Guess Who's Betting on Impact Investing to Boost the Charter School Movement?

  P hoto: y e.backlund/shutterstock

 Photo: y e.backlund/shutterstock

The Walton Family Foundation is one of the charter movement’s biggest supporters, so we’re used to hearing about this funder pouring big money into the space. But its latest announcement takes a slightly different direction and spotlights the growing potential of impact investing to turbocharge the charter school movement.

The foundation just launched two independent nonprofit funds that will invest in charter school facilities by providing short and long-term, low interest loans, rather than grants. The two funds are part of the foundation’s Building Equity Initiative, which was launched in 2016 to "make it easier and more affordable for public charter schools to find, secure and renovate facilities."

As anyone in charter school circles knows, the brick-and-mortar challenges to creating or expanding charters can be huge—especially in expensive cities. Charter leaders have complained bitterly that they don't get their fair share of resources for facilities, while traditional districts have often resisted efforts that would divert even more resources to charters. Some of the biggest fights over charters have been around this issue. 

The Walton Family Foundation says that charter schools spend about 15 percent of their annual budgets on facilities, but few states allocate public per pupil funding for that need. The result is that charters get saddled with with heavy infrastructure costs. Walton estimates that $3.6 billion goes to fund charter facilities a year—cash that can be used to meet other needs. A lack of facilities also can delay or stop new charters from opening. 

The Charter Impact Fund, which has $200 million in seed money, will provide long-term, fixed rate loans covering up to the whole cost of a project. The Facilities Investment Fund will use its $100 million of seed funding to provide five-year fixed rate loans up to $20 million to cover renovations and new construction.

The funds are part of the broader plan the foundation rolled out in 2016 to put $250 million toward charter school facilities in 17 cities. The goal is to increase the number of slots for students by 250,000 by 2027. Now we that we know the specifics on how Walton plans to achieve that, it's worth revisiting the project.

“Big challenges require bold solutions,” said Alice Walton, one of the foundation’s board members. “This effort will allow resources that were spent on facilities to be directed back into the classrooms, back to the teachers and back to where it should be—with the students.”

Walton, the philanthropic arm of the Walmart heirs, has supported charter schools since the 1990s. But despite big investments from Walton and other foundations, charters haven’t scaled as well as early advocates hoped. The vast majority of students still attend traditional public schools.

That being said, it’s not that there isn’t demand for charter schools. Back in 2014, the National Alliance for Public Charter Schools estimated that about 600,000 kids ended up on wait lists, unable to attend charter schools.

Space constraints are part of the reason charters haven’t been able to scale to reach demand, Walton argues. Charters don’t have the same access to public buildings as traditional public schools do and getting financing to build and expand facilities can be tough. When public school districts borrow money, they do so with the backing and credibility of their local governments. On the other hand, lenders tend to consider charter schools risky investments, so securing funding can be a stumbling block for schools just starting up or looking to expand. Philanthropic impact investing offers a way to address this challenge and we've seen several other initiative in this area, most notably the Turner-Agassi Charter School Facilities Fund, which claims to have helped finance 79 schools. 

While there's been a lot of attention to impact investing across many fields, its potential in the charter space is especially promising. Financing school facilities with long-term loans is relatively straight forward, compared to other social investments, and regardless of what you may think of charters, big new infusions of capital here could be transformative. 

With its new loan funds, Walton is joining a growing list of foundations that are experimenting with impact investing on a large scale. This effort complements its broader work in the K-12 space. Back in 2016, the funder unveiled five-year $1 billion plan to bolster charter schools. The plan included scaling up schools, but also focused on cultivating a talent pipeline to staff them, and research and advocacy that could be used to push for more favorable policies. The plan represented an acknowledgment that parent choice alone was not enough to expand charter schools. To sustain the movement, funders would have to do more.

Related: Choice Is Not Enough: What Walton Is Up to With Its New K-12 Funding Strategy

It’s hard to over-emphasize just how much impact Walton has had on the charter space. A quarter of all charter schools created in the U.S. have received funding from the foundation. Many wouldn't exist at all without Walton. 

Walton is far from the only funder backing charters. The Eli Broad Foundation in Los Angeles leads a lot of work in support of charter schools in its home city. The foundation is part of a $500 million plan to double the number of kids in charter schools in L.A. The Gates Foundation is another long-time deep-pocketed supporter of the movement. Gates has left the door open to do more work with traditional school districts as part of its new focus on networks, but has set aside money specifically for charter schools.

Despite charters’ popularity among foundations, Walton is one of the few that invests in brick and mortar work required to get schools up and running and allow them to expand. The foundation has identified this as one of the barriers to scaling. The hope with the two funds is to attract other philanthropic, private and public partners to take on the work. On that front, Walton has had some success. The Facilities Investment Fund is part of a collaboration with Bank of America Merrill Lynch and will be managed by Civic Builders.

Of course, charter schools are not without their critics. Opponents claim the schools sap funding from public coffers, while helping a fraction kids. The schools receive public funding, but aren’t beholden to the same requirements, like union contracts. On top of that, research on student outcomes coming out of charter schools have been decidedly mixed.

Nevertheless, the Walton Foundation and other funders like it are determined to ensure charter schools are a growing part of the K-12 ecosystem. Impact investing is its latest tactic to make sure that happens.