Charter Schools Eye Permanent School Fund

It took seven years for Houston-based Harmony Public Schools, the state’s largest charter network and one of its best academically, to secure a bank bond in 2007 to buy and remodel buildings on its 33 campuses. Since then, it has obtained two additional bonds — the most recent for $90 million issued last year — to continue its expansion.

While school officials are pleased to have obtained the bonds, Harmony ends up paying a higher interest rate than a traditional public school with the same kind of loan. The reason? Charter schools cannot access the state’s Permanent School Fund, which guarantees bond issues for public schools, allowing them to borrow at substantially lower rates.

Soner Tarim, Harmony’s superintendent, estimates that his organization will pay an extra $50 million to $60 million in interest over the 20 years of the bonds because of the higher rates — money he would much rather spend on his students. If Harmony had the financial guarantee of the state, Tarim estimates he would be able to spend an additional $600 to $700 on every student each year.

“That’s a lot of money that we can actually use toward printing costs, laboratory equipment, etc.,” he said. “Otherwise, the interest rate goes to investors, it goes to Wall Street, out of state. That’s the bottom line. If we have the PSF guarantee, that money stays in Texas for Texas children.”

Harmony’s struggle highlights the biggest hurdle for charter schools in Texas, advocates say: finding adequate facilities. Fledgling charter schools, like any other start-up business, have difficulty establishing credit. Because the schools must renew their charter with the state every five years, banks can view them as a risky investment, said Cinnamon Henley, executive director of the Austin Discovery School, a charter that opened in 2005.

Without access to financing for buying or building new facilities, charters are subject to the whims of the rental market, which can make budgetary planning difficult.

Some state lawmakers are pushing to change that with legislation allowing some charter schools to be eligible to access the Permanent School Fund.

Proceeds from several sources — including revenue from taxes and offshore oil-drilling leases — go into the $23 billion fund, which is managed by the State Board of Education. Interest from the fund feeds the Available School Fund, which helps pay for public school textbooks.

The proposal to expand access to the fund has prominent backers, including state Sen. Florence Shapiro, R-Plano and chairwoman of the Senate Education Committee, who introduced the legislation. Her House counterpart, Rep. Rob Eissler, R-The Woodlands and chairman of the Public Education Committee, filed a companion bill last week.

Not everyone is on board: Traditional school districts do not like the idea. The Texas Association of School Boards opposes opening the bond guarantee program to charters, said Dax Gonzalez, a spokesman for the association, adding that charter schools are generally deemed to be poor credit risks.

“We’ve had around 280 charters awarded over the last few years,” Gonzalez said. “Out of those, 71 are no longer operating anymore. That’s about a quarter of charters that have been abandoned or closed down. That doesn’t show that they are going to be around for the state to recoup their investment.”

In fact, charter schools, many of them now defunct, currently owe the state $21 million — some since 1999 — because of discrepancies in student enrollment figures.

Traditional districts and charters alike are financed through their estimates of enrollment at the beginning of the year. The state then adjusts the financing — through a process called settle up — for the number of students who actually attend. When a charter closes, the state may be unable to retrieve the money it has advanced the school.

Henley said some smaller charters cannot afford to hire specialized staff members to navigate the requirements of the Texas Education Agency, leaving charter operators adrift in a muddle of record keeping and state financing rules.

“If you have one person that does all your attendance reports, that’s one salary divided by 200 students, so per student you are paying a lot for that person’s salary,” she said. “If you are in a district and have 20,000 students and you have five or six people only doing that for the whole district, then you end up paying much less per student.”

David Dunn, director of the Texas Charter Schools Association, strongly believes that the proposed legislation is a “win-win-win.” Taxpayers and students benefit, Dunn said, because money is being spent on education rather than on paying interest — and it comes at no cost to the state’s general revenue fund budget.

Charter schools would be eligible only for their proportionate share of the fund, he said. Since they educate about 119,000 of the state’s 4.8 million public school students, that works out to about 2.5 percent of the fund’s capacity. And only the most reputable of the schools — those that, on their own, could receive an investment-grade rating and demonstrate financial solvency and academic performance over time — could get the fund’s guarantee.

“This should not in any way be detrimental to traditional school districts,” Dunn said, adding, “There’s really absolutely no reason for anyone to oppose this bill.”

The Texas Charter Schools Association now provides fiscal budget training for charter school staff members and new applicants to make sure they understand the business side of running a school. Before the association formed in 2008, there was never a support system for schools in place, Dunn said.

The support system, combined with a more rigorous evaluation of charter school applicants on the front end, he said, will help ensure that fewer schools find themselves owing the state money.

“When the problems do arise,” Dunn said, “we support the state coming in and closing down the school when they become fiscally insolvent.”

“It’s an issue that will very much decline over time,” he said.