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The Charter School Bond Issuance: A Complete History, published by the Local Initiatives Support Corporation (LISC), provides a comprehensive analysis of the more than $5 billion in tax-exempt bond transactions undertaken by roughly 400 public charter schools, from the first bond offering in 1998 through 2010.
The report conveys transparency about the charter school sector of the municipal bond market and the current two-tiered system of public school financing—one for school districts, which frequently access the tax-exempt bond market at favorable rates, and another for public charter schools, which have limited access to the market and pay higher rates. The report finds that charter schools have paid an average interest premium of two percentage points more than triple-A rated municipal borrowers. According to the authors, these higher interest rates translate to an additional $90 million in interest payments annually for charter schools.
Charters school bonds’ low credit ratings are generally attributable to the newness of the sector, the absence of taxing authority and the lack of per pupil funding specifically for facilities to secure the bonds. And because low rated bonds carry higher interest rates, facilities become a heavy burden to school operators. If the interest premium could be marginally reduced from the estimated of $90 million per year for the entire charter school sector, it would free up funds that could be used to support instruction rather than to pay interest.
The report contains many other findings about charter school bonds including the upward trajectory of bond issuance that peaked in 2007, the number of schools that received credit enhancement, default rates, and the void left by the collapse of the municipal bond insurers. To request a hard copy of this report, please contact the EFFC at effc@lisc.org.
Now is the time for the public sector to address the two-tiered public school finance system. As stated in the report, short of publicly financing charter school facilities with tax-backed structures, the expansion of state, municipal or federal credit enhancement programs that guarantee charter school debt without any up-front appropriation of monies would be a practical and efficient use of superior government credit in today’s tight fiscal environment. If charter schools could access the capital market with the ease and the lower interest rates of school districts (if not all charters, at least those with demonstrated academic, financial and operational success), the resulting savings would redirect taxpayer dollars to the classroom, while reducing public outlays for public school facilities.
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