Another Big Thing Out Of Texas: Public Charter Schools Are Now Entitled to the Permanent School Fund (PSF) Guarantee!

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On July 19, Governor Rick Perry signed into law Senate Bill 1, giving financially-sound public charter schools access to the state’s Permanent School Fund (PSF) bond guarantee. This will help schools construct and renovate school buildings. PSF is the state’s $25 billion, AAA rated endowment. Bonds with the PSF-guarantee will be rated AAA—the highest possible credit rating—saving charter schools throughout the state millions of dollars in interest costs. This legislation is an important and symbolic victory for charter schools in Texas and nationwide.

The PSF enhancement is significant because charter schools will be able to finance growth at costs that are level with traditional public schools. Savings from the PSF enhancement will be redirected to instruction and learning costs, putting taxpayer money to more efficient use. To put these savings into perspective: the estimates of the cost-savings range from 200 to 300 basis points per bond issue. In order to qualify for the PSF guarantee, charter schools must meet the investment grade credit rating and accreditation standards. Putting up the state’s endowment to back charter school bonds, the same way it is for traditional public schools, speaks volumes about the direction of the public school choice and public education in Texas.

Kudos to the Texas constituency: the bill’s sponsor, Senate Education Committee Chairwoman Florence Shapiro, and supporters Governor Perry, the Legislature, the Texas grassroots base and charter school advocates. Texas joins the only other state, Colorado, in providing state backing for charter school bonds. The Colorado state moral obligation backing renders the subject bonds to A credit rating (by Standard and Poor's). The rating upgrade from low investment grade to AAA and A in Texas and Colorado, respectively, incites charter school bond issuance at cheaper borrowing rates.

The state's backing of charter school bonds is a step in the right direction and a critical piece of the public charter school facility financing model. Charter schools throughout the country are way behind their traditional school district counterparts that have taxing power and bonding authority to finance their facility construction projects. The NAPCS Model Charter School Law has a menu of options for consideration by state policymakers to narrow the facility funding gap between traditional public schools and public charter schools.

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