Funding for Public Charter School Facilities: Federal Policy Under the ESEA

Funding for Public Charter School Facilities: Federal Policy Under the ESEA

Order Code RL31128
CRS Report for Congress
Received through the CRS Web
Funding for Public Charter School Facilities:
Federal Policy Under the ESEA
Updated February 8, 2006
David P. Smole
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Funding for Public Charter School Facilities:
Federal Policy Under the ESEA
Summary
A public charter school is a type of public elementary or secondary school that
is exempted from certain rules and regulations otherwise applicable to public schools,
in exchange for a commitment toward attaining positive results in meeting state
content and performance standards in accordance with the terms and conditions of
a charter granted by an authorized public chartering agency. Charter schools may
enroll students who reside within a particular local school district or a geographic
area spanning a number of districts. Chartering agencies may include state, local, and
intermediate boards of education, public and private universities, community
colleges, municipal governments, or other entities authorized by state law.
Depending on how a school is chartered, it may be treated as an independent local
educational agency (LEA), as a school within an LEA, or even as a school within a
school. Forty states and the District of Columbia have enacted charter school laws.
Just as states differ in how they authorize charter schools, they also differ in how
they fund charter schools. States generally require that charter schools be provided
funds for operating expenses on a per-pupil basis. However, only in some states is
a per-pupil allotment provided specifically for facilities or capital expenses. Many
charter school operators report one of their greatest challenges to be obtaining
adequate facilities in which to locate their schools. Specific challenges include
limited funding for facilities and capital expenses; limited available and affordable
space; difficulty in securing access to pre-existing public school facilities; and
difficulty in obtaining financing for renovating, constructing, or leasing facilities.
This report examines the federal role in providing funding for public charter
school facilities. Under the Elementary and Secondary Education Act (ESEA),
federal support for public charter school facilities is authorized under Title V-B —
Public Charter Schools. The U.S. Department of Education (ED) administers two
programs under ESEA Title V-B that support charter school facilities: the State
Charter School Facilities Incentive Grants Program, and the Credit Enhancement for
Charter School Facilities Program. Under the State Charter School Facilities
Incentive Grants Program, competitive grants are awarded to states to provide federal
matching funds on a per-pupil basis for public charter schools facilities. Under the
Credit Enhancement Initiatives for Charter School Facilities Program, competitive
grants are awarded to enhance the availability of financing for the acquisition,
construction, or renovation of public charter school facilities.
In addition to the two ESEA Title V-B programs that provide funding
specifically in support of charter school facilities, charter schools also may benefit
from three programs authorized under the Internal Revenue Code (IRC) that provide
bond financing or tax credits for targeted purposes. These are the Qualified Zone
Academy Bond Program, the Qualified Public Education Facility Bond Program, and
the New Markets Tax Credit Program.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Charter School Facilities in the States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
State and Local Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Access to Available and Affordable Space . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Facilities Financing Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Federal Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Brief History of Federal Assistance for Charter Schools
and Charter School Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Federal Assistance for Charter School Facilities
Under ESEA Title V-B — Public Charter Schools . . . . . . . . . . . . . . . . 7
State Charter School Facilities Incentive Grants Program . . . . . . . . . . . 7
Credit Enhancement Initiatives for
Charter School Facilities Program . . . . . . . . . . . . . . . . . . . . . . . . . 9
History of Federal Funding for Public Charter Schools . . . . . . . . . . . . . . . . . 9
Federal Programs Authorized Underthe Internal Revenue Code . . . . . . . . . . . . . 10
Qualified Zone Academy Bond (QZAB) Program . . . . . . . . . . . . . . . . . . . 11
Qualified Public Education Facility (QPEF) Bond Program . . . . . . . . . . . . 11
New Markets Tax Credit (NMTC) Program . . . . . . . . . . . . . . . . . . . . . . . . 11
List of Tables
Table 1. History of Federal Funding for Charter Schools
and Charter School Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Funding for Public Charter School Facilities:
Federal Policy Under the ESEA
Background
Public charter schools are publicly funded elementary or secondary schools that
are operated according to the terms and conditions of charters or contracts granted
by public chartering agencies. Charter schools are schools of choice, and thus
parents elect to enroll their children in a charter school rather than in the school to
which they would otherwise be assigned by their LEA. Charter schools typically are
allocated funding for operating expenses on a per-pupil basis. However, in most
states funding for facilities and capital expenses is not provided on a per-pupil basis,
and relatively few states provide substantial financial support for charter school
facilities.
Among the primary factors affecting charter schools’ success as educational
institutions is their ability to provide quality educational facilities to their students,
teachers, and communities. The quality or adequacy of the facilities that a charter
school is able to secure depends largely on available funding which, in turn, is
impacted by such factors as characteristics of its state’s charter school law, the
specific terms of its school charter, state and local public finances, and the interaction
of these and other factors.
In a study conducted after charter schools had been in existence for nearly ten
years, but prior to enactment of the No Child Left Behind Act of 2001 (NCLBA, P.L.
107-110), charter school operators reported that being able to provide adequate
facilities ranked high among the challenges they faced in implementing their charters
and in establishing or continuing their education programs.1 In that study, three of
the top four issues charter school operators cited most often as challenges involved
funding: start-up costs, inadequate operating funds, and inadequate facilities. These
types of funding issues often were interrelated with respect to facilities, with the
adequacy of charter school facilities often dependent upon the availability of funds
for start-up costs and the level of funding provided for operating expenses.
1 U.S. Department of Education, Office of Educational Research and Improvement, The
State of Charter Schools 2000: National Study of Charter Schools, Fourth-Year Report, by
Beryl Nelson et al., RPP International, Jan. 2000, pp. 44-45, at
[https://www.ed.gov/PDFDocs/4yrrpt.pdf]. (Hereafter cited as ED, The State of Charter
Schools 2000).

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Most charter schools begin operations as newly created schools. For example,
in 2001-2002, 77% of new charter schools were newly created schools.2 Operators
of newly created charter schools must not only implement their new education plans,
but also must surmount the obstacle of acquiring adequate facilities in which to house
their schools. In addition, many charter schools are designed to be smaller in size
than traditional public schools; and oftentimes, charter schools begin operations with
only a few of their planned eventual grade levels, intending to add an additional
grade level each successive year. These factors often require charter school operators
to arrange initially for temporary facilities as they obtain financing for, and acquire,
renovate, or build, long-term facilities. Specific difficulties charter school operators
face in obtaining adequate facilities include limited dedicated funds for facilities;
lack of available and affordable space; problems in purchasing, leasing, or occupying
pre-existing public school facilities; an inability to issue bonds or assume debt; and
difficulty obtaining adequate facilities financing.
Charter School Facilities in the States
State and Local Funding
State charter school laws generally require charter schools to be provided with
operational funding on a per-pupil basis — usually a certain percentage of the per-
pupil funding provided to other public schools by the state or LEA. Some states and
the federal government also provide limited funding for charter school start-up costs.3
Among those states and LEAs that provide charter schools with support for facilities,
the nature and extent of this assistance varies considerably.
It can be difficult to summarize how much and what kind of state and local
assistance is made available for charter school facilities due to the considerable
variation from state to state in the types of assistance offered. An examination of
various reviews of state charter school laws illustrates the many different types of
assistance made available, and the subtle distinctions that may be made when
categorizing these types of assistance. These reviews do show, however, that while
charter school laws in more than half of the states with them do authorize some type
of facilities assistance, in many states this assistance is limited. For example:
! In 2003, the General Accounting Office (GAO) reviewed state
charter school laws and found that 28 states (including the District
of Columbia) provided charter schools either with facilities funding
or with other forms of assistance in financing or obtaining facilities.4
2 U.S. Department of Education, Office of the Under Secretary, Evaluation of the Public
Charter Schools Program: Final Report, Washington, D.C., 2004, p. 6, at
[http://www.ed.gov/rschstat/eval/choice/pcsp-final/finalreport.pdf].
3 Federal funding to support start-up costs for charter schools is available under ESEA Title
V-B-1 — Charter School Programs.
4 United States General Accounting Office, Charter Schools: New Charter Schools Across
(continued...)

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Specifically, GAO found that 12 states provided funding for
facilities, 19 states provided charter schools with some type of
access to facilities, and 8 provided both.
! In 2003, the Education Commission of the States reviewed state
charter school laws and found that 24 states (including the District
of Columbia) provide either facilities funding or some other type of
facilities assistance to charter schools.5
! In 2005, the Local Initiatives Support Corporation found that 26
states (including the District of Columbia) allow charter schools
some type of access to public school facilities; 15 states authorize
some form of financial support for charter school facilities
(including public funding, loan, or credit enhancement programs);
and only 8 states provide facilities funding on a per-pupil basis.6
! In 2005, the Thomas B. Fordham Institute, the Progress Analytics
Institute, and Public Impact jointly conducted an analysis of funding
for charter schools in a sample of states and found that on average,
charter schools receive less funding on a per-pupil basis than do
traditional public schools. They also found that this gap is primarily
due to charter schools not being provided access to local and capital
funding in a manner comparable to that provided to traditional
public schools.7
These studies show that the nature of support for facilities varies from state to
state. Relatively few states provide per-pupil allotments to charter schools
specifically for facilities costs. Some allow charter schools access to funds obtained
through local school tax levies or state bonding authority. In some states, charter
schools are authorized to assume bonded indebtedness. A plurality of states provide
charter schools with some form of access to public buildings, such as authorization
to lease excess space or the right of first refusal to purchase surplus public school
buildings that become available for sale.
When public charter schools were first being considered as alternatives to
conventional public schools, in some instances, the rationale for their support was the
4 (...continued)
the Country and in the District of Columbia Face Similar Start-Up Challenges, GAO-03-
899, Sept. 2003, pp. 3, 30-32, and 35-36, at [http://www.gao.gov/new.items/d03899.pdf].
(Hereafter cited as GAO, Charter Schools.)
5 Education Commission of the States, Charter School Finance, Apr. 2003, at
[http://www.ecs.org/clearinghouse/24/13/2413.htm].
6 Barbara Page, Elise Balboni, Clara Chae, and Katje King, The Charter School Facility
Finance Landscape: A National Mapping Survey of Private Nonprofit Providers and Public
Initiatives, Local Initiatives Support Corporation, Educational Facilities Financing Center,
May 2005, p. 24, at [http://www.lisc.org/resources/assets/asset_upload_file355_8088.pdf].
(Hereafter referred to as, Page et al., The Charter School Facility Finance Landscape.)
7 Sheree Speakman, Bryan Hassel, and Chester E. Finn, Jr., Charter School Funding:
Inequity’s Next Frontier, Thomas B. Fordham Institute, Progress Analytics Institute, and
Public Impact, Aug. 2005, pp. 11-15, at [http://www.edexcellence.net/doc
/Charter%20School%20Funding%202005%20FINAL.pdf].

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presumption that charter schools would be able to operate more efficiently and at
lower cost than conventional public schools. Occasionally, it was also presumed that
some of the financial support for public charter schools might be provided through
philanthropy. However, while some schools have been successful in obtaining
funding or the use of space from private donors or the private sector, many
philanthropic organizations have policies prohibiting the use of funds for capital
expenses. Over the years, however, a number of non-profit organizations have
emerged as providers of facilities financing for charter schools.8
Access to Available and Affordable Space
Obtaining access to adequate and affordable space has been a challenge to many
public charter schools. As the nation’s school age population continues to grow,
there continues to be an increasing demand for education facilities. According to the
National Center for Education Statistics (NCES), billions of dollars are needed to
fund the construction of new schools and large numbers of existing schools are badly
in need of repair.9 The facility needs of charter schools are not dissimilar to those of
conventional public schools, with the level of need often varying according to
geopolitical and socioeconomic factors. A majority of charter schools are
concentrated in high growth states or in cities with troubled urban school districts.
In high growth states, there is an overall shortage of public school facilities. In these
locations, both charter schools and conventional public schools are struggling to
obtain new or expanded facilities. Often conventional school districts welcome the
arrival of charter schools because they relieve some of the pressure for building new
facilities. In urban school districts, it is more likely that existing educational
facilities are underutilized; however, often they also are in need of repair or
renovation. While charter school operators can sometimes acquire excess facilities
in which to operate a charter school, they often must bear the cost of renovation.
In general, the limited amount of funds allocated specifically for facilities and
capital expenses has resulted in some charter school operators experiencing difficulty
in obtaining adequate school space in which to educate their students, resulting, at
least initially, in charter schools being housed in non-conventional or less than
desirable facilities.10 Examples of non-conventional charter school facilities include
churches, museums, movie theaters, and former commercial or industrial buildings
— places where charter school operators have been able to obtain space at affordable
rates while they work to secure more adequate facilities. Other charter school
8 A number of such organizations are highlighted in Page et al., The Charter School Facility
Finance Landscape.
9 U.S. Department of Education, National Center for Education Statistics, Condition of
America’s Public School Facilities: 1999, NCES 2000-032, Washington, D.C., June 2000,
p. B-29, at [http://nces.ed.gov/pubs2000/2000032.pdf].
10 While charter schools are relieved of many education rules and regulations in exchange
for increased accountability, under the ESEA Title V Public Charter Schools program they
are required to adhere to Part B of the Individuals with Disabilities Education Act and “all
applicable Federal, State, and local health and safety requirements” [ESEA Title V, Section
5210 (1)(G) & (J)] [20 U.S.C. § 7221i(1)(G) & (J)].

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facilities include space formerly used by private schools or organizations such as
YMCAs and recreation centers.
Depending on characteristics of a state’s charter school law and the size of the
local school age population, some charter schools are able to obtain facilities from
local school districts. Options include converting a pre-existing school to a charter
school and retaining use of the building or occupying excess facilities made available
by a local school district. As previously mentioned, some state charter laws require
local school districts to provide charter schools access to excess facilities, either at
no expense or for a nominal fee. Other state laws require school districts to offer
charter schools the right of first refusal when existing public school facilities are sold
or allow charter schools to purchase public school facilities at a discount. In many
instances, the availability of excess public school facilities is strongly correlated with
growth or decline in the local school age population. In high growth areas, few, if
any, excess school facilities may be available and public school districts may be
struggling to provide adequate school facilities for their burgeoning student
populations. In areas with declining school-age populations, while excess school
facilities may be available, they may be outmoded or poorly maintained.
Facilities Financing Options
Whereas conventional public schools generally finance the construction or
renovation of facilities through local tax levies or the issuance of municipal bonds,
in most cases such options are not available to public charter schools. However, in
some states with charter school laws, public charter schools are authorized to assume
debt for purposes of financing facilities, although the entity ultimately responsible for
the debt varies from state to state. In some states, the charter school is fully
responsible for the debt, whereas in others, the local school district or the chartering
authority would become responsible should the charter school become unable to
retire the debt. In a number of states, bonding authorities have been established to
issue securities to finance charter school facilities. Access to state or local bonding
authority is important because federal tax exemption of interest earned on state and
local bonds11 supports the ability of bonding authorities to issue bonds at a lower
interest rate than purchasers otherwise might accept if their interest earned were
taxable.
In instances where charter schools are not able to assume debt under state or
local bonding authority, a variety of factors make obtaining financing difficult.
Lenders decide whether to provide financing, and if so, set the interest rate at which
they provide financing, based on their perception of risk. Financial institutions have
tended to regard charter schools as risky ventures because of their novelty and
uncertainty about their long-term viability. Charter schools are still a relatively new
concept in education and lenders do not have much experience working with them.
Also, lenders have been reluctant to issue loans for periods exceeding the length of
a school’s approved charter.12 Analysts in public finance have found that over a
11 Internal Revenue Code, § 103.
12 Charters in most other states are approved for a period of up to five years, however, they
(continued...)

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nine-year period charter schools experienced a closure rate of 4.0% compared with
a 20-year school district default rate of 0.05%. This represents an 80-to-1 margin
when comparing charter school and public school district risk.13 Higher interest rates
and shorter repayment periods often combine to limit charter schools’ opportunities
for financing facilities. Other observers, however, have suggested that data on
charter school closings must be examined more closely. While a cursory look at the
data may make charter schools appear to the real estate and lending industries as
riskier clients than they actually are, a closer examination shows that some charter
schools reported as having closed either did not actually close down, but rather
continue to operate under a new authority; or did close down, but did not default on
a lease or mortgage.14

In some states, financing for charter schools facilities is made available through
revolving loan funds. Revolving loan funds may be established by a public or private
entity and provide capital to charter schools, usually at a lower interest rate than
otherwise might be available. As the loans are repaid, the capital and interest that
flow back into the fund become available to make future loans. Revolving loan
funds have been used to finance charter school facilities and cover start-up costs.
Still, along with all other types of debt, unless a charter school has access to funds
specifically allocated for facilities, it must pay off any debt it incurs with a portion
of its revenues — usually its operating funds.
Federal Policy
Brief History of Federal Assistance for
Charter Schools and Charter School Facilities
Several years prior to the ESEA being amended by the NCLBA, the federal
government established itself as a provider of financial assistance to public charter
schools.15 In response to concerns about charter school start-up costs and the
availability of operating funds, the 103rd Congress authorized the Federal Public
Charter School (PCS) program in 1994 as Title X, Part C of the ESEA. The 105th
Congress amended and expanded the PCS program under the Charter School
Expansion Act of 1998. Under the PCS program, funding has been provided for the
design, implementation, and evaluation of public charter schools since FY1995.
12 (...continued)
may be granted for up to 15 years in Arizona, the District of Columbia, and Florida.
13 Jason F. Dickerson, Frederic J. Martucci, and Pamela K. Clayton, Charter Schools:
Growth, Challenges, and Policy Options, Fitch IBCA, Duff & Phelps, May 31, 2001, at
[http://www.fitchratings.com/corporate/reports/report_frame.cfm?rpt_id=127036].
14 The Kauffman Foundation, Debunking the Real Estate Risk of Charter Schools, 2005, p.
4, at [http://www.kauffman.org/pdf/CharterSchools071805E.pdf].
15 For more information on how related federal programs apply to public charter schools, see
CRS Report 97-519, Public Charter Schools: State Developments and Federal Policy
Options, by Wayne Riddle and James Stedman, pp. 13-20 (archived report; available from
author: 7-7382).

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Federal funds for charter school facilities first were authorized and appropriated
by the 106th Congress under the FY2001 Omnibus Appropriations Act (P.L. 106-
554). P.L. 106-554 amended the PCS program with the creation of the Charter
School Facilities Financing Demonstration Program. This program authorized ED
to award a minimum of three competitive grants totaling $100 million to various
entities (e.g., a public entity, private nonprofit entity, or consortium of each) to assist
public charter schools in the acquisition, construction, or renovation of facilities by
enhancing the availability of loans or bond financing. The program was authorized
for one year and $25 million was appropriated. (A history of federal funding for
charter schools is provided in Table 1, at the end of this section.)
In June 2002, ED announced the recipients of the $25 million in Charter School
Facilities Financing Demonstration Grants. Five recipients were awarded grants
ranging from $3 million to $6.4 million to demonstrate credit enhancement initiative
to assist charter schools in leveraging capital for the financing of charter school
facilities.16
The $25 million for Charter School Facilities Financing Demonstration Grants
was part of a one-time $1.2 billion appropriation for school renovation and repair in
P.L. 106-554. Also included in that appropriation was approximately $823 million
in emergency renovation funds distributed to states, which in turn were required to
award grants on a competitive basis, for school renovation. States were required to
ensure that schools in high poverty and rural LEAs received a proportionate share of
funds. Charter schools classified as separate LEAs were eligible to apply through
their state on a competitive basis for these emergency renovation grants.17
Federal Assistance for Charter School Facilities
Under ESEA Title V-B — Public Charter Schools
Under the NCLBA, the ESEA was amended to authorize two programs under
Title V-B — Public Charter Schools (PCS), both of which are specifically aimed at
providing financial assistance for public charter school facilities. These are the State
Charter School Facilities Incentive Grants Program, and the Credit Enhancement for
Charter School Facilities Program.18
State Charter School Facilities Incentive Grants Program. Title V-B-
1 — Charter School Programs (CSP), National Activities, authorizes grants to states
to “establish or enhance, and administer, a per-pupil facilities aid program for charter
16 For further information and a listing of grantees, see U.S. Department of Education,
“Paige Announces Charter Schools Facilities Financing Demonstration Grant Recipients,”
News, June 6, 2002, at [http://www.ed.gov/news/pressreleases/2002/06/06062002a.html].
17 For more information, see CRS Report RS20171, School Facilities Infrastructure:
Background and Legislative Proposals, by Susan Boren.
18 See ESEA Title V-B-1, Section 5205(b) Per-Pupil Facilities Aid Programs (20 U.S.C.
§ 7221d(b)); and Title V-B-2 Credit Enhancement Initiatives To Assist Charter School
Facility Acquisition, Construction, and Renovation,(20 U.S.C. §§ 7223 through 7223j),
respectively.

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schools in the State.”19 Under the State Charter School Facilities Incentive Grants
Program, the Secretary may award competitive grants to states that have per-pupil
charter school facilities aid programs specified in state law, and that annually provide
financing on a per-pupil basis for charter school facilities. Grants awarded under the
program are authorized to be provided over a five-year time frame to supplement
state and local funding. The federal share of funding provided through the grant
decreases according to a sliding scale over the five-year period. In the first year of
the program, no more than 90% of its costs may be met with federal funds, declining
to no more than 80% in the second year, 60% in the third year, 40% in the fourth
year, and 20% in the fifth year. The non-federal share must supplement and not
supplant state and local funding for charter schools. Out of funds appropriated for
ESEA Title V-B-1, 100% of the first $100 million appropriated over $200 million
is reserved for the State Charter School Facilities Incentive Grants Program, as are
50% of any funds appropriated over $300 million. In FY2002 and FY2003, no funds
in excess of $200 million were appropriated for Title V-B-1. Since FY2004,
sufficient funds have been appropriated to fund the State Charter School Facilities
Incentive Grants Program. (See Table 1.)
As noted above, only those states whose charter school laws meet the
requirements of the act are authorized to compete for grants under the State Charter
School Facilities Incentive Grants Program. As reviews of state charter school laws
have identified that few states with charter school laws provide funding for charter
school facilities on a per-pupil basis, only charter schools in a minority of states are
able to benefit from the program. In FY2004, four states received funding under the
program: California, the District of Columbia, Minnesota, and Utah.20 Awards
ranged from $1.0 million for the District of Columbia to $9.8 million for California.
The prospect of providing states the opportunity to apply for competitive grants
for per-pupil facilities funding might provide encouragement for states to modify
their state charter school laws so that they would meet the requirements of the State
Charter School Facilities Incentive Grants Program (i.e., by requiring the provision
of per-pupil facilities funding). However, some states might be reluctant to amend
their charter school law because the costs of providing facilities funding on a per-
pupil basis could be greater than the funding potentially made available under the
federal program.
19 ESEA Section 5205(b)(3)(B). As implemented by ED, this is termed the State Charter
School Facilities Incentive Grants Program.
20 U.S. Department of Education. Office of Innovation and Improvement, State Charter School
Facilities Incentive Grants Program: 2004 Awards, at [http://www.ed.gov/programs
/statecharter/awards.html].

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Credit Enhancement Initiatives for Charter School Facilities
Program. This program, authorized under Title V-B-2, succeeded the former
Charter School Facilities Financing Demonstration Program.21 Under the program,
grantees are required to deposit funds from their grants into a reserve account and use
the funds for one or more of the following purposes:
1) Guaranteeing, insuring, and reinsuring bonds, notes, loans, or other types of
debt that will be used to assist charter schools to acquire, renovate, or construct
school facilities that are needed to begin or continue the operation of these
schools.
2) Guaranteeing or insuring leases of personal or real property that are needed
to begin or continue the operation of the charter schools.
3) Facilitating financing by potential lenders, encouraging private lending, and
other similar activities that directly promote lending to or for the benefit of
charter schools.
4) Facilitating the issuance of bonds by charter schools or other public entities
for the benefit of charter schools, by providing technical, administrative, and
other appropriate assistance designed to obtain or attract investors (such as
retaining bond counsel and underwriters and consolidating multiple charter
school projects into a single bond issue).22
Since first being authorized in FY2001, funds have been appropriated for the
Credit Enhancements for Charter School Facilities program each year except
FY2002.23 (See Table 1.)
History of Federal Funding for Public Charter Schools
Since FY1995, federal funding has been provided in support of public charter
schools. However, funding specifically for charter school facilities has been
provided only in FY2001, and FY2003 through FY2006. Historical information on
federal funding for charter schools in general, and for charter school facilities in
particular, is provided below in Table 1.
21 The ESEA provides authorization for the appropriation of funds for the Credit
Enhancement for Charter School Facilities Program only for FY2002 and FY2003; however,
funds have been appropriated for the program annually since FY2003.
22 U.S. Department of Education, Office of Innovation and Improvement, The Credit
Enhancement for Charter School Facilities Program: Guidance, Mar. 24, 2005, p. 13, at
[http://www.ed.gov/programs/charterfacilities/facilitiesguidance.pdf].
23 In FY2001, the program was called the Charter Schools Facilities Financing
Demonstration Grant program.

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Table 1. History of Federal Funding for Charter Schools
and Charter School Facilities
(in thousands of dollars)
Public Charter Schools grants
Credit Enhancements for
(including State Charter School
Charter School Facilities
Facilities Incentive Grants
Fiscal year
Program
Program for FY2002 and later)a
President’s
President’s
Appropriation
Appropriation
request
request
FY1995
15,000
6,000
—
—
FY1996
20,000
18,000
—
—
FY1997
40,000
50,987
—
—
FY1998
100,000
80,000
—
—
FY1999
100,000
100,000
—
—
FY2000
130,000
145,000
—
—
FY2001
175,000
190,000
—
$25,000b
FY2002
200,000
200,000
175,000
0
FY2003
200,000
198,700
100,000
24,838
FY2004
220,000
218,702
100,000
37,279
FY2005
218,702
216,952
100,000
36,981
FY2006
218,702
214,782
36,981
36,611
FY2007
214,782
N/A
36,611
N/A
Sources: U.S. Department of Education, Budget Service, Department of Education Fiscal Year 2007
President’s Budget, Feb. 6, 2006; and historical budget tables.
a. For FY2002-FY2007, only in instances where the appropriation exceeds $200 million are funds
reserved for per-pupil facilities aid programs.
b. The program first was authorized in the FY2001 Omnibus Appropriations Act (P.L. 106-554).
Federal Programs Authorized Under
the Internal Revenue Code
In addition to the two ESEA Title V-B programs that provide funding
specifically in support of charter school facilities, charter schools also may benefit
from three programs authorized under the Internal Revenue Code that provide bond
financing or tax credits for targeted purposes. These are the Qualified Zone
Academy Bond Program, the Qualified Public Education Facility Bond Program, and
the New Markets Tax Credit Program. Each is briefly described below.

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Qualified Zone Academy Bond (QZAB) Program
QZABs are bonds issued by state or local governments that allow no-interest
loans to be made to LEAs to fund the rehabilitation or repair of educational facilities,
the purchase of educational equipment, the development of course materials, or the
training of teachers at qualified zone academies. Qualified zone academies are public
schools or programs that are either located in an Empowerment Zone (EZ) or an
Enterprise Community (EC), or at which at least 35% of the students enrolled are
eligible for free or reduced-priced school lunches under the Richard B. Russell
National School Lunch Act. LEAs awarded QZABs are required to repay only the
principal that they have borrowed. Holders of QZABs receive a federal tax credit in
lieu of receiving interest payments from the borrower. This arrangement can
substantially reduce the cost to borrowers of renovating educational facilities —
typically by as much as half.24
Qualified Public Education Facility (QPEF) Bond Program
QPEF bonds are tax exempt facility bonds designed to encourage private-for-
profit entities to enter into partnerships with SEAs or LEAs to construct or renovate
public schools.25 Under the program, developers use the proceeds from QPEF bonds
to finance the construction or renovation of school facilities and then lease the
facilities back to SEAs or LEAs (including charter schools) at less than cost.
Michigan is an example of a state that has used the QPEF bond program to provide
financing for charter schools.26
New Markets Tax Credit (NMTC) Program
The New Markets Tax Credit (NMTC) Program is administered by the U.S.
Department of the Treasury, Community Development Financial Institution (CDFI)
Fund.27 Under the NMTC Program, tax credits are allocated by the CDFI fund to
qualified community development entities (CDEs). CDEs then offer these tax credits
to investors in exchange for making a qualified equity investment. Investors are then
eligible to receive a federal income tax credit over a period of seven years for having
invested in a CDE. To participate in the program, community development entities
are required to serve a low-income community or low-income individuals, maintain
24 For additional information on QZABs, see CRS Report RS20606, Qualified Zone
Academy Bonds: A Brief Explanation, by Steven Maguire; and U.S. Department of
Education, Office of Elementary and Secondary Education, Qualified Zone Academy Bonds,
Frequently Asked Questions, at [http://www.ed.gov/programs/qualifiedzone/faq.html].
25 QPEF Bonds are authorized under the Internal Revenue Code (IRC) at § 142(a)(13), and
rules are provided at § 142(k). For additional information, see CRS Report RS20932,
Tax-Exempt Bond Provisions in the “Economic Growth and Tax Relief Reconciliation Act
of 2001,” by Steven Maguire.
26 State of Michigan Department of Treasury, Michigan Public Education Facilities: Annual
Report 2004, at
[http://www.michigan.gov/documents/AnnualReport2004(MPEFA)_124255_7.pdf].
27 The New Markets Tax Credit is authorized under the IRC at § 45D.

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accountability to the low-income community through a governing board or advisory
board, and be certified by the CDFI Fund.28 Recipients of awards under the NMTC
program have included non-profit organizations that provide financing to charter
schools.
28 For additional information on the NMTC Program, see CRS Report RS20972, Community
Development Financial Institutions (CDFI) Fund, by Pauline H. Smale; and U.S.
Department of the Treasury, Community Development Finance Institution Fund, New
Markets Tax Credit Program, at [http://www.cdfifund.gov/programs/programs.asp
?programID=5].