This edition of Charterology celebrates 25 years since the opening of the first charter schools in Utah. We have a chance to look back at the beginnings of the movement through the eyes of two pioneers, Eric and Michelle Smith. Their leadership has spanned the years at schools, at UAPCS and on the State Charter School Board. In the present, we can see the impact of a Karl G. Maeser Preparatory Academy education on two alumni. And looking forward, UAPCS stays busy with advocacy and support.

Good News for Utah’s Charter Schools

The U.S. Department of Education recently notified UAPCS that it is receiving a $44 million grant to expand high-quality charter schools in Utah. We will administer this grant over five years to develop high-quality new charter schools and to help existing high-quality charter schools open new campuses.

The federal grant is part of the U.S. Department of Education’s Charter School Program (CSP). State-level applicants compete for a share of the annual $440 million Congress has appropriated for the CSP.

Strict federal rules govern how new charter schools may use these funds. For example, new schools and new campuses can hire a director, rent office space and get the training, technology, software and supplies new charter schools need to start strong.

The federal grant will also allow UAPCS to expand our “new director incubator,” which embeds potential directors in existing charter schools for a year before their own school opens. It provides them with hands-on experience running the day-to-day operations of a school, budgeting, HR, compliance and the myriad other tasks inherent in running a charter school.

This grant is perhaps the most significant opportunity Utah charter schools have had in the past decade. It provides a strong incentive for existing schools to perform well, attract more parents, succeed and expand. It also creates an incentive for education innovators to flesh out new models so that more students can find their place.

A Legislative Agenda

Fiscal Projections
UAPCS will shepherd several pieces of legislation through the 2025 Legislature, and we’ll talk more about them in the coming weeks and months. But schools naturally want a better sense of the fiscal impacts they should anticipate. A variety of reports from the State Tax Commission and the Legislature make clear that, unlike the last several years, legislative coffers will not be overflowing.

Nevertheless, the existing Utah code has already banked an increase in the Weighted Pupil Unit (WPU) of about 3.9%. In other words, the base budget the Legislature will adopt the first week of the General Session is almost certain to include that increase. By contrast, every other portion of the state budget will be clamoring to avoid budget cuts.

UAPCS is also working with a variety of charter school stakeholders to improve the structure of charter school base funding. Given the uncertainty around tax collections this year, it is hard to predict whether we will see the increase we are hoping for here. However, we hope to structure it so that inflation doesn’t eat into the purchasing power of this line item. We will keep you apprised as negotiations continue.

Policy Agenda

As we approach the 2025 session, we have spent hours upon hours discussing with legislators the structural opportunities for charter schools to thrive better. Those conversations have gone remarkably well, and we are hopeful that we will make significant progress in several key areas. First, we want to expand which schools can qualify for the state’s credit enhancement or moral obligation program. Second, we want to free charter schools from many of the regulatory strings imposed by various restricted streams of funding.

Expanding Who Can Qualify for Enhancement
Because charter schools are incapable of imposing a property tax, the state does not back charter school debt with its “full faith and credit.” That typically means that we pay between 75 and 125 basis points more in interest than school districts, whose debt is backed by the “full faith and credit” of Utah. To help high-performing schools obtain better terms, in 2012 then-Sen. John Valentine created the credit enhancement or moral obligation program.

Under this program, schools performing very well operationally, academically and financially can apply to the Charter School Finance Authority (CSFA) to sell credit-enhanced bonds. If they meet the CSFA’s rigorous standards — including obtaining an investment grade rating from Fitch’s, Moody’s or S&P — the state will put a moral obligation behind that school’s bonds, meaning that they will repay the bondholders in the event of a default.

This credit enhancement lowers the interest rate on those bonds by somewhere between 50 and 75 basis points. To date, the Legislature has never had to go into its pocket to repay any charter school debt, let alone to repay credit-enhanced charter school debt. Moreover, about 25 schools have qualified for this program, selling $500 million in bonds. Over the term of those bonds, those charter schools should save about $100 million.

Given that strong track record, it seems appropriate to look at how the state can expand access to this program. Rep. Neil Walter is running legislation that we expect will provide access to this program to another 25 high-performing charter schools. It would provide $3 million into the CSFA’s moral obligation backup account, effectively giving them a “warm fuzzy blanket” to assure them that the state wants to expand the program. Our expectation is that the CSFA will expand access to this program by allowing more small (probably enrollment between 200 and 500 students) but highly effective schools to participate. We are pleased by the warm reception Rep. Walter’s bill is already receiving.

Expanding Charter School Options
For several years Sen. Fillmore has led the effort to remove unnecessary regulatory strings on all of public education. In fact, he has explicitly permitted schools to treat as unrestricted up to 35% of state-restricted funds. The next step in this process will be a bill this year to create a “charter pupil unit.”

The concept here is really very simple. As schools of choice, charter schools face the ultimate accountability mechanism: the decisions of families to send their students to a school. This competitive pressure requires that schools remain in close contact with their school community, and that they provide the education and programs students and families want. Schools failing to do so lose enrollment and may even close.

With such a supple and effective accountability mechanism, it is, at best, awkward to layer additional restrictions on how schools can use the funds the Legislature provides them. So Sen. Fillmore’s bill would sever the strings between about 10 of the Legislature’s restricted funding streams, stack the statewide per pupil average of those streams on each other, and provide that amount to each charter school.

Importantly, severing these regulatory strings won’t alter a charter school’s obligation to meet the needs of their students. At all. The obligation to meet those students’ needs predates any of those funding streams. In reality, all Sen. Fillmore’s bill will do is allow charter schools a freer hand in meeting the needs of their students. In a state as committed to parents and families as Utah is, Sen. Fillmore’s bill will be a natural fit.

With growth-focused funding, eliminated restrictions and the continued excellence of charter school leaders, teachers and staff, we look forward to another great 25 years of charter schools in Utah!