California State Auditor Report: Charter School Facility Grant Program and Conduit Financing Program

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As directed by the Joint Legislative Audit Committee, my office conducted an audit of the California School Finance Authority (CSFA). Our assessment focused on the Charter School Facility Grant Program (Facility Grant Program) and the Conduit Financing Program, both of which CSFA administers. We determined that both the Facility Grant Program and Conduit Financing Program are generally achieving their purpose of increasing charter schools’ access to facility funding.

The Facility Grant Program provides state funding to subsidize charter schools’ facilities rent and lease costs and most of the recipient schools enroll a sizeable percentage of students from low‑income households. We found that charter schools that received program funding closed less often than other charter schools, and the schools we selected for review were often located in areas needing additional classroom space. The Conduit Financing Program enables charter schools or entities working with them to obtain privately provided long-term financing for property acquisition and improvement. Despite stakeholder concerns that some charter schools may be improperly benefiting from the two programs, we found among the charter schools and their closely associated entities that we reviewed that each entity had acted in alignment with each program’s requirements in state law. Although no part of the net earnings from the sale or lease of assets that are held by tax-exempt educational entities may benefit a private individual, charter school closures can still negatively affect students’ education. Therefore, the Legislature could adopt safeguards to better ensure that when a charter school closes and its facilities that have benefited significantly from Facility Grant Program funds are sold or leased that they continue to be used for public education.

Finally, we found that CSFA generally administers both programs with fidelity to the state laws that created them, but it does not review all potential conflicts of interest when awarding Facility Grant Program funds. Moreover, CSFA could improve its processes so it does not rely on applicants to self-disclose related parties and to self-certify they are not operated as or by for‑profit organizations.

Respectfully submitted,

GRANT PARKS
California State Auditor
LINK TO FULL REPORT: http://auditor.ca.gov/reports/2022-110/index.html

The Legislature enacted the Charter Schools Act of 1992 to allow the establishment of charter schools throughout the State. However, the act originally contained no provisions related to providing facilities for these schools. The State has since implemented a number of programs to help charter schools obtain or rent facilities in which to operate. For example, the California School Finance Authority (CSFA) administers the Charter School Facility Grant Program (Facility Grant Program), which provides state funding to charter schools to pay for a portion of their cost to rent or lease facilities. CSFA also administers the Conduit Financing Program, which enables charter schools to access funding from private investors for the purchase of facilities.