A building need: charter schools in search of good homes - Feature

Education Next, Spring, 2004 by Kim Smith, James Willcox, Julie Landry

By serving an entire region or market's group of charter schools, the real-estate trust would look familiar to state officials and to lenders: a single entity that grasps the intricacies of real-estate finances and serves the individual needs of multiple schools, as school districts do. As a result, it would provide an easy means by which foundations could accelerate the scaling up of the charter school movement. It would also give states an efficient way to support the facilities needs of many charter schools at once, instead of on a school-by-school basis.

In addition, by serving multiple charter schools, a trust wouldn't be crippled by the closure of a single charter school. In fact, it would operate with a ready pipeline of potential tenants who would be eager to step into vacant space. This lowered risk would entice more private-sector lenders, reducing the cost of ownership.

Waiting lists alone indicate that there is a demand for 900 more charter schools, and that doesn't even account for the fact that charters now serve relatively few areas. But until we provide charter school operators with equivalent facilities funding, we can't tap into this potential source of seats for students stuffed into overcrowded schools. Nor can we properly assess the movement's real potential for improving student outcomes.

Risky Business (Figure 2)

Moody's Investors Service currently rates 19 separate bond issues to
finance charter school facilities. The median bond rating for these is
Baa3, considerably below the A3 rating for traditional public schools'
debt. Only two charter schools rated by Moody's have a "positive
outlook," meaning Moody's expects credit quality to potentially improve
within two years.

Bond Ratings for Charter Schools versus Traditional Public School
Districts

Bond Rating  % of Schools and School Districts
             Traditional Public School Districts  Charter Schools

Aaa           1%
Aa           15%
A            57%                                   5%
Baa          24%                                  53%
Ba            3%                                  36%
B3                                                 5%

Note: Moody's rates $297 million in outstanding charter school debt.
SOURCE: Moody's Investors Service, July 2003

Note: Table made from bar graph.

To Lease or to Buy? (Figure 3)

Almost three-quarters of 118 charter schools surveyed in 2001 lease
their facilities, reflecting both the difficulties they face in securing
loans and the fact that states often provide lease but not construction
aid.

Status of Charter Facility      % of Charter Schools Surveyed

Charter-Owned                   19%
District/State-Owned Building*   7%
Leased                          73%
Other                            1%

*Probably at no rent or nominal charge; all eight charters in this
category responded "Other" and wrote in "district" or "state" when asked
to explain.
Note: Data compiled from a survey of charter schools in 18 states, about
6 percent of all charter schools in April of 2001 when the survey was
concluded.
SOURCE: Charter Friends National Network & Ksixteen LLC

Note: Table made from bar graph.