No. 84 February 2014
SHOULD CHARTER SCHOOLS PAY RENT?:
Implications for Staffing and Growth
Senior Fellow, Manhattan Institute
Press Release >>
The Bill comes due for charters, Stephen Eide, New York
Daily News, 2-6-14
IN THE NEWS
Should Charter Schools Pay
Rent?, National Center for Policy Analysis, 2-26-14
De Blasio Cracks Down on Education Reform,
National Interest, 2-13-14
Parks, Schools and
Bill deBlasio: Risking Mediocrity For Fairness, Forbes.com’s “Philanthropy and Society”, 2-20-14
Unions: America’s Biggest Political
Donors, National Review Online, 2-17-14
New York's new mayor unleashes an assault on charter schools
, Editorial, The Wall Street Journal, 2-14-14
golden goose, The Economist, 2-14-13
Should Charter Schools Pay Rent?, Heritage’s InsiderOnline, 2-11-14
Andrew’s opening, Editorial, New York Post, 2-11-14
Linked on RealClearPolicy, 2-11-14
Study: Charging Rent Would
Lead to Charter-School Decline, National Review Online, 2-10-14
The War on Charter Kids, Editorial, New York
Daily News, 2-8-14
Anxiety Over Charter Schools’ Future Mounts in NYC,
The Epoch Times, 2-7-14
WSJ's "Opinion Journal with Mary Kissel" interviewed Stephen Eide, 2-12-14
|Table of Contents:
|About the Author
|Size and Performance
|Colocation: The Policy and the Controversy
|The Cost of Rent
|Conclusion: The Future of Charter Schools in New York City
New York City’s charter school sector is distinguished by its size (second-largest enrollment of any district in the nation), a record of strong student performance, and the high percentage of schools “colocated” in a district public school facility. Whereas only 25 percent of charter schools nationwide are colocated, two-thirds are in New York.
Colocated charter schools in New York City are not required to pay rent for use of the district school space, but some argue that they should be required to do so. The Independent Budget Office (IBO) has recommended that the city consider charging rent to colocated charter schools as a way to raise revenue. Newly elected mayor Bill de Blasio objects to the current colocation policy on grounds of fairness, arguing that colocated schools can have a “destructive impact on the [district public] schools they’re going into.” De Blasio has called for charging rent to “well-resourced” charter schools on a sliding scale.
This paper examines the potential impact of requiring colocated charter schools to pay rent. It finds that charging rent in line with the IBO’s recommendation would have forced 71 percent of colocated charters into deficit in 2011–12, the last year for which data are readily available. The average deficit would have been $682,983, or 10.7 percent of budget. Given that personnel costs constitute, on average, 70 percent of colocated charter school budgets, teacher layoffs would likely have been required to offset the cost of rent.
Over the last decade, colocation played a key role in facilitating the expansion of New York’s charter school sector, which, rigorous studies have found, tends to outperform New York City district public schools. It is difficult to predict the impact that charging rent would have on student performance. Colocated and non-colocated charter schools seem to perform equally well. Even if charging rent did not cause strong schools to underperform, it would result in fewer high-performing schools by leading to a smaller charter school sector overall.
About the Author
Stephen Eide is a senior fellow at the Manhattan Institute’s Center for State and Local Leadership. He edits PublicSectorInc.org (@PubSectorInc), a project of the Manhattan Institute, and is also a contributor to the site. His work focuses on public administration, public finance, political theory, and urban policy. His writings have been published in the Worcester Telegram and Gazette, Orange County Register, the New York Post, Interpretation: A Journal of Political Philosophy, and City Journal.
He was previously a senior research associate at the Worcester Regional Research Bureau, and holds a bachelor’s degree from St. John’s College in Santa Fe, N.M., and a Ph.D. in political philosophy from Boston College.
The author is grateful for the excellent research and editorial assistance received from Alex Armlovich.
Size and Performance
In the current school year, 2013–14, there are 183 charter schools in New York City, which enroll an estimated 70,000 students. New York’s total charter school enrollment is second only to Los Angeles’s among districts nationwide. Sixty-five percent (119 charter schools) of the total are colocated. Recent growth has rapidly outpaced that of the nation as a whole.
In the next school year, 2014–15, a projected 205 charter schools will operate in New York City. New York City’s charter schools are high-performing: in the aggregate, proficiency rates have exceeded those of district public schools in 29 out of 36 performance categories in the past three years (see Appendix 1 ).
More finely grained analyses of New York City charter schools’ performance have found even stronger evidence of their ability to produce unusually strong student outcomes. The leading authority on charter school effectiveness is Stanford University’s Center for Research on Education Outcomes (CREDO), best known for a 2009 study of 15 states and Washington, D.C., that found “in unmistakable terms that, in the aggregate, charter students are not faring as well as their [traditional district public school] counterparts.” Applying the same “virtual twin” methodology used in the 2009 report, which controls for a host of variables such as special-education status and English proficiency, CREDO has twice found that the typical New York City charter school student tends to post larger gains in both reading and math than his district school counterpart.
One significant factor driving high levels of student achievement among New York charter schools has been the city’s ability, in recent years, to attract and cultivate high-quality charter management organizations (CMOs). Whereas other cities had been said to suffer from a “brain drain” of talented charter school operators, New York fostered a hospitable environment that enabled high-achieving CMOs not only to succeed but to do so on an expanded scale. New York’s colocation policy, which allowed charter schools to operate rent-free out of underused district space, played a key role in making New York attractive to CMOs.
Colocation: The Policy and the Controversy
Charter schools are public schools. Their chief source of revenues is state and local funds allocated on a per-pupil basis, and they provide open access to any student who wishes to attend them. But they are privately run, as nonprofit corporations governed by their own boards of trustees. This affords them a degree of flexibility and independence difficult to achieve for a district public school. The New York City Department of Education (DOE) employs more than 130,000 workers and has a $19 billion budget. The average New York City charter school has a budget of $5.4 million and a staff of 67.
Although independence is a virtue with respect to charter schools’ core instructional mission, it can disadvantage them when it comes to certain back-office or support functions that central administrations manage for district schools. The effort to meet facility needs is the greatest administrative challenge for charter schools.
District schools fund their capital expenses through general obligation bonds backed by a local government’s unlimited taxing authority. Not only do charter schools lack taxing authority in New York and most other states; they have no regular public revenue source dedicated to capital needs. They therefore must rely on the enrollment-based per-pupil revenues that they receive for operating purposes. In the rare event that a charter school borrows from the tax-exempt municipal bond market (less than 10 percent have), they face steep borrowing costs relative to other municipal issuers. Charter schools are small and unfamiliar to many potential investors. Their creditworthiness is further undermined by the threat of underperformance, which can lead to dips in enrollment (and, with it, per-pupil revenues) and even closure. Colocation refers to the policy of allowing charter schools to operate out of facilities owned by a local school district. Many states and districts rely on colocation to address charter schools’ facility needs, if not to the degree that New York City does. About two-thirds of New York City charter schools are colocated, in contrast with only one-quarter of charter schools nationwide. Colocated charter schools in New York do not pay rent, although that is a common arrangement elsewhere.
A local solution to the lack of guaranteed capital funding from the state, New York’s colocation policy is viewed as a model for the nation by charter school advocates. Three factors account for why New York adopted a more accommodating colocation policy than in other states and cities. First, it had been, and remains, common practice for the DOE to colocate district schools. Hundreds of district public schools in the city now share space with one another. Second, many DOE buildings had excess capacity during the early years of the Bloomberg administration, when colocation was first adopted. Granting new charter schools access to unused space had the administrative appeal of promoting a more productive use of existing government resources. Third, real estate in New York City is scarce and expensive, especially for elementary and secondary schools with specific needs such as a cafeteria, gym, library, playground, auditorium, and laboratory.
Mayor Bill de Blasio has called for revising New York City’s colocation policy. He argues that it is excessively generous relative to policies in other states and districts, unfair because it gives special privileges to certain favored charter school operators, disrespectful to local district school stakeholders such as parents and staff, and harmful to district school students. De Blasio and other critics argue that colocation leads to overcrowding and tensions between district and charter school students over charter schools’ superior amenities. De Blasio recommends a moratorium on new colocations, more local approval requirements during the colocation process, and charging rent to “well-resourced” charter schools on a sliding scale. Details of the de Blasio rent plan have not been released.
The Independent Budget Office has presented the most substantive critique of colocation. While charter school defenders see colocation as a local policy intended to remedy a defect in state law, the IBO argues that it is an overcorrection. A 2011 IBO analysis argued that charter schools gain an unfair fiscal advantage from colocation. When certain costs that charter schools do not incur are factored out of a district school’s spending and the advantages of colocation are factored in, the IBO finds that colocated charter schools receive considerably more per-pupil funding than district schools. In its most recent “Budget Options” report, the IBO recommends that city government consider charging charter schools rent, on a per-pupil basis, as a way to generate revenues.
A 2013 report by Save our States criticized the IBO analysis for neglecting to properly account for the full “present value” of retirement benefits. New York City district schools offer traditional defined benefit pensions and retiree health care to teachers, but charter schools do not do so. According to Save our States, when the costs of these long-term liabilities are accounted for, colocated charter schools receive hundreds of dollars less in per-pupil public support than district schools do.
The Cost of Rent
Whether colocation provides charter schools with more public support than district public schools receive, it’s clearly a vital source of fiscal relief. The effect of withdrawing, or limiting, this support can be determined by analyzing charter school budget data, available through the Form 990, which schools are required to file each year with the Internal Revenue Service.
In 2011–12, the last school year for which comprehensive data on charter school finances are readily available, there were 137 charter schools in operation, enrolling about 47,500 students; 84 were colocated.
Had the DOE charged rent to this cohort at the rate then recommended by the IBO ($2,400 per pupil), 60 schools, or 71 percent, would have run a budget deficit (see Appendix 2). The average deficit would have been $682,983, or 10.7 percent of budget.
Salaries and benefits are colocated charter schools’ main expenses, constituting 70 percent of the average colocated charter school’s budget. Were colocated charter schools required to pay rent, staff layoffs would be likely. Assuming an average teacher compensation (salary and benefits) package of $71,000, the collective $41 million deficit would mean a potential 577 teacher layoffs at these 60 schools.
The effect that charging rent would have on student performance is uncertain. Colocated charter schools and non-colocated schools seem to have produced roughly equivalent student outcomes in 2011–12, although precise measurement is impossible because of the small sample size (see Appendix 3). Extremely high-performing schools may be found in both cohorts (Appendix 4).
Colocation allowed for more schools of roughly equivalent quality, that is, a quality generally above that of district public schools (Appendices 1 and 3). Charging rent may or may not weaken student performance at high-performing schools but will likely result in fewer good schools overall.
Conclusion: The Future of Charter Schools in New York City
The New York City charter school sector has bright prospects for growth. Demand continues to rise—there are now 54,000 students on waiting lists—and the city is dozens of charters below the cap imposed by New York State law. Applications for 2013–14 are up over 50 percent, and already exceed the number of available seats, months before the filing deadline. At 6 percent, New York charter schools’ share of total district public schools’ enrollment is low relative to other major cities.
But much depends on the de Blasio administration’s policy choices. Mayor de Blasio has not expressed opposition to the right to existing charter schools to continue operations but has indicated a strong desire to slow the sector’s overall rate of growth. As the city develops a new charter policy under his leadership, the following points will be worth keeping in mind:
- New York’s ability to attract and develop some of the leading charter management organizations in the nation was the direct result of creating an accommodating environment for charter schools, of which colocation was a central feature.
- Were the DOE to begin to charge rent at a rate recommended by the IBO, the vast majority of colocated charter school budgets would be forced into deficit.
- Some of the strongest schools would be affected by charging rent.
- Charging rent would result in fewer high-performing public schools in New York City.
“New York State Charter Schools Fact Sheet,” New York State Education Department; and “Charter School Facts,” 2013–14, New York City Charter School Center.
- A Growing Movement: America’s Largest Charter School Communities,” 8th ed., National Alliance for Public Charter Schools, December 2013.
- “New York State Charter Schools Fact Sheet.”
- Center for Research on Education Outcomes (CREDO), Stanford University, “Multiple Choice: Charter School Performance in 16 States,” 2009, and “Charter School Performance in New York City,” January 2010.
- CREDO, “Charter School Performance in New York City” (January 2010), analyzed charter and district school student data 2003–04 to 2008–09, and “Charter School Performance in New York City” (February 2013) covered 2005–06 to 2010–11.
- James Peyser, “Brain Drain: Why So Many Talented Educators Are Leaving for New York,” Boston Globe, September 14, 2008.
- “A Guide to NYC Public Schools Budget,” NYC Department of Education.
- Author analysis of Form 990s for charter schools from the 2011–12 school year.
- “2010 Charter School Facility Finance Landscape,” Local Initiatives Support Coalition, June 2010; “Public Charter School Facilities: Results from the NAPCS National Charter School Survey, School Year 2011–12,” National Alliance for Charter Schools, August 2013. New York has provided charter schools with some assistance with their capital needs through its Stimulus Funds Grants and Capital Matching Programs, but only a small minority of schools have participated in these programs. “Building Inequality: How the Lack of Facility Funding Hurts New York City’s Public Charter School Students,” New York City Charter School Center, June 2013; “Proposed FY2015–2019 Five-Year Capital Plan,” New York City School Construction Authority, November 2013. The DOE recently announced plans to redirect funds from the Capital Matching Program to the mayor’s pre-K initiative. “Chancellor Carmen Fariña Announces Revisions to the Proposed Capital Plan FY 2015–2019 That Would Add 7,000 Seats to Help Expand Full-Day Pre-Kindergarten and Reduce Class Size in Other Grades,” New York City Department of Education, January 31, 2014.
- As of 2012, only nine charter schools in New York State had borrowed from the tax-exempt municipal bond market, none in New York City. “Charter School Bond Issuance: A Complete History, Volume 2,” Local Initiatives Support Corporation, October 2012, p. 84.
- In 2012, the interest rate differential (“spread”) between charter school bonds and highly rated triple-A municipal bonds reached an all-time high, exceeding 400 basis points (four percentage points) for some issuers; “Charter School Bond Issuance: A Complete History, Volume 2,” pp. 56–57.
- Joe Mysak, The Encyclopedia of Municipal Bonds (Hoboken, NJ: John Wiley & Sons, 2012), p. 33. The Local Initiatives Support Corporation has argued that forcing charter schools to meet their facilities needs through per-pupil revenues is fundamentally inefficient. The government could provide the same benefit at a lower cost to taxpayers, through a credit enhancement program, such as now exists in Colorado and Texas. “Charter School Bond Issuance: A Complete History, Volume 2,” p. 22; and David Mildenberg, “Texas Fund’s First Charter School Pledges Buoy Debt: Muni Credit,” Bloomberg, October 3, 2013.
- “New York State Charter Schools Fact Sheet.”
- “Public School Facilities: Results from the NAPCS National Charter School Survey, School Year 2011–2012,” National Alliance for Charter Schools, August 2013.
- "The nation as a whole has always looked to New York City in this area". The climate in New York City is a healthy one because of the colocation arrangements"- Nina Rees, president of the National Alliance for Public Charter Schools, quoted in Karen Matthews, "Bill De Blasio Charter School Plan Takes Aim at Bloomberg Education Policy," Huffington Post, December 25, 2013.
- “Co-location, 19th Century Edition,” New York City Charter School Center, December 7, 2011.
- “In its effort to improve our schools, the City is faced with the immense challenge of finding suitable space for new schools in our densely populated City”—Public Advocate Bill de Blasio and the Alliance for Quality Education, “Breaking Down Barriers: An Evaluation of Parent Engagement in School Closures and Co-locations,” July 2010.
- “It’s the norm around much of the country to charge appropriate rent”—Bill de Blasio, quoted in Rachel Monahan, “Free Rent Is Over for NYC Charter Schools as De Blasio Plans to Make Them Pay,” New York Daily News, January 15, 2014.
- “There’s no way in hell Eva Moskowitz should get free rent, OK?”—Bill de Blasio, quoted in Matthews, “Bill De Blasio Charter School Plan Takes Aim at Bloomberg Education Policy.”
- De Blasio, “Breaking Down Barriers”; “Charter Schools in Public School Buildings: Best Practices for Co-Location,” New York Communities Organizing Fund, January 2013.
- “Co-locations, as they are called in New York City, have been especially contentious because of the predatory practices of some of the aggressive charter chains that enter as tenants but do not hesitate to monopolize facilities and eventually try to push out the host school”—Diane Ravitch, Reign of Error: The Hoax of the Privatization Movement and the Danger to America’s Schools (New York: Knopf, 2013), p. 248; Micah Landau, “UFT Seeks to Block Future Co-Locations,” UFT.org, August 8, 2013; and Joe Tacopino, “Mark-Viverito Leads Charter-Halt Suit,” New York Post, December 30, 2013.
- Beth Fertig, “De Blasio’s Rent Plan Makes Charters Anxious,” WNYC.org, October 1, 2013.
- The analysis is presented in a 2011 blog post that revised a 2010 report, in which the New York City Independent Budget Office (IBO) found that colocated charter schools receive less public support than district schools. Ray Domanico and Yolanda Smith, “Charter Schools Housed in the City’s School Buildings Get More Public Funding per Student than Traditional Public Schools,” IBO Web Blog, February 15, 2011; “Comparing the Level of Public Support: Charter Schools versus Traditional Public Schools,” IBO Fiscal Brief, February 2010.
- IBO, “Budget Options for New York City,” December 2013, p. 96.
- Harry J. Wilson and Jonathan Trichter, “A Full Analysis of the All-In Funding Costs for District Public Schools and Charter Schools: The IBO 2010 Fiscal Brief Revisited,” 2013.
- The IBO’s most recent fair rent estimate ($2,320 per pupil) may be found here: “Budget Options for New York City,” New York City Independent Budget Office, December 2013, p. 96. In the analysis below, which pertains to the 2011–12 school year, a different figure ($2,400), drawn from an April 2012 IBO analysis, is used (“Budget Options for New York City,” New York City Independent Budget Office, April 2012), p. 74.
- Author calculation.
- New York City Charter School Center, “Charter School Facts.”
- E.g., since not all schools test in each grade, the non-colocated cohort contains only 15 instances of eighth-grade ELA and math scores.
- New York City Charter School Center, “Charter School Facts”; and New York City Department of Education.
- Aaron Short, “Charter Schools Swamped with Applications Despite Criticism,” New York Post, January 30, 2014.
- “A Growing Movement.”
- “There are some very good charter schools, and I’m glad we have them”—Bill de Blasio, quoted in Peter Meyer, “Will Mayor de Blasio Turn Back the School Reform Clock?,” Education Next (spring 2014); “We have the right amount now to foster a certain amount of innovation and competition”—de Blasio, quoted in Javier C. Hernández, “City’s Charters Fear Having de Blasio for a Landlord,” New York Times, October 8, 2013; and “We don’t need new charters”—de Blasio, quoted in Victoria Bekiempis, “With a Mayor de Blasio, Fate of Charter Schools in Limbo,” Newsweek, November 5, 2013.