A city-driven review of charter school expansions in St. Paul has quelled a debate within the St. Paul City Council over their financial impact on city infrastructure and tax coffers, at least for now.
Alarmed by the perceived loss of taxable property and industrial land to tax-exempt charter schools, the city council last year asked St. Paul Planning and Economic Development to take a deep dive on the subject and dish up some hard numbers. For years, charter schools eager for construction financing have turned to the city 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.
The schools effectively piggyback on the city’s favorable interest rates.
Credit rating agencies S&P Global and Fitch Ratings recently reaffirmed the city’s AAA credit rating, which is part of what makes St. Paul an attractive partner for charter schools, hospitals and nonprofits like the Ordway Center.
Some city council members had asked for any pending bond arrangements to be put on hold in September, at least for six months, while impacts such as loss of property tax were reviewed.
Others argued against a pause on new conduit revenue bonds, noting that a growing number of ethnic charter schools have drawn students that might otherwise drop out of the public school system entirely. Charter school proponents and critics, including organized labor such as the St. Paul Federation of Educators, have taken keen interest in the debate.
A QUESTION FOR THE LEGISLATURE
Earlier this month, St. Paul City Council member Chris Tolbert, acting in his capacity as chair of the city’s Housing and Redevelopment Authority, officially withdrew the request to halt future conduit revenue bond issuances for charter schools. He pointed to the 37-page planning department study published this month, which finds that less than half the conduit revenue bond transactions issued through the city since 2010 have taken taxable property off the tax rolls.
Many involved interior renovations, or expansions on existing school grounds or onto grounds that were already off the tax rolls.
Tolbert said the city’s focus was purely financial, and debate over charter school impacts on public school enrollment is ultimately a question for the state Legislature. “That’s a conversation for the Legislature and the schools to have,” Tolbert said.
Others expressed relief at the study findings.
“I think at this point it doesn’t make sense to pick on one institution that will not receive conduit revenue bonds in St. Paul,” said Council Member Dai Thao. “If you look at the numbers, there’s not a huge impact. They could just as easily go somewhere else and get their revenue bonds, and those fees would no longer come to us.”
THE FINDINGS
The report details 24 conduit revenue bond transactions for qualified tax-exempt organizations from Jan. 1, 2010 through Feb. 28 of this year, with a 25th transaction in process — interior improvements for the Minnesota Math and Science Academy Charter School at 169 Jenks Ave.
Of those bonds, 19 involved 15 different schools, 14 of which are charter schools. Another, issued in 2019, involved a private school — Cretin-Derham Hall, which created a 6,000 square foot entry/gathering space to the school’s main entrance on South Albert St.
There were also four bonds issued for hospitals and healthcare uses, representing three different organizations — Gillette Children’s Healthcare, Children’s Healthcare and Region’s Hospital. Two transactions involved large nonprofit arts and entertainment entities — the Ordway Center and the Science Museum of Minnesota.
Taken together, the 24 project costs totaled $554 million, and represented $466 million in principal issued. They led to 3,457 construction jobs and 663 new full-time equivalent positions.
Of the 24 bond transactions, “only nine transactions reclassified properties from taxable to tax-exempt, resulting in roughly $900,000 of taxes shifted from these properties to the overall tax base upon
exemption.”
CITY EXPECTED TO DRAW $16 MILLION FROM BOND CLOSINGS
Rather than lose money on the conduit revenue bonds, the city is expected to draw $16 million in fees from bond closings to maturity, which officials with St. Paul Planning and Economic Development considered an important part of their budget.
In 2021 alone, the city’s Housing and Redevelopment Authority budget includes $2.25 million in fees generated from the issuance of conduit revenue bonds.
Council members also had asked city planners to consider the impact on infrastructure such as streets and street lights.
The review found that the projects themselves covered most of those costs. The potential impact on nearby parks and green spaces also was considered, and the study recommended that St. Paul Parks and Recreation enter into discussions and agreements with the new charter schools over mitigation fees for facility access.
That’s not an uncommon arrangement when a traditional St. Paul Public School expands, with fees assessed “to cover costs of mitigating the effects of increased wear and tear on park assets.”
GROWING SCHOOLS, AND MORE STUDIES TO COME
Overall, the total number of charter schools in St. Paul has grown from 26 to 38 in the past 11 years, and the total number of students in charter schools has gone from 9,762 to 16,763.
Many conduit revenue bond transactions were related to charter expansions, rather than to new schools.
Less than 40 percent of the charter schools in the city, and only 1 of the 12 schools that have opened since 2010, have utilized conduit revenue bond financing through the city’s Housing and Redevelopment Authority.
City zoning standards that apply to K-12 schools also apply to all charter schools. The city’s planning team is working on an industrial zoning study that will look at permitted uses within industrial zoning districts. The review noted that the scope of that study, due out sometime next winter, could be amended to consider whether to add new standards or conditions for K-12 school uses in industrial areas, such as traffic, public safety, required lot areas and green spaces.
City staff also reviewed conduit revenue bond policies from other cities, including Brooklyn Center, Mahtomedi, Minneapolis, Red Wing and Rochester.
They found that policies were largely similar, though some cities include in their policies “the explicit requirement that an application will not be accepted until the project has received preliminary zoning and building approvals, which would be similar to St. Paul’s conditional site plan approval process.” In St. Paul, the conduit revenue bonds sometimes received preliminary approval first.