Charters finding ways to access capital markets

Charters finding ways to access capital markets

(Texas) Led by Texas school, charter schools nationally issued a record amount of municipal debt this year with expectations that the number will jump again in 2015.

Under legislation approved in 2011 and made operative last spring, charter schools were given access to the state’s long-standing bond guarantee program, which before had been limited to traditional public schools.

“This is a guarantee system that goes back to 1983 and since then we’ve backed more than $112 billion in bonds issued by the independent school districts,” said DeEtta Culbertson, spokeswoman for the Texas Education Agency. “Last year the board approved rules allowing charter schools to participate in the program and what that gets them is the equivalent of a triple-A rating.”

According to figures released by Bloomberg, Texas charters accounted for $464 million of the $1.6 billion in charter borrowing in 2014. Charter schools in Arizona, Colorado and Utah were also active in the bond market this year.

Access to capital is a key challenge for charters, which traditionally are forced to scramble to find school sites that can provide not only the classrooms they need but also lunchrooms, auditoriums and gymnasiums.

Wall Street has generally been reluctant to buy up debt from charter schools, at least in part over concerns that funding can fluctuate and that an authorizing agency could terminate an operating agreement without regard to the terms of a bond.

Of 166 first-time defaults by municipal issuers in the past two years, 11 were charter schools, Bloomberg reported.

When financing is offered, charters will often pay far higher interest rates than traditional schools as well as any number of related fees.

According to a 2013 survey of charter facilities in 12 states conducted by the National Alliance for Public Charter Schools, few schools met facility standards for classroom size – ranging from a high of 34 percent in Georgia to 10 percent in Idaho.

The same report found only in New York was there a substantial number of charter schools that had qualified kitchens; on average, among those states surveyed, only about a third of charters had proper meal facilities. They reported similar findings when it came to gym and sports venues.

In California – home to the nation’s largest network of charters – advocates are looking at a number of ideas they may bring before lawmakers in the next session aimed at improving borrowing options for charters.

Myrna Castrejón, senior vice president over government affairs at the California Charter Schools Association, said facilities remains one of the areas where there is significant disparity between traditional schools and charters.

“In California we have a patchwork of solutions for supporting charters,” she said. “But something of the scale of what they are doing in Texas or other states is certainly not available in California.”

Traditional public schools in California have the ability to take a bond measure to the voters that would be backed by local property taxes. In November, voters statewide approved 89 separate local bond measures that will raise a total of $9.3 billion.

Traditionally, the Legislature has put a statewide bond before voters to support school construction and modernization projects – some of which charters have been able to access.

But Gov. Jerry Brown has said he wants the state to play a less active role in providing facility funding for schools and is expected in January to unveil a new approach centered around a “pay-as-you-go” system.