When people talk about “market accountability” for charter schools, they’re usually referring to parents; you have to keep attracting “customers” in the form of parents and students, or you close.
But because they are so often denied public facilities funding, many charters must look to a different kind of market – and to the bankers and underwriters and who finance their buildings. This marketplace enforces a kind of accountability that district schools don’t face. You have to convince lenders that your school is a good long-term risk – -and then you have to sustain the kind of performance that keeps your authorizer inclined to renew your charter.
In fact, authorizers are a pretty central player here, since they can yank a charter in the middle of a 30-year mortgage. So you’d think lenders would be paying close attention to what authorizers say about school performance. Well…not so much. The Local Initiatives Support Corporation (LISC) recently looked at 393 bond underwritings and found that in just 6 instances did lenders actually consult authorizer reports before making lending recommendations.
In fact there are communications gaps all over the charter-financing landscape, leading to myths and erroneous assumptions about charters’ credit-worthiness (which is actually quite strong). The result is a serious underinvestment in charters by the municipal bond markets, meaning that too many charters have to spend operating funds on bricks and mortar instead of classroom instruction.
LISC’s CEO Michael Rubinger gives bond markets a fat “F” for this behavior – but his outfit recently got together with the Bill and Melinda Gates Foundation to generate some change. They hosted an all-day conference of charter lenders, operators, and authorizers to talk through the perceptions and realities of charter financial performance, and to look at ways “disclosure” can be strengthened. One big conclusion is that, while they’re great at doing financial projections and judging the capacity of trustee boards, lenders need to do better in looking at charter schools’ academic performance – on which everything ultimately depends.
That’s where NACSA comes in. We’re pulling together a working group of lenders and authorizers who will try to develop a common language for evaluating the viability of charter schools. This won’t be a one-way conversation; lenders and authorizers can learn from one another. We’re hoping to marry the keen financial/operational analyses of underwriters with the performance frameworks NACSA develops for authorizers – and we just might come up with some tools both camps can use.
