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Other Budget Issues

Last Updated: 3/21/2013
Budget Issue: Various changes to FGP and and Charter School Revolving Loan Fund.
Program: Charter Schools
Finding or Recommendation: Adopt Governor’s January proposal to shift administration of FGP and RLF from the California Department of Education to the California School Finance Authority. Adopt Governor’s proposal to expand FGP eligibility to nonclassroom-based schools but consider alternative funding approach. Modify Governor’s FGP allocation proposal by establishing a statutory schedule for release of funds.
Further Detail


Charter Schools May Offer Classroom-Based and Nonclassroom-Based Instruction. State law allows charter schools to offer two types of instruction: classroom-based and nonclassroom-based. Under classroom-based instruction, students are required to attend school on a daily basis and work under the immediate supervision of a credentialed teacher. The average daily attendance (ADA) of these students is referred to as “classroom-based ADA.” Under nonclassroom-based instruction, by contrast, students are enrolled in an independent study program. These students meet periodically with a credentialed teacher but are not required to attend school on a daily basis. The ADA of these students is referred to as “nonclassroom-based ADA.” If more than 20 percent of a school’s ADA is nonclassroom-based, the school is classified as a “nonclassroom-based school.” Conversely, if 80 percent or more of the school’s ADA is classroom-based, then the school is classified as a “classroom-based school.” (For ADA purposes, charter schools are required to count students only in one category—that is, they cannot apportion a part of a student’s time to classroom-based study and another part to independent study.)

Various State and Federal Programs Support Charter School Startup and Facility Needs. Figure 1 summarizes the various state and federal programs that provide grants and other financial support to charter schools for startup and facility needs. As the figure shows, three programs are administered by the California Department of Education (CDE), three are administered within the State Treasurer’s Office by the California School Finance Authority (CSFA), and one is administered by the Office of Public School Construction with support from CSFA.

Charter School Revolving Loan Fund (RLF). The RLF provides low-interest loans of up to $250,000 for new charter schools. Both classroom and nonclassroom-based schools are eligible for this program. Loans are awarded based on many factors, including the soundness of an applicant’s business plan and financial need. A school may use these funds for any purpose named in its charter. Payments of principal and interest from earlier loan recipients provide ongoing funding for the RLF, although the state provides periodic contributions from the General Fund. In 2011-12, 51 charter schools were awarded $12.1 million from the RLF.

Charter School Facility Grant Program (FGP). The FGP provides facility funding for charter schools that enroll or are located in the attendance area of an elementary school where at least 70 percent of students qualify for free or reduced-price meals. Qualifying schools can receive up to $750 per unit of classroom-based ADA for costs associated with lease agreements, deferred maintenance, site improvement, and remodeled buildings. Total funding, however, may not exceed 75 percent of the school’s annual facility costs. (A school occupying existing school district space, however, cannot receive FGP funding.) No funding is awarded for nonclassroom-based ADA. The 2012-13 budget appropriated $92 million for the program, which represents the final year of a planned increase in funding established by the Legislature five years ago. Although the funding awards for 2012-13 are not yet finalized, roughly 300 schools received funding in 2011-12.

Federal Program Also Provides Charter Schools With Facility Grants. Classroom-based charter schools also can receive facility funding through a federal grant program, known as the State Charter School Facility Incentive Grants Program. Priority for funding is established for schools meeting certain criteria, such as serving a large number of low-income students and meeting academic performance goals. Classroom-based charter schools may receive funding from both the state and federal programs, but combined funding may not exceed $750 per ADA (or 75 percent of eligible costs).


Shifts Administration of RLF and FGP to CSFA. The Governor proposes to shift responsibility for RLF and FGP from CDE to CSFA. The Governor indicates that the shift is appropriate because: (1) the programs are similar to programs already administered by CSFA, (2) some level of coordination is already required among these two programs and the other programs CSFA administers, and (3) CSFA staff have experience with loan and facility issues.

Allows Schools to Receive FGP Funding for Nonclassroom-Based ADA. In addition to his proposal to shift administration of the RLF and FGP, the Governor proposes to allow schools to count nonclassroom-based ADA in their eligibility for the FGP. That is, charter schools could receive $750 per ADA regardless of whether the ADA was classroom-based or nonclassroom-based. Nonclassroom-based schools, however, only would be eligible to receive funding for the portion of their facilities used for direct student instruction or instructional support. By contrast, classroom-based schools could continue to receive funding for all types of space.

Makes Adjustments to Allow Earlier Release of FGP Funds. The Governor also proposes to require some initial funding for the FGP to be released no later than August 31 of each year or 30 days after the adoption of the state budget, whichever is later. Current law, by contrast, requires some initial funding be released by October 1 or 90 days after the adoption of the state budget, whichever is later. To facilitate this change, the Governor proposes to allow the use of prior-year data or estimates of current-year data for determining facility costs, with subsequent adjustments to “true up” the funding provided as better data become available.

LAO Assessment and Recommendations

Proposal to Administer Similar Programs Through Same Agency Is Reasonable. As shown in Figure 1, the FGP and RLF are similar to four other programs currently administered by CSFA that provide loans or facility support to charter schools. The FGP and the State Charter School Facility Incentive Grants Program are especially similar, and coordination of the two programs is necessary given the existing combined funding cap. Given CSFA’s successful experience running similar programs, the agency appears capable of administering the two additional programs. For these reasons, we recommend adopting the Governor’s proposal to transfer the FGP and RLF from CDE to CSFA.

Funding Appears Available to Expand FGP. Due to the significant increase in funding for the FGP in recent years, available funding exceeds the amount requested by eligible schools. Although CDE has not yet provided specific estimates of the program’s expenditures in the current year, our initial estimates indicate that funding would be sufficient to cover the costs of the Governor’s proposed expansion.

Expanding FGP to Nonclassroom-Based ADA Has Merit. Although nonclassroom-based programs may have fewer facility needs than traditional classroom-based programs, many of these schools have notable facility costs. Given these costs, we believe the Governor’s proposal to allow some of them to access facility funding is reasonable. (Consistent with current law, only nonclassroom-based schools serving low-income students would be eligible for funding.) Because nonclassroom-based programs have greater flexibility regarding instructional delivery, however, the facility costs vary significantly. The state does not collect any comprehensive data on current facility usage by classroom or nonclassroom-based charter schools, nor does it collect specific data on the percentage of nonclassroom-based instruction that occurs on site. The state does, however, collect financial data for most charter schools. Such data suggests that nonclassroom-based charter schools spent roughly $425 per student in 2011-12 on lease payments, repairs, maintenance, and site improvements. (The data, however, only include financial information from roughly two-thirds of nonclassroom-based schools and include most, but not all, facility costs eligible for funding under the FGP.)

Difficult to Distinguish Instructional and Noninstructional Space. We are concerned that the Governor’s proposal to distinguish between instructional and noninstructional space would complicate the application process. Existing rules do not require CDE staff to make these distinctions when a classroom-based charter school applies for funding. Under the Governor’s proposal, however, staff would need to determine which portions of a facility were related to instruction or instructional support. In some cases, this definition is open to varying interpretations. It is unclear, for example, whether a principal’s office or multipurpose room would qualify as space for instructional support. Making an accurate determination likely would require nonclassroom-based charter schools to submit additional documentation and could delay processing of these applications.

Consider Alternatives to Governor’s Approach to Expanding FGP Eligibility. Given our concerns about identifying the instructional portion of facilities for the FGP, the Legislature could consider alternatives to the Governor’s approach. One option is to allow nonclassroom-based schools to receive funding for all of their facility space but at a lower rate based on the average facility spending reported by nonclassroom-based charter schools in 2011-12 ($425 per ADA). Although this approach would not account for the differences in instructional programs or facilities needs across different types of nonclassroom-based charter schools, the state currently lacks the data to determine appropriate funding rates for each school.

Collect More Data and Review Program in Future. Regardless of the specific funding approach adopted in 2013-14, we recommend the state require nonclassroom-based charter schools applying for FGP funds to provide additional information regarding their instructional programs, such as the type of instructional approach and the share of classroom instruction that occurs at the school site. Such data, along with the expenditure data schools must submit to obtain FGP funding, would allow the state to assess whether the nonclassroom-based funding rate could be modified moving forward to better reflect the facility needs of different nonclassroom-based schools.

Establish Specific Schedule for Release of FGP Funds. The Governor’s proposal to apportion some of the FGP funding by August 31 using prior-year data and current-year estimates is reasonable. Given that charter schools may need to make lease payments in the beginning of the year, providing a portion of funds earlier in the fiscal year would reduce the need to use general purpose funds to pay for facility costs. The Governor’s proposal also would address concerns raised several years ago regarding the late release of funds, as well as more recent concerns new charter schools have raised regarding the timing of initial apportionments. The Governor’s proposal, however, does not specify the amount of funding that would be released by the August 31 deadline. We recommend modifying the Governor’s proposal to include a statutory schedule for the apportionment of FGP funds. Specifically, we recommend the Legislature require the release of 50 percent of FGP funding by the end of August, 25 percent by the end of February, and 25 percent by the end of July following the close of the fiscal year. This schedule would provide a large share of FGP funding early in the fiscal year while making smaller payments later in the year to allow payments to be adjusted as actual cost and attendance data become available.