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State shifts in school funding have created uncomfortable borrowing situations for public school districts everywhere. But for charter schools the financial implications are far more reaching and programs will have to get creative to stay afloat.
Les Hittner, director of operations for Bluffview Montessori, said the problem lies in the very state laws that created charter schools, at the same time limiting them from some of the benefits of public education.
Specifically, charter schools cannot own buildings, and as such do not have the collateral necessary to borrow funds to carry them until state aid payments come through.
To construct a building, Bluffview formed a building corporation that is closely tied to the school but not part of its operations. The school was built through the building corporation using bonds sponsored by the Winona Port Authority, and then leased to Bluffview Montessori for an amount that would pay back the bonds.
State aid helps Bluffview pay that lease, but deferments in that and other aid payments are leaving charters like Bluffview unable to pay their bills and without the leverage to borrow to do so.
At Bluffview, some $400,000 in aid has been offset by new state funding deferments intended to balance the state’s books at the expense of public education. The sudden disappearance of that sum from a $1.8 million budget is significant, but Bluffview officials had already been preparing for rocky funding, they just didn’t anticipate to what degree.
Bluffview started the year with a $200,000 fund balance and made midyear cuts that equal another $120,000, bringing the operating budget down to $1.7 million. “We had what we thought was a pretty good amount of cash for a budget our size,” Hittner said.
The end result for the year is a $240,000 cash deficit that Bluffview is getting creative to bridge, relying on families and the community for the first time to help them do so.
An appeal went out to all Bluffview staff and families asking them not for a donation, but for what officials called an investment to be paid back by 2012.
The school held onto $67,500 of its fund balance for collateral on a line of credit, and opened up a second fund for donations that can collateralize future borrowing when it becomes necessary.
The money will sit in the account in the form of CDs until the loan expires in 2012, eventually being given back to investors if they so choose.
During the first three weeks, Hittner said, the fund has collected $12,700, but some promised business contributions should double that amount before month’s end, he said.
The goal is to build the CD fund to $250,000 over the next couple of months, the amount needed to make sure the school can continue to cash flow while the state holds onto its aid.
Come fall, said Hittner, he expects to see $120,000 of the $400,000 in aid from the state, and cuts implemented this year will double to $240,000 next year. Also, a large population of the student body will be moving into the secondary school at Bluffview, which is funded at a higher aid amount and should create what Hittner believes will be significant improvement in the financial situation. “We should see big improvements in cash flow next year,” he said.
Pitching corporations for business contributions has been a strong point of the plan Bluffview devised to deal with funding problems. “They value Bluffview as an important part of the educational environment in Winona,” Hittner said. “I describe what the plan is, that we’re offering the opportunity not just to donate but to get the money back. They’ve responded favorably.”
With 208 students, Bluffview’s enrollment has held steady for years, but flat funding and increasing costs made staffing and other budget cuts necessary. The dramatic shift in state aid payments, however, have cast even this stable operation into uncertain water.
Hittner said all charter schools in Minnesota are facing the same scenario, and those without ties as deep to their communities may fare worse.
To stay afloat, some schools will have to use special borrowing offers that trade cash flow for high interest payments. It is a very costly option, Hittner said, and one that Bluffview has so far been able to avoid.
For some charters in the state, he acknowledged, the financial stumbling blocks will be too great. “I would have my head in the sand if I said we wouldn’t lose a charter school or two,” he said.
But the situation can also bring out the best in charters, which are often founded on the principles of creativity. “It’s a time for charter schools to do what they do best,” he said. “We are small, lean, able to move left or right quickly. I’ve seen a lot of creativity on this issue.”
There is a piece of legislation in the works that may alleviate the need for creative financing, at least for the state’s more established charter schools.
Currently being tweaked by the Charter School Committee in the Senate, the legislation would allow well established charters to own buildings and use public money to buy them, Hittner said. It would also enable established charters to issue revenue bonds like the Port Authority for purchasing or building schools.
Legislators have not yet identified what would qualify a school as “well established,” but as one of the oldest charter schools in the state, Hittner is reasonably certain Bluffview will qualify.
Either way, he said, the strength of the school, the dedication of its families and staff and its ties to the community will see Bluffview through these uncertain financial times and Bluffview is not in danger of going under. “We’ll get through this,” he said.
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