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State's budget fakery takes a toll on charter schools

Because state funding is often deferred for months, charter schools must take out bridge loans to pay the bills. The interest costs come at the expense of pupils.

April 16, 2013|Michael Hiltzik
(Lynne Sladky, AP )

The CHIME Institute charter school of Woodland Hills would be hard pressed to make ends meet without the help of a program sponsored by the Local Initiatives Support Corp., a New York nonprofit active in underprivileged communities across the nation.

So why would everybody be happy if this LISC program went away?

The answer has much to do with the insane way California has been financing all its public schools, and charter schools in particular, for more than a decade. Since the financial crisis of 2001, the state has balanced its books in part by deferring money due to public schools by months at a time. Some smaller charter schools with limited borrowing history faced annualized borrowing costs of as much as 30% to cover the gap. If the state's funding were not so self-defeating, the LISC program would not have to exist.

There is widespread agreement in government circles that the deferrals always were a lousy idea. Since bills keep coming due while state funding moves off toward the horizon, many school districts have had to take out bridge loans. But the problem is worse for charter schools, which typically can't rely on their districts' credit lines and function closer to the financial margin anyway.

But if there's a bright side to the story, it's that even the most shortsighted government policies can be moderated by an effective nonprofit effort.

"A lot of charter schools were running out of money," Claudia Lima, the executive director at LISC's Los Angeles office, told me. "The school needs to pay teachers, the light bill, overhead, but the money's not coming in."

LISC stepped into the funding breach a year ago by offering eligible charter schools low-cost financing through a process known as factoring. Put simply, it advances the schools a portion of the money they're due from the state, and gets repaid once the funds finally arrive from Sacramento. (The difference between what it advanced and what it receives is the equivalent of an interest rate on a loan.)

Factoring is common in business, where companies sell their accounts receivable — money due from customers, say — so they don't have to wait for the cash. It's not so common in school finance; in fact, California is the only state where LISC has found a need for such a program. At the moment, the organization has closed about $7 million in financings to 12 schools, of which nine are in Los Angeles County, and it's expanding the program to 11 counties outside L.A.

LISC dates from 1979, when it was started with $10 million in seed capital from the Ford Foundation and several big corporations to fund community development groups across the country. The Los Angeles branch provides grants and loans for projects including career training in South L.A. and small-business support in Little Tokyo.

A foundation operating at 30,000 feet, even with the best intentions, can't necessarily figure out the best way to deploy its funds way down there on the ground. By the same token, local community groups and institutions don't always have the reach to access national funding or use it as efficiently as possible. LISC exists to make the connection.

"We're a channel for capital from government, corporations and foundations," says Greg Maher, the organization's senior vice president for lending. "We deploy it in neighborhoods where we have a physical presence by partnering with local groups" and offering them technical assistance and other support. As an example, he cites NFL Charities, which has provided LISC with $30 million to build, upgrade and maintain neighborhood ball fields in NFL cities. "We did the due diligence, working with low-income neighborhoods that wanted to rebuild football fields that were in disrepair and needed maintenance over time."

The charter school financial crisis was another opportunity. LISC was already providing low-cost facilities financing for charter schools in California; it has helped with the funding for $22 million in middle and high school construction in East and South L.A. So it knew that the cycle of deferrals was forcing some schools to the breaking point. In designing the program, LISC tried to aim for schools with good academic performance and a high ratio of low-income students. Elementary and middle-school charters had to show a score of at least 700 — 650 if it had been open three years or less — on the state academic performance index scale of 200 to 1000. At least 30% of its students had to be eligible for free or reduced-price lunches.

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