Originally published in CityLab on April 23, 2019.
Charter industry leaders are debating the exact reasons behind the slowdown. Some say it’s rooted in school districts’ financial woes, which make leaders less inclined to open new schools that could strain budgets further. Others blame shifting political winds—fiercer backlash from charter opponents and less robust support from Democratic officials. But there’s one factor nearly everyone in the charter universe agrees on: Accessing and affording sites for these schools is a huge barrier. Many charters, denied access to public facilities, rent their buildings, opening the door to rent disputes and self-dealing scandals. Finding adequate spaces to open new schools, or to expand to bigger buildings if the charter operator wants to increase its student enrollment, remains an elusive and expensive challenge for charter leaders in virtually every state.
To help slake the movement’s thirst for new facilities, charter supporters have been eyeing a new pot of money with growing interest—Opportunity Zones.
Many experts who have studied similar kinds of place-based tax breaks, from the Enterprise Zones of the Reagan administration to the Empowerment Zones of the Clinton years, argue that they boast a poor track record of actually improving the low-income areas they’re supposed to help. In some cases, researchers have found, the tax schemes actually hurt cities overall, distributing large portions of the tax benefit to industry professionals as transaction costs. “These policies almost inevitably result in tax giveaways for investment that would have occurred anyway,” concluded Timothy Weaver, an urban policy and politics professor at the Rockefeller College of Public Affairs & Policy at the University at Albany, in a recent CityLab post.
Throwing charter schools into this mix is unlikely to settle any of these arguments.
And the interest is there. In January, Nina Rees, the president of the National Alliance of Public Charter Schools, and Chad Aldis, a vice president at the Ohio-based Thomas B. Fordham Institute, wrote an op-ed detailing the challenges Ohio charter schools face in accessing facilities. In addition to recommending state-level reforms, they suggested investors try to leverage private capital through Opportunity Zones to build new schools. Ohio has designated 320 tracts as Opportunity Zones.
Aaron Churchill, the Ohio research director at the Thomas B. Fordham Institute, told CityLab that while he sees Opportunity Zones as a great opportunity for his state to support new charter facilities, he’s “not really sure it’s far along yet” and “doesn’t know if charter networks have given it a lot of thought.”
National charter organizations are trying to put this new financing opportunity on more groups’ radars. In February, the Charter School Facility Center at the National Alliance for Public Charter Schools hosted a webinar on how Opportunity Zone investments could reduce facility financing costs for schools. Former Republican House Speaker Paul Ryan has also touted charter schools a possibility for Opportunity Zone investment.
John Bailey, a fellow at the right-leaning American Enterprise Institute who has written on this topic, has said, “One could imagine groups such as the Charter School Growth Fund or NewSchools Venture Fund creating charter-specific Opportunity Funds to scale new schools to high-needs areas.”
That’s not happening yet: Peshek said there hasn’t been a huge rush yet to seize on Opportunity Zone financing for charter schools, unlike apartments and other commercial real estate. But he says he could envision charters being integrated in the construction of new multi-use real estate developments. “Having a school in the middle of a multi-use area is always a good draw for people who want to live there,” he said.
The amount of money that could be tapped by Opportunity Zone financing could dwarf the amount that charter advocates have be able to receive from other federal financing programs, like the New Market Tax Credit. Peshek, writing in 2018, noted that if just one-tenth of 1 percent of the estimated $6 trillion in unrealized capital gains in the U.S. goes towards charter school development projects, that would amount to “nearly three times the amount of investment that the NMTC spurred over more than a decade.”
Supporters of traditional public schools also see potential opportunity in Opportunity Zones. Mary Filardo, the executive director of the nonprofit 21st Century School Fund, which advocates for improved school facilities, told CityLab there are some 13,000 traditional public schools located in Opportunity Zones, predominately serving low-income and non-white students.
While charters are better positioned to leverage Opportunity Zone financing (since in many cases the school is already in a privately held building), Filardo said her group has been working with school districts “which really have far more need” for school modernization to figure out if they might be able to access some of this funding too.
One idea, she said, is to use Opportunity Zones to help break the political gridlock on school infrastructure funding. Polls may show bipartisan support for federal investment in school facilities, but on Capitol Hill, she said, a bill to make that happen has only garnered Democratic co-sponsors.
“The issue has become completely partisan in Congress, and one of the things we’ve been interested in is if we can convince Republicans to agree to direct federal funding for public school facilities located in the Opportunity Zones,” she said. “The rationale would be your other business investments—like your senior living retirement complexes or your tourism—would do better if the public infrastructure were in good shape.”
There’s considerable evidence that investing in capital assets like school facilities is an effective way to boost local wealth, in ways that differ from simply adding new high-end housing, retail, or restaurants, Filardo said. Having better school buildings also helps retain teachers and local businesses and attract new families.
But she also acknowledges that there’s a lot of skepticism surrounding these types of tax breaks and whether they generate true revitalization. Adding schools, whether charter or traditional public ones, to that story could be a novel twist. “School facilities,” she said, “just have not been past focuses of Enterprise and Empowerment Zone investments.”