Local Funding for Charter Schools (Including New County Funding Authority for Charter School Capital)

2023 marked 27 years since the inception of charter schools in North Carolina. And it brought some big changes to charter school governance, growth, and funding. See S.L. 2023-107; S.L. 2023-110. Among these changes was the grant of authority to counties to fund certain charter school capital outlay. It presents an opportune time to review the local funding scheme for charter schools.

Charter schools are public schools and receive most of their operational funding from the State, allocated on a per pupil basis. G.S. 115C-218.105(a). Counties provide operational funding, albeit indirectly, passed through local school administrative units, and municipalities are also authorized to provide operational funding. Historically, charter schools have been responsible for securing private funding for their capital needs. But state funding may be used for certain lease agreements, G.S. 115C-218.105(b), and local support for capital is available from counties, municipalities, and local school administrative units. Each of these local funding sources is discussed in turn.

LOCAL SCHOOL ADMINISTRATIVE UNITS

Charter School Operational Expenses

Each county has at least one and some counties have up to three local school administrative units. These are the traditional public-school districts. A local school administrative unit does not raise its own revenue. It derives most of its revenue from the State, a small portion from the federal government, and the balance from county appropriations and other local sources. For each student within a local school administrative unit who attends a charter school, the administrative unit must transfer to the charter school an amount equal to the administrative unit’s per-pupil local current expense fund appropriation for the fiscal year. (The local current expense fund is also known as the school district’s general fund or Fund 2.) The local current expense appropriation includes direct appropriations by the county for operating expenses; revenues from local fines, penalties, and forfeitures; state moneys disbursed directly to the local school administrative unit; and the proceeds of supplemental taxes levied by or on behalf of the local school administrative unit.[1] G.S. 115C-218.105(c); G.S. 115C-426(b). It does not include fund balance. It also does not include moneys that are properly accounted for in funds other than the local current expense fund, such as moneys resulting from reimbursements, fees for actual costs, tuition, sales tax revenues distributed using the ad valorem method pursuant to G.S. 105-472(b)(2), sales tax refunds, gifts and grants restricted as to use, trust funds, federal appropriations made directly to local school administrative units, and funds received for pre-kindergarten programs. G.S. 115C-426(c). If a local school administrative unit budgets or accounts for any of these moneys in the local current expense fund, however, the moneys must be distributed to the charter schools. See Sugar Creek Charter Sch., Inc. v. Charlotte-Mecklenburg Bd. of Educ., 195 N.C. App. 348, appeal dismissed and discretionary review denied, 363 N.C. 663 (2009); see also Thomas Jefferson Classical Acad. v. Rutherford Cnty. Bd. of Educ., 215 N.C. App. 530 (2011), review denied, ___ N.C. ___, 724 S.E.2d 531 (N.C. 2012).

Charter School Capital Expenses

A local school administrative unit is not required or authorized to provide capital funding to a charter school. However, a school administrative unit must lease, upon request of a charter school, any available building or land owned by the school administrative unit unless the school unit’s governing board demonstrates that the lease is “not economically or practically feasible or that the local board does not have adequate classroom space to meet its enrollment needs.” G.S. 115C-218.35. The school administrative unit may lease the capital to the charter school for free, but the charter school must pay for maintenance and insurance. If a charter school and local school administrative unit are unable to reach an agreement on the lease, the charter school may appeal to the board of county commissioners in which the building or land is located. The county commissioners have final decision-making authority on the leasing of the available building or land.

COUNTIES

Operational Expenses

A county is not required and, in fact, is not statutorily authorized, to directly fund charter school operating expenses. As detailed above, a county does fund these costs indirectly, though. Counties are required to provide operational funding to their local school administrative units each fiscal year. (See this blog post for a discussion of statutory minimum funding requirements.) And a school administrative unit shares the county funding for operating expenses (appropriated to the school unit’s local current expense fund), on a per pupil basis, with each charter school that serves students who are districted for the local school administrative unit. In other words, the county funding for operational expenses follows the student. That means that some county money may go to fund charter schools located outside the county.

Capital Expenses

A county may donate surplus, obsolete, or unused personal property to charter schools. G.S. 160A-280. Any such donation must be made contingent on the charter school continuing to use the property for educational purposes. See Brumley v. Baxter, 251 N.C. 691, 700 (1945).

Additionally, with the enactment of Part VI. of S.L. 2023-107 (codified as G.S. 115C-218.105(b1) – (b2) and G.S. 153A-461), the legislature now authorizes county governments to contract with a charter school to provide direct funding for certain charter school capital outlay. A county may fund for each charter school that educates county residents:

• The acquisition of real property for school purposes, including, but not limited to, school sites, playgrounds, and athletic fields.
• The acquisition, construction, reconstruction, enlargement, renovation, or replacement of buildings and other structures, including, but not limited to, buildings for classrooms and laboratories, physical and vocational educational purposes, libraries, auditoriums, and gymnasiums; and
• The acquisition or replacement of furniture and furnishings, instructional apparatus, technology, data processing equipment, business machines, and similar items of furnishings and equipment.

The charter school will own the capital asset(s), but to protect the investment of county funds the law requires that the county and charter school execute a promissory note, with the county taking a deed of trust on the funded capital asset(s). The charter school is not legally required to repay the funding, but if it does, the county’s interest in the property will be extinguished. If the charter school is ever dissolved and the charter had not repaid the county, ownership of the county funded asset(s) reverts to the county. (If more than one county contributed to the capital asset, the property will be divided on a proportional basis between the counties.)

A county may use property tax proceeds, see G.S. 153A-149(c)(38), and unrestricted general revenue sources to fund charter school capital. That includes the unrestricted portion of its sales and use tax proceeds and various other unrestricted general taxes and fees. It does not include the portion of county sales and use taxes that are legally restricted to fund school capital outlay. Those monies may only be used to fund local school administrative units, through a capital outlay fund appropriation. And monies appropriated to a local school administrative unit’s capital outlay fund is not shared with charter schools.

The new law also expressly authorizes counties to lease real property to charter schools. The legislature did not further flesh out the contours of this authority. Presumably the lease or rental of property provisions in G.S. 160A-272 would apply to any lease arrangement.

MUNICIPALITIES

Like counties, municipalities may donate surplus, obsolete, or unused personal property to charter schools. G.S. 160A-280. Any such donation must be made contingent on the charter school continuing to use the property for educational purposes. See Brumley v. Baxter, 251 N.C. 691, 700 (1945).

Unlike counties, municipal governments may appropriate money directly to charter schools that serve their residents for both capital and operating expenses. G.S. 160A-700. Municipal funding is purely discretionary. It may be used to supplement other charter school funding sources.

Funding for Charter Schools Located within Municipality

A municipality’s appropriation authority is delineated by location of the charter school. For charter schools located within municipal limits, municipal appropriations may be made as a lump sum to each charter school or on a per pupil basis. G.S. 160A-700(b)(1). A municipality may “direct or restrict the use of funds appropriated for specific purposes, functions, projects, programs, or objects….” G.S. 160A-700(a). In addition to funding operating expenses, special programs, and general capital (including construction, repair, maintenance, additions, and upgrades), municipal appropriations may also be used to enter into operational and financing leases for real property or mobile classroom units, and may be used to make payments on loans made to charter schools for facilities, equipment, or operations. (Every contract or lease into which a charter school enters involving a municipal appropriation must state that: “No indebtedness of any kind incurred or obligation created by the [charter school] shall constitute an indebtedness or obligation of the city, and no indebtedness or obligation of the [charter school] shall involve or be secured by the faith, credit, or taxing power of the city.”)

Municipal appropriations may not be used by a charter school to obtain “any other interest in real property or mobile classroom units.” Thus, municipal funds can’t be used to purchase land, charter school facilities, or mobile classrooms.

Funding for Charter School Located Outside Municipality

For schools located outside municipal limits, a municipality may allocate money to a charter school attended by a resident student on a per pupil basis to fund current operating expenses or other specific uses directed by the municipality. G.S. 160A-700(b)(2).

There is no requirement that a municipality provide equal funding to all the schools that serve its residents. A municipal board may choose to fund only the schools within municipal territorial boundaries, or it may choose to only fund a single school unit. It is up to the municipal board to decide whether and how much to appropriate to a charter school. A municipality may use property tax proceeds or any unrestricted revenues from other sources to fund the appropriation(s).

[1]. Note that revenue derived from supplemental taxes will be transferred only to a charter school located in the tax district for which the taxes are levied and in which the student resides.

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