The Utah Legislative Session has ended. That’s right, for all of those that are still in the trenches, we are done and grateful for an efficient 45 day session.
The Utah Association of Public Charter Schools is even happier because this was the greatest session in Utah for charter schools since our original authorizing legislation. After not receiving any federal start up grants, we worked with the Legislature, Governor’s office and State Board of Education to replace them. We also partnered on a bill to strengthen the ability of our higher education institutions to authorize charter schools.
However, the most important legislation was SB 152 sponsored by Senator John Valentine and Representative Derek Brown that creates a moral obligation pledge for qualified charter schools buildings.
The recent LISC study made the following observation that all charter school people will fully understand:
“Because charter schools finance their facilities with per pupil operating revenue rather than a general obligation pledge tied to taxing authority, they pay significantly higher interest rates on facility debt than their school district counterparts. Yet, charter schools pay these higher rates with public dollars. Many charter school proponents, taxpayers and school districts have pointed out the inefficient use of tax dollars, which results from this two-tiered system. With the mounting public mandate to improve the quality of the nation’s public education system and the need to use scarce public resources more efficiently in a difficult fiscal environment, this is the ideal time for the public sector to address this inequitable and inefficient system. Short of publicly financing charter school facilities directly with tax-backed structures, expansion of state, municipal or federal credit enhancement programs that use balance sheet pledges rather than appropriated funds to reduce interest expense for charter schools would be an extremely efficient use of a superior governmental credit in a tight fiscal environment. The resulting savings would not only be invaluable to charter schools, enabling them to spend more operating dollars in the classroom, it would reduce aggregate public outlays for public school facilities.”
This sums up the public policy argument that we made, and it was fully embraced by our State Treasurer, Legislature and Governor. We are forcing non-traditional public schools, charter schools to spend money on high interest rates and financing costs rather than spending that money in the school and ultimately in our State.
SB 152 – Charter School Financing - not only created the moral obligation for qualified charter schools, it also laid out the criteria for a school to qualify as well as risk mitigation mechanisms to protect the State of Utah.
Like Colorado and Texas, the State of Utah’s credit enhancement will require schools to be independently investment grade rated. This is a high financial bar, but we agreed that it was critical that our schools be able to reach that level before receiving the State’s moral obligation pledge. (I might note that Utah is very focused on it’s credit rating. It is one of only a handful of States that are AAA rated by all 3 credit rating agencies and is a constant discussion item in public policy debates).
In addition, we created a State level debt reserve fund that was seeded with three million dollars. This fund, which schools will pay into as part of their financing, will serve as the ultimate backstop in case the moral obligation pledge is ever called upon.
Although there are other important features to this legislation that will greatly aid charter schools and allow them to better utilize their “income,” the miracle of this legislation is the preparation and earnest way in which all parties involved approached this legislation.
After the 2011 legislative session ended, I began discussions with a few key charter school people about our next big initiative. We all agreed that facilities financing was a significant issue, but we also saw the benefit that could come out of passing this legislation.
I believe strongly in allowing charter schools to be independent and have the ability to carry out their unique charter as they see fit. However, charter schools that understand governance and wise financial management almost always seem to be successful in academically. I wanted to offer a significant carrot to those that were strong financial stewards of our taxpayer dollars.
The Utah Association of Public Charter Schools, in conjunction with the State Treasurer’s office, convened a group to begin working on this legislation. The group included the State’s financial advisor (Zions Public Finance), bond attorneys from Ballard Spahr and Chapman and Cutler, a charter school financial advisor, the Governor’s office, our legislative sponsors and a few charter school board members. (I might also add that some key charter underwriters, specifically DA Davidson and Piper Jaffray, provided invaluable support).
This working group spent countless hours over a number of months preparing the legislation. We talked openly and candidly about issues, but every participant came to the meeting willing to embrace the final goal. I was lucky; it’s not easy to get a bunch of people with different agendas to get together and work towards the common goal. However, I believe that positive working environment came as a result of having enough time to work on the issue and fully vet all concerns within the group.
That group has already started meeting after the session to begin discussing the rules and process by which the moral obligation program will work. We have outlined the steps that we will take to make this program a reality and hopefully make a significant change in the cost of how our charter schools are financed.