For years, charter schools eager for construction financing have turned to the city of St. Paul for conduit revenue bonds — a type of public borrowing that leaves the schools, not the city, on the hook to pay back cash to bondholders.
“We’re strictly a pass-through on it,” said city council member Chris Tolbert, who chairs the city’s Housing and Redevelopment Authority. “It’s money that an entity that is tax-exempt can qualify for. They can use the rate we qualify for, without any financial risk (to us).”
That process could soon be put on hold.
Alarmed by the rapid expansion of tax-exempt charter schools within the city’s borders and the subsequent loss of industrial space, the St. Paul City Council met Wednesday as the Housing and Redevelopment Authority and began discussing a potential timeout of sorts.
In late August, a divided city council voted 4-3 to approve $36 million in tax-exempt bond funding for Hmong College Prep Academy in the Como neighborhood. Enrollment at the school has doubled in eight years to 2,350 students.
EXPANSION CONCERNS
The discussion at the time elevated concerns that St. Paul charter schools — which appear to be growing in both size and number — were having negative impacts of unknown size and scope on the city budget. Almost every school expansion means less property on the property tax rolls, especially troubling in industrial areas.
A proposed resolution before the council would temporarily halt further consideration of conduit revenue bond applications from charter schools, allowing the city time to study the financial impacts of charter school expansions.
The prospect of a time-out has alarmed charter school leaders such as Meg Cavalier, executive director of St. Paul City School, which operates three campuses in Frogtown and the West Side.
The school, which runs a community food shelf, plans to apply to the city for bond financing in order to consolidate its three locations into one. In their case, the preferred site is already off the tax rolls, she said, and the new campus would keep enrollment steady, not expand it.
“That’s not relevant in our project. If we’re not able to get conduit bonds, we will need to find financing elsewhere,” said Cavalier, in an interview. “The city of St. Paul would not receive the (bond administration) fees going forward.”
“The financing could potentially cost more, and we just want as much money as possible to go to our children,” she added.
Some council members questioned whether the temporary reprieve from fresh applications should be expanded to include all tax-exempt properties that might seek conduit revenue bond backing, including hospitals.
In 2017, at the request of the city, the Citizens League convened a task force to consider the prospect of asking all major nonprofits to make municipal payments in lieu of property taxes, but the idea has yet to gain traction.
According to the St. Paul-based Center for School Change, enrollment in St. Paul charter schools more than quadrupled from 3,600 to 15,800 students from 2001-02 to 2019-20. Most of that growth has been led by low-income students and students of color.
During the same time, traditional public school enrollment in St. Paul dropped 21 percent from 43,700 to 34,700 students.
In 2019, the St. Paul Federation of Teachers sent questionnaires to school board and city council candidates asking if they’d support a moratorium on new charter schools and charter school expansions.
Several candidates said they would support one, if it was within the scope of the city’s powers.
SIX-MONTH HIATUS TO BE REVISITED OCT. 14
At the request of council member Rebecca Noecker, the city council voted 7-0 on Wednesday to amend the charter school resolution, limiting the hiatus on charter school bond applications to six months. They noted that the temporary halt would not qualify as a formal moratorium.
Council members, however, delayed a final vote on the overall resolution, noting they needed more time to determine what, exactly, will be studied. They’ll revisit the issue Oct. 14.
A review by the city’s Department of Planning and Economic Development could include the cost of charter school expansion in terms of lost taxable property, impacts upon public infrastructure, or even the number of students and state dollars drawn away from traditional St. Paul Public Schools.
“We’ve identified that charter schools are causing a financial issue within the city of St. Paul,” Tolbert said. “What are the property tax values that we’re taking off the tax rolls?”
On the flip side, the Department of Planning and Economic Development expects to earn $2.25 million in fees — or 20 percent of its budget — from administering conduit revenue bonds next year, a slight increase from $2.1 million this year.
“Those are significant numbers,” said Planning and Economic Development director Nicolle Goodman, addressing the council. “This is one key way we support nonprofit and community facility uses, such as hospitals and cultural organizations.”
A city staff analysis of 2017 figures found that 30 percent of those fees were related to hospitals and health care, 29 percent came from for-profit rental housing and 23 percent stemmed from charter schools.
City council President Amy Brendmoen noted those fees are already locked in from previous bond issues, and would not dry up overnight as a result of a hiatus on new applications.
She also questioned whether responsibility for studying charter school impacts should fall to another government body, such as the legislative auditor, the state auditor or the Minnesota Department of Education.
EXPAND TIMEOUT TO INCLUDE ALL NONPROFITS?
The council members broke ranks Wednesday on whether halting conduit revenue bond applications should be extended to all tax-exempt properties, such as hospitals and government entities, that might seek such support in the near future.
“For us to just pick charter schools, that’s an equity issue,” said council member Dai Thao, noting nearly half of the city’s roughly 34 charter schools are identity-based or have a strong ethnic profile. “We should be looking at all nonprofits.”
Council members Noecker and Jane Prince said they were open to Thao’s amendment to expand the scope of the resolution, but others expressed concern about mission creep.
“I would hate for a hospital to come in the next six months for an expansion to do a wing — in particular, a COVID wing — and we wouldn’t be able to help out because we’ve made a blanket (policy against conduit revenue bonds),” Tolbert said.
“I really want to keep this resolution focused as it is, for the sake of getting this work done,” said council member Mitra Jalali, whose political ward is home to a heavy concentration of charter schools.
At the end of the discussion, Thao officially withdrew his amendment, but the subject is likely to be revisited in October.
Along with the Center for School Change, past and present leaders of the High School for Recording Arts, Hmong College Prep Academy, Hope Community Academy and the Minnesota Parent Union issued a joint statement on Wednesday criticizing the council effort.
They noted that a growing number of ethnic and low-income students are gravitating toward charter schools, which can offer choices and learning plans that cater to sometimes hard-to-reach students.
“Charter schools view this education choice as a way for checks and balances to hold every local district … accountable to close the student achievement gap,” said Christianna Hang, superintendent of Hmong College Prep Academy, in the written statement.