Tax-Exempt Bond Market for Charters Gains Strength, Study Says

News Details

Posted: June 28, 2011
Focus Areas: Facilities Financing

Charters schools are making more extensive use of tax-exempt bonds to finance facilities, but are still paying “significantly higher” interest rates on debt than school districts even as they demonstrate growing strength as borrowers, according to a new study.

Charter School Bond Issuance: A Complete History, prepared by the Local Initiatives Support Corporation (LISC), reports on charter school tax-exempt bond transactions completed over the past 13 years. It provides detailed information about 478 rated and unrated bonds totaling more than $5 billion and involving 400 charter schools.

Charter schools finance their facilities with per pupil operating revenue rather than a general obligation pledge tied to taxing authority, according to the study. So they pay significantly higher interest rates on facility debt than their school district counterparts.

With growth in charter schools, the higher costs carry the potential for increasing inefficiency that takes money away from classrooms, according to the study.

The study states that “short of financing charter school facilities directly with tax-backed structures,” it would be “extremely efficient” to reduce interest rates through expansion of balance sheet pledges in the form of state, municipal or federal credit enhancement programs.