It's been a turbulent period for charter schools in the United States, with financial analysts raising concerns about their stability and regulators in several states shutting down schools for poor performance. The volatility has made it tough for startup schools to get financing.
But an unlikely source of new capital has emerged to fill the gap: foreign investors.
Wealthy individuals from as far away as China, Nigeria, Russia and Australia are spending tens of millions of dollars to build classrooms, libraries, basketball courts and science labs for American charter schools. In Buffalo, New York, foreign funds paid for the Health Sciences Charter School to renovate a 19th-century orphanage into modern classrooms and computer labs. In Florence, Arizona, overseas investment is expected to finance a sixth campus for the booming chain of American Leadership Academy charter schools.
And in Florida, state business development officials say foreign investment in charter schools is poised to triple next year, to $90 million.
The reason? Under a federal program known as EB-5, wealthy foreigners can in effect buy U.S. immigration visas for themselves and their families by investing at least $500,000 in certain development projects. In the past two decades, much of the investment has gone into commercial real-estate projects, like luxury hotels, ski resorts and even gas stations.
Lately, however, enterprising brokers have seen a golden opportunity to match cash-starved charter schools with cash-flush foreigners in investment deals that benefit both. "The demand is massive, massive, on the school side," said Greg Wing, an investment advisor. "On the investor side, it's massive, too."
Two years ago, Wing set up a venture called the Education Fund of America specifically to connect international investors with charter schools. He is currently arranging EB-5 funding for 11 schools across North Carolina, Utah and Arizona and says he has four more deals in the works. And that's just the start, Wing says: "It's going to be explosive."
The charter school movement is somewhat controversial. Critics, led by teachers' unions, contend they divert much-needed funds from traditional public schools. Still, they have proved quite popular and now educate more than 2 million children in the United States. Charter schools are publicly funded but privately run, sometimes by for-profit companies. They receive taxpayer dollars to educate each child who enrolls. Yet in most states, they get little or no public money to build classrooms, libraries and other facilities.
Well-established and successful chains of charter schools, such as KIPP, Green Dot or Achievement First, receive hefty support from philanthropic foundations and private donors. The chains can also tap into financing provided by an array of for-profit and non-profit investment funds created for that purpose.
But the charter school movement also includes hundreds of small, one-of-a-kind schools, often started by parents seeking a different educational environment for their children. Those mom-and-pop startups have always had a hard time securing funding to build their schools. Many have had to make do with makeshift classrooms in strip malls or church basements. And lately, experts say, the credit crunch has worsened.