INTRODUCTION
CHARTER SCHOOLS ARE PUBLIC SCHOOLS that operate with freedom from many of the rules and regulations that govern traditional public schools in exchange for increased accountability for student achievement. They operate under a charter, or contract, with state-approved authorizing entities. These entities vary by state, and often include local school districts, state departments of education, universities, other nonprofit groups, or specialized chartering boards. In most states, charter legislation allowed for the creation of independent public charter schools but did not provide public facilities or public funding for facilities. As a result, securing and financing facilities has been a challenge for charter school operators.
Unlike traditional school districts, charter schools rely on their operating revenues and limited public capital funds to pay for their facilities. Charter schools receive public operating funding, known as per-pupil revenue, based on enrollment. Whereas traditional district schools use per-pupil revenue to fund only their academic programs, charter schools in most states essentially finance both their academic program and facilities through this operating revenue stream. According to the National Alliance for Public Charter Schools, of the 46 jurisdictions with a charter law as of 2019, only 18 provide additional per-pupil funding specifically for facilities, with only six providing more than $1,000 on a per-pupil basis.1
Compounding the challenge, in contrast to traditional public schools that access the municipal bond market via direct issuance of school district general obligation bonds, charter schools must issue bonds based on a revenue pledge structure tied to their per-pupil revenue. The difference in bondholder security results in interest rates and overall borrowing costs that are materially higher for charter schools than for school districts that can offer investors their oftentimes unlimited ad valorem taxing powers. These cost differences are dependent upon a variety of factors including general market conditions at issuance, presence and nature of credit rating and/or underlying credit quality, and presence of credit enhancement.
In June 2011, LISC published the first volume of Charter School Bond Issuance: A Complete History. Volume 1 provided the first comprehensive listing of tax-exempt charter school bond issuances through year-end 2010 and analyzed their pricing with the goal of providing greater transparency in the sector for investors and charter school borrowers.
LISC advanced this body of research with the publication in October 2012 of Charter School Bond Issuance: A Complete History, Volume 2 (2012 Bond Study). The 2012 Bond Study examined the academic, operational, and financial drivers of credit strength and risk for charter schools, together with the metrics for measuring them. It also recommended more consistent and specific underwriting and disclosure standards.
Charter School Bond Issuance: A Complete History, Volume 3 (2015 Bond Study) provided updated and expanded data on the universe of 818 charter school bonds2 issued through December 31, 2014. The 2015 Bond Study included data and analysis on volume, pricing, credit rating, geographic distribution, and use of credit enhancement, as well as a detailed analysis of default rates broken down by credit rating, year of issuance, jurisdiction, and stated reasons for default.
Charter School Bond Issuance: A Complete History, Volume 4 continues LISC’s commitment to fostering transparency and insight into the sector. The Bond Study provides a comprehensive and data-rich view of the 25-year history of the charter school bond market, with updated data on the universe of transactions issued between 1998, when the first charter school bonds went to market, and year-end 2022.
With public charter schools now educating more than 3.7 million students nationwide, and against the backdrop of unprecedented learning loss stemming from the COVID pandemic, preserving dollars to invest in core academic programs is of heightened importance.
Despite significant growth in charter school bond issuance in the eight years since LISC’s 2015 Bond Study, the sector is still a relatively young and small segment of the municipal bond market. Charter school bond issuances are easier to identify in municipal market data systems than they were in the early years of the sector, however many of these data sources are not widely accessible to charter school leaders and their boards or even to many policymakers. With the sector surpassing $40 billion in total par issuance as of December 31, 2022, the Bond Study aims to increase transparency and deepen understanding among all stakeholders, including charter schools, of the tax-exempt bond market as a source of long-term financing for charter school facilities.
The cost of capital public charter schools pay for facilities debt is fundamental to schools' financial condition, and their corresponding ability to invest in the core mission of educating students. Every dollar spent on debt service could otherwise be spent on retaining excellent teachers or investing in new curricula. With public charter schools now educating more than 3.7 million students nationwide3, and against the backdrop of unprecedented learning loss stemming from the COVID pandemic, preserving dollars to invest in core academic programs is of heightened importance. LISC’s hope is that this iterative body of research continues to foster access to the tax-exempt bond market on affordable terms for creditworthy public charter schools. ■
1. Ziebarth, T. (2019). State policy snapshot: Facilities funding for public charter schools. Charter School Facility Center, National Alliance for Public Charter Schools. https://facilitycenter.publiccharters.org/sites/default/files/2019-08/facilities-funding-19_report-final-3.pdf.
2. This reflects the identified universe of transactions through December 31, 2014, at the time of publication of the 2015 Bond Study.
3. National Alliance for Public Charter Schools. (2022). Charter school data dashboard. https://data.publiccharters.org.