2012. Most will cope by borrowing — which, because they are government entities, they will be able to do at a cost of about 1 percent.

By way of example, St. Paul Public Schools, the state’s largest district, anticipates having to borrow $30 million because of the shift, which will cost about $450,000 over the course of the biennium. That half a million dollars will be made up by the $50-per-pupil increase in state aid negotiated by Gov. Mark Dayton, even if it is money most taxpayers would rather not be handing to the bonds issuers.

Must borrow on commercial market
By contrast, because charters do not enjoy “the full faith and credit of the state” as mainstream districts do and must borrow on the commercial market, Harvest Prep-Seed Academy will end up paying $256,000-$640,000 on the $3.2 million it will be forced to borrow. That’s 8 percent to 23 percent, including fees, legal expenses and so forth.

Adding insult to injury, it will be the third year running that charter schools have had to borrow to cope with a state holdback; the last two were 27 percent and 30 percent. And because they traffic mostly in human potential and don’t have a lot of assets to pledge as collateral, they get hosed, to use the technical term.

The cumulative pain of ’09 and ’10 was great enough that last March the Nonprofits Assistance Fund, Minnesota Association of Charter Schools and Charter School Partners (CSP) issued a joint report detailing the impact the shifts had had on the state’s 149 charters. It’s gory, if straightforward, reading [PDF].

Their recommended fixes: Either decrease the holdback for charters from 30 percent to 15 percent (remember this was March, when that still counted as astronomical), provide a state “written assignment” to banks to ensure access to market-rate loans or — the option many would like raised in the next legislative session — a state low-cost loan pool.

Rally at 10 a.m. today
CSP has called for a rally to be held at 10 this morning on the west steps of the Capitol building, just outside Dayton’s office. The GOP is said to favor their request that charters be exempted from the holdback, while the governor is thought to oppose it.

“More and more schools are careening toward the edge,” said CSP Director of External Affairs Brian Sweeney. “There will be schools that won’t survive.”

It’s not purely a financial issue to Mahmoud, nor is it a question of charters vs. mainline public schools. “This is balancing the budget on the back of education,” he said. “We have the second-widest achievement gap in the country and the fact that we are talking about putting more on our schools and disproportionately on charters — it’s just amazing to me.

“Is this the best our leaders could come up with?”

Mahmoud is pretty sure taxpayers would rather see the hundreds of thousands Harvest Prep and Seed Academy will spend on financing used at the classroom level. Where, incidentally, great things worth paying for are happening.

How great? Well, the state Department of Education is closed at the moment, meaning, among other things, that the results of last year’s statewide standardized tests are still embargoed from the public, but Mahmoud has seen his pupils’ results and allows as how they are “amazing.”

Boys testing above state averages in math
His African-American boys, a subset virtually everyone in Minnesota is failing, are above state averages in math and well beyond rates in Minneapolis, St. Paul and surrounding suburbs. 

Conceivably, given some data about teacher salaries and an abacus, some of them could calculate the ongoing shifts’ cumulative cost to the two schools. Who would blame the best and the brightest if they then decided that their best post-secondary option was to go into commercial lending and not some fuzzy-headed do-gooder field like teaching?

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Comments (1)

  1. Submitted by Ray Schoch on 07/19/2011 - 10:53 am.

    I’m not even a fan of charter schools, but a 40% holdback is, as Mahmoud said, balancing the budget on the back of education, meaning that, in reality, it’s balancing the budget on the backs of children. I guess “jobs, jobs, jobs,” and the future of the state have magically been rendered irrelevant.

    Congratulations, Republicans.

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