I received an invitation to a meeting of municipal analysts in New York City.
MID-TERMS ARE JUST AROUND THE CORNER … CAN CHARTER SCHOOLS MAKE THE GRADE?
Date: Friday, April 7, 2017
Time: 11:30 am – 2:00 pm
Location: Yale Club, 50 Vanderbilt Avenue, NYC
Summary:
Can charter schools achieve investment grade status? Despite failures and successes, charter school debt has grown rapidly as facilities’ needs increase— over 5% of national K-12 students attended a charter school in 2014, with much higher percentages in certain inner cities. Investor reception remains mixed, however, in that charter schools can be closed by their authorizers or fail on their own. MAGNY presents a discussion between two experts presenting opposing views. James Lyman, Director of Research at Neuberger Berman, views all charter school debt as having below investment grade characteristics regardless of size and financial performance. Jessica Matsumori oversees about 265 charter school debt ratings as S&P Global sector lead for charter schools, with about half falling into low investment grade categories. Jessica will explain the S&P rating distribution based on S&P criteria and median ratios. After short presentations and a moderated discussion, the floor will be thrown open for questions and further discussion.
Moderator:
David Hitchcock, Senior Director, S&P Global
Presenters:
James Lyman, Director of Research, Neuberger Berman
Jessica Matsumori, Senior Director, S&P Global, sector lead for charter schools
Cost: $75 for members, $85 for non-members
Payment: Event payments are no longer accepted at the door. Register and pay instantly from our website (scroll to the bottom of the page).
Questions: Contact Stephen Winterstein at programchair@magny.org.
If you plan to go, you should be prepared with statements by Moody’s Investors Service, which rates municipal debt.
This one says that charter schools weaken the finances of urban districts.
“New York, October 15, 2013 — The dramatic rise in charter school enrollments over the past decade is likely to create negative credit pressure on school districts in economically weak urban areas, says Moody’s Investors Service in a new report. Charter schools tend to proliferate in areas where school districts already show a degree of underlying economic and demographic stress, says Moody’s in the report “Charter Schools Pose Growing Risks for Urban Public Schools.”
“While the vast majority of traditional public districts are managing through the rise of charter schools without a negative credit impact, a small but growing number face financial stress due to the movement of students to charters,” says Michael D’Arcy, one of two authors of the report.
“Charter schools can pull students and revenues away from districts faster than the districts can reduce their costs, says Moody’s. As some of these districts trim costs to balance out declining revenues, cuts in programs and services will further drive students to seek alternative institutions including charter schools.
“Many older, urban areas that have experienced population and tax base losses, creating stress for their local school districts, have also been areas where charter schools have proliferated, says Moody’s. Among the cities where over a fifth of the students are enrolled in charter schools are Cleveland, Detroit, Kansas City, St. Louis, and Washington, D.C. Nationwide about one in 20 students is in a charter school.
“One of the four risk factors Moody’s identifies as making a school district vulnerable to charter school growth is that the school district is already financially pressured and grappling with weak demographics.
“A second factor is having a limited ability to adjust operations in response to a loss of enrolment to charter schools.
“Shifts in student enrollment from district schools to charters, while resulting in a transfer of a portion of district revenues to charter schools, do not typically result in a full shift of operating costs away from district public schools,” says Moody’s Tiphany Lee-Allen, the Moody’s Associate Analyst who co-authored the report. “Districts may face institutional barriers to cutting staff levels, capital footprints and benefit costs over the short term given the intricacies of collective bargaining contracts – leaving them with underutilized buildings and ongoing growth in personnel costs.”
“A third risk factor for a school district is being in a state with a statutory framework promoting a high degree of educational choice and has a relatively liberal approval process for new charters and few limits on their growth, as well as generous funding.
“For example in Michigan, the statutory framework emphasizes educational choice, and there are multiple charter authorizers to help promote charter school growth. In Michigan, Detroit Public Schools (B2 negative), Clintondale Community Schools (Ba3 negative), Mount Clemens Community School District (Ba3 negative) and Ypsilanti School District (Ba3) have all experienced significant fiscal strain related to charter enrollment growth, which has also been a contributing factor to their speculative grade status.”
That was in 2013. Last year, Moody’s wrote that the decision by Massachusetts’ voters not to expand the number of charter schools was a “credit positive” for the state.
“Moody’s Investors Service said Massachusetts voters’ decision to reject Governor Charlie Baker’s charter school expansion plan is “credit positive” for the state’s urban governments, freeing them from potential financial pressures had the proposal been approved.
“In an announcement this week, the bond rating agency said the history of charter schools shows they drain money from city governments’ education budgets, citing Boston, Fall River, Lawrence, and Springfield in particular.
“A city that begins to lose students to a charter school can be forced to weaken educational programs because funding is tighter, which then begins to encourage more students to leave which then results in additional losses,’’ the Moody’s report said.
Diane Ravitch's blog 
What a good forum to get the truth out. You must be exhausted from all the speaking engagements.. YOU are the VOICE!
““Districts may face institutional barriers to cutting staff levels, capital footprints and benefit costs over the short term given the intricacies of collective bargaining contracts – leaving them with underutilized buildings and ongoing growth in personnel costs.”
I am not sure what this means. It sounds as if bond ratings should go up if you can fire staff at will, cut salaries, stop offering benefits, let schools deteriorate and’or close them ASAP–engage in all of the practices of the charter industry. I’d like to be a fly on the wall at this meeting.
Carol Burris will be there
“…views all charter school debt as having below investment grade characteristics regardless of size and financial performance.
“…about half falling into low investment grade categories.”
Love it! So the debate is actually about whether the likelihood of charter schools making investment grade is either slim OR none!
The inefficiency of setting up and running separate schools makes it difficult to “cut costs at the same rate of attrition.” Any charter school will have another set of fixed operating costs that will duplicate many those in the public schools. The result is increased cost with less efficiency and services spread thinner than before. Charters would have to be substantially better to justify such waste. They fail to mention the impact of charter school students returning to public schools, a common practice of many selective charters. Charters often return students to public schools after the district has released funds to the charter for a full year of attendance. The public school must provide for these students despite having surrendered the funding.
Great article! I like how it breaks down the damage charter schools inflict on public school districts.
“The dramatic rise in charter school enrollments over the past decade is likely to create negative credit pressure on school districts in economically weak urban areas.”
-It’s horrible that charter schools prey on financially weaker districts, siphoning funds out of a strapped budget.
“A city that begins to lose students to a charter school can be forced to weaken educational programs because funding is tighter, which then begins to encourage more students to leave which then results in additional losses.”
-The rise of charters in vulnerable districts just makes things go from bad to worse. As struggling districts are forced to make more cuts in programs, they are further driving out their dwindling student population.
“Moody’s Investors Service said Massachusetts voters’ decision to reject Governor Charlie Baker’s charter school expansion plan is “credit positive” for the state’s urban governments, freeing them from potential financial pressures had the proposal been approved.”
-I’m glad to see a win for public schools as demonstrated by Massachusetts choice to block charter expansion.
And it is not just horrible that “charter schools prey on financially weaker districts, siphoning funds out of a strapped budget,” but shocking that financially weaker districts jump for this bait time and again. It feels as if there simply is no learning curve.