TEXAS MAY PROVIDE BACKING FOR CHARTER SCHOOL DEBT OFFERINGS
http://www.businessweek.com/news/2011-03-03/texas-may-provide-backing-for-charter-school-debt-offerings.html
Updates with Texas school enrollment in ninth paragraph.)
March 3 (Bloomberg) -- Texas may become the second U.S. state to back charter-school bond offerings under a Senate bill from a Republican leader that is opposed by local school boards.
Bonds from charter districts with investment-grade ratings would be backed by the Permanent School Fund, a AAA rated state endowment that guarantees debt issued by local systems, under the proposal from Senator Florence Shapiro. The Plano Republican heads the Senate’s Education Committee.
Charter schools, which enroll 2 percent of public-school students in Texas, could issue up to 2 percent of the guaranteed debt, under terms of the bill. The ratio would fluctuate with enrollment levels. The endowment had a 2010 return of 13 percent, rising to a value of $25 billion, according to the Texas Education Agency. The fund’s backing may cut bond yields by as much as 4 percentage points for an issuing district.
Opponents who run Texas public-school districts “aren’t happy” about her proposal, Shapiro said. “It’s a relatively small amount of money and once they understand the issue, they may come around,” she said in a March 1 interview.
Texas lawmakers are considering proposals to cut public- school funding by about 10 percent over the next two years while enrollment is projected to rise by about 80,000 annually. The spending reductions, aimed at helping to close a budget gap of as much as $27 billion, may eliminate as many as 100,000 school district jobs, Moak Casey & Associates, an Austin-based education-consulting firm, said in a January report.
Charter Financing
Unlike traditional school districts, charter schools educating about 1.6 million U.S. children don’t have taxing authority to finance school construction, according to a February study by the Local Initiative Support Corp., a New York-based nonprofit focused on community development. Between 1999 and 2009, about $2.4 billion in rated tax-exempt debt was issued to finance charter schools with support from alternative education groups, the organization said in June.
Charter schools are typically open to the public and operate independently of local governments and their union contracts. The schools set their own goals, manage their own budgets and hire and fire teachers using their own criteria.
Backing from the top-rated Texas endowment typically would enable a charter-school district to pay about 1.50 percentage points less on new debt issues in a stable market, said Elise Balboni, a project director at the Local Initiatives group. That savings could rise to as much as 4 percentage points when markets are more volatile, she said.
Funding Concerns
The Texas School Boards Association is concerned that charter schools’ use of the bond guarantees may crowd out school districts that need the endowment’s backing, said Jackie Lain, the Austin-based group’s head lobbyist. Texas had about 4.82 million public-school students last year, state figures show.
“With 80,000 new students coming into our schools annually, we want to make sure that independent school districts have access to these much-needed funds,” Lain said.
Shapiro’s bill requires charter schools to have investment- grade ratings and lets Texas’s education commissioner reject offerings that would lower ratings for bonds issued by adjacent school districts.
“There’s plenty of accountability in the bill,” she said.
If Shapiro’s proposal passes into law, Texas would become the second state after Colorado to provide guarantees to charter-school debt offerings.
Colorado Support
More than 30 charter schools in Colorado have sold bonds totaling $426 million since 2003 through a “moral obligation” program that requires the state to cover debt service when necessary, said Jo Ann Soker, executive director of the Colorado Educational and Cultural Facilities Authority in Denver. In all, more than 60 charter schools in Colorado have sold bonds totaling $860 million, she said.
About 8.8 percent of Colorado’s kindergarten through 12th grade enrollment is in charter schools, according to the Local Initiative group. Nationwide, the ratio is about 3 percent.
In Texas, about 120,000 students attend 520 open-enrollment charter schools, said Josie Duckett, a spokeswoman for the Texas Charter Schools Association in Austin. About 60,000 children are on waiting lists, she said.
The largest, Houston-based Harmony Public Schools, has 33 campuses and 16,000 students statewide, according to President Soner Tarim. The organization was started by Cosmos Foundation Inc., a nonprofit group in Texas, according to its website. Cosmos has issued more than $150 million in debt to finance the schools since 2007. He said with endowment backing, the foundation could have saved about $42 million on one $90 million issue in October.
“Other states may be looking at Texas as a model for providing capital for charter schools,” said Maria Sazon, senior director for facilities initiatives at the National Alliance for Public Charter Schools. “Having Permanent School Fund backing would save schools a ton of money that could be used to reinvest in education.”
--Editors: Ted Bunker, Mark Schoifet, Jerry Hart.To contact the reporter on this story: David Mildenberg in Austin, Texas, at dmildenberg@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.ne
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