Investors bet on charter school growth.
In September the Ivy School, a public charter elementary school in Portland, moved into its new location at 5420 North Interstate Avenue. The K-8 Montessori school’s new two-story property has a full industrial kitchen, a rooftop garden, a large outdoor play area and offices for staff.
The school was able to move into the new space, which used to be occupied by another charter school – Trillium, after receiving a loan from Portland-based Charter School Capital, a financial services firm exclusively focused on funding charter schools.
Enrollment in these alternative educational institutions is growing nationally, and investors are paying attention. In Oregon the percentage of students enrolled in charter schools rose to 5.8% of public school students in the 2017-2018 academic year, from 1.7% of enrolled students in 2006 and 2007, according to an Oregon Department of Education report.
Charter schools receive public funds and can’t charge tuition. But they operate independently of the public school system and are exempt from several state and local boards of education requirements, such as who they hire and how they structure their curricula.
They are popular with some parents seeking an alternative to the public school system. Some accept students that have dropped out of district-run schools. Others are popular because they perform better than their district-run counterparts, although their performance nationally is mixed.
Charter schools receive less state funding than district-run schools, which is why investors see opportunities to provide capital. A study by analysis firm ECONorthwest, which used 2012-2013 data, found Oregon charter schools receive 60% of the funding that their district counterparts receive.
Unlike district-run public schools, charter schools do not receive funding for buildings. They have to rent a facility or buy land to build their own schools. This means many charter schools have to rely on donations or the capital markets to operate.
This is where Charter School Capital has found a niche in filling that demand for financing. Since its launch in 2007, the company has invested more than $2 billion in 700 charter schools nationally. Its revenue increased 24% in 2019 compared with last year.
In 2009 co-founder and CEO Stuart Ellis, a Los Angeles native, moved from California to Portland, where office rents were cheaper than in his home state. Portland is where the company is now headquartered; 40 employees work at the HQ.
Charter School Capital finances schools in two main ways: It loans money to schools to buy buildings, and it also rents property it owns to schools. The firm also provides capital to cover budget gaps, building renovations and other expenses, as well as offering marketing expertise to increase enrollment.
In return, the financial services firm receives the state funding given to the schools for each enrolled student.
Despite being headquartered in Oregon, the firm has financed few charter schools here compared with other states. The Ivy School and KairosPDX are its sole investments in Oregon. Its biggest markets are in California, Arizona, Florida and Ohio.
Oregon’s school-funding regulations restrict funding opportunities, says Ellis. This is because school districts in the state, which distribute funds to charter schools, retain an administrative fee, which is uncapped. This means Charter School Capital would receive less money per student than it can in other states.
“The law is not structured to make things easy for charter schools in Oregon,” says Ellis.
Charter schools are often disliked for taking money away from district-run schools. In some states, enrollment is so high that public schools complain they are losing students to charter schools and, as a result, are receiving fewer funds. Public schools receive state money for each student enrolled.
Charter school teachers tend not to be unionized compared with their district-run counterparts, which adds to the resentment.
Charter schools also have a checkered reputation for performance. In Portland, Trillium Charter School closed this spring after 17 years in operation.
Despite this, their popularity continues to grow, giving financiers such as Charter School Capital a stable source of investment. And they are popular with teachers, too. It is notable that three of the top 10 nonprofits in Oregon Business magazine’s 2019 100 Best Nonprofits to Work For in Oregon are charter schools — Baker Charter Schools, Logos Public Charter School and Summit Learning Charter.
In a state where public schools struggle because of a lack of funding, charter schools may just continue to attract students seeking an alternative to traditional public school education.
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