LISC’s charter school finance team analyzed the full range of charter school bond issuance from 2015-2022, building on three prior reports that catalogued the history of the sector. “With public charter schools now educating more than 3.7 million students nationwide, and against the backdrop of unprecedented learning loss stemming from the pandemic, preserving dollars to invest in core academic programs is of heightened importance,” the report states.
LISC report cites affordable financing as critical to helping schools address pandemic-related learning losses
NEW YORK, January 24 , 2024—Tax-exempt bond financing for charter school facilities has nearly tripled in recent years, with $29 billion raised from investors to build, expand and upgrade school facilities in 34 states since 2015, according to a new study announced today.
In fact, the growth in issuance from 2015-2022 exceeded the par value (i.e., face value) of all the charter school bonds sold in the previous 17 years of the sector’s existence, according to the Local Initiatives Support Corporation (LISC), which compiled the data. The LISC study further noted that policy innovation in a handful of states significantly reduced interest rates on charter school bonds, saving school borrowers more than $36 million per year through programs that extend a state’s generally superior credit rating to qualifying charter school bonds.
“With public charter schools now educating more than 3.7 million students nationwide, and against the backdrop of unprecedented learning loss stemming from the pandemic, preserving dollars to invest in core academic programs is of heightened importance,” researchers wrote in Charter School Bond Issuance: A Complete History, Volume 4.
LISC’s analysis builds on the data from its three previous charter school bond studies in 2011, 2012 and 2015, which together track the full history of the sector. LISC is one of the nation’s largest nonprofit community development organizations. It has invested more than $500 million in charter school facilities since 1997 as part of its comprehensive work to fuel equity and opportunity in underserved communities.
“The reality is that schools often act as a sorting mechanism for economic and social mobility,” said Yvonne Nolan, vice president of charter school financing at LISC, who noted that a kind of “zip code destiny” negatively impacts millions of families with low incomes, particularly in communities of color.
“We know that the conditions and quality of school buildings matter for all the students and staff that pass through the doors,” she continued. “We are not letting crumbling school buildings perpetuate inequality and undermine student learning.”
The new LISC report details the full range of charter school bond issuance through 2022 and outlines why affordable bond financing is so critical for these schools. As has long been the case, most local school districts provide little to no financing to support charter facilities. Only 18 states offer facilities funding as part of their per-pupil dollars for charters, and only six of those provide more than $1,000 per pupil for facilities costs. They need affordable private-sector financing options, LISC said.
“When we increase access to affordable financing, more dollars stay in the classroom and fewer are paid to lenders to service debt,” Nolan stressed, reflecting on LISC’s experience supporting more than 107,000 seats for students at 260 schools. “Especially now, with educational losses from the pandemic so pervasive, it is critical that we make sure teachers and students have what they need to thrive.”
The new report also notes that the sustained growth in charter school bond issuance stands in contrast to the slower growth and greater volatility of the municipal bond market over the same period. Nonetheless, charter school bonds still represent just 1 percent of total municipal offerings annually, with $4.9 billion in charter issuance in 2022.
“These investments respond to a true need for underserved kids—most of whom are Black and Brown—to have access to schools that are excellent spaces to learn, play, grow, and succeed,” Nolan said. “Affordable financing, along with other technical facilities support, are a step toward more equitable schools and just communities, supporting families, teachers and administrators who are all working toward the same goals for students.”
Other key takeaways from the latest LISC study include:
- Five states represent more than half of all charter issuance. In Texas, Arizona, Florida, Colorado and California, schools have issued 57 percent of all charter school bonds since 1998.
- State bond credit enhancement programs have significantly reduced borrowing costs for some charter schools. “Moral obligation” and similar programs attach higher credit ratings and/or state guarantees to school bond offerings in order to reduce interest rates. Currently, five states operate such programs, including Colorado, Utah, Idaho, Texas and Arizona. For example:
- In Colorado, charter schools are saving an estimated $4 million per year in borrowing costs under the state moral obligation program. This translates to sustaining salaries for approximately 60 additional teachers across the sector.
- In Texas, the state’s Permanent School Fund (PSF) has guaranteed more than $4 billion in bonds issued by charter school operators, saving schools an estimated $26 million per year in debt service expense – the equivalent of funding 400 new teachers.
For more details on the charter school bond study, join an online discussion on March 12th at 2pm ET. LISC’s Yvonne Nolan will join Sara Sorbello of Sorbello Strategic Finance—one of the authors of the report—to discuss the findings and reflect on the current state of the charter school bond market and the implications for school leaders and other bond market participants. Register here to participate.
For more on LISC’s latest Charter School Bond Issuance study, visit: https://report.lisc.org/charter-school-bond-study/
About LISC
LISC is one of the country’s largest community development organizations, helping forge vibrant, resilient communities across America. We work with residents and partners to close systemic gaps in health, wealth and opportunity and advance racial equity so that people and places can thrive. Since our founding in 1979, LISC has invested $29.7 billion to create more than 489,000 affordable homes and apartments, develop 81.4 million square feet of retail, community and educational space and help tens of thousands of people find employment and improve their finances. That work includes more than $500 million in loans, tax credit allocations, guarantees and grants to finance 260 charter schools for 107,000 students in underserved communities. LISC also provides technical assistance to schools and provides information on financing options through its SchoolBuild research portal.
For more, visit www.lisc.org and www.lisc.org/our-initiatives/education/