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House GOP tax bill ends programs charter schools have relied on for building projects

Andrew Osterhaus, a science teacher at Animo Florence-Firestone Middle School, a charter school in South L.A., assists a student as he works on a worksheet.
Kyle Stokes/KPCC
FILE - Andrew Osterhaus, a science teacher at Animo Florence-Firestone Middle School, a charter school in South L.A., assists a student as he works on a worksheet. The charter school operates of out bungalow classrooms "co-located" on an L.A. Unified School District campus.

Finding a place to house a charter school in Los Angeles is tough enough. Constructing a completely new charter school building is tougher still.

Now, charter school advocates are sounding the alarm about provisions of the U.S. House's recently-passed tax bill which, if enacted into law, would end several programs that have been crucial to financing billions of dollars-worth of charter school projects nationwide.

"This bill jeopardizes the ability of charter schools to access the needed resources to secure a facility," said Nina Rees, leader of the National Alliance for Public Charter Schools, in a statement.

Charter schools get public funding, but often don’t get the same funding for facilities as district-run schools. That means they have to pay for facilities largely on their own.

But the "Tax Cuts and Jobs Act" — House Republicans' version of the tax overhaul President Donald Trump has advocated — would eliminate the New Markets Tax Credit and cut off charters' access to tax-exempt Private Activity Bonds and Qualified Zone Academy Bonds. Charters have relied on these incentives to help pay for facilities.

Nationally, charter schools have likely issued more than $15 billion in Private Activity Bonds since 2000, said Christy Wolfe, a senior policy advisor for the National Alliance for Public Charter Schools.

Her organization also estimates the issuance of $2 billion-worth of New Markets Tax Credits helped charter schools unlock around $3.2 billion in financing between 2003 and 2016, according to figures first published on the education website The 74.

In L.A., the non-profit charter financier ExED alone has received authority to issue $176 million in New Market Tax Credits since 2002, helping to unlock financing to build 29 schools.

Wolfe said many charter school leaders believe that, if these tax incentives are eliminated, charter school growth will be stunted.

“To the extent," Wolfe told KPCC, "that Congress and the administration are interested in expanding school choice, access to charter schools, we see a need for greater investment … certainly not moving the completely opposite direction by taking these programs off the table."

The National Alliance for Public Charter Schools prefers Senate Republicans' version of tax overhaul; their bill preserves the New Markets Tax Credit and the tax-exempt bonds.

California charter schools do have other options for finding facilities. Voters statewide recently approved Proposition 51, directing the state to issue more than $9 billion in bonds for public school construction and maintenance. Of that total, $500 million will be earmarked for charter schools.

California law also entitles charter schools to space on traditional, district-run campuses — though in the L.A. Unified School District in particular, these "co-location" arrangements can be sources of acrimony.

Charter school opponents have long felt queasy about the relationships between financial institutions and charter schools that the New Markets Tax Credit incentivizes.

In the New Markets program, lenders issue loans to eligible organizations, including charter schools, in exchange for a 39 percent tax credit. Critics say that allows banks to profit in two ways — from the interest paid by the publicly-funded school and from the tax write-off — while a charter school goes into debt.

But Wolfe said these tax incentive programs are important because charter schools don't typically receive the same facilities funding as district-run schools. These programs, she said, are a "stepping stone to achieving something close to equitable treatment" in facilities funding.

"This is still not putting charter schools on par with districts," Wolfe said. "Districts can issue their own bonds and the taxpayers pay. Charters can issue bonds, and then they pay for it — they don't have any of those benefits."