An Apparent First: Colo. Charter School Gets S&P Rating
From the get-go, facilities have proved a stumbling block for charter schools.
But the Core Knowledge Charter School in Colorado has taken a financial step that eventually may make paying for buildings a lot easier.
The suburban Denver school last month became what many experts say is the first charter school in the country to be rated by Standard & Poor's, the Wall Street financial-services and credit-rating company.
The roughly 300-student school received an investment-grade rating for a $2.8 million bond issued on its behalf. The company's top rating is AAA; the charter school received a BBB rating.
The rating is expected to cost the school about $5,000, according to Bill Dougherty, a vice president at a Denver-based financial-services company. Mr. Dougherty is handling the sale of bonds for the Core Knowledge School.
For the K-8 school, the rating signals a stamp of approval of sorts for investors and is likely to bring with it a lower interest rate than a conventional loan would carry. The school, now housed in a strip mall in Parker, Colo., plans to break ground in the fall on a nearly $3 million building. Many charter schools have a hard time finding facilities--let alone building their own schools--and operate classes in nontraditional facilities.
For the charter movement, the rating may prompt more schools to turn to the marketplace to meet their bricks-and-mortar needs.
"We think we'll only see more of this," said Jeffrey J. Thiemann, a director with S&P's ratings services in San Francisco. Mr. Thiemann said the firm already had received several calls from other charter schools since Core Knowledge received its rating.
Colorado is one of just a few states that have designated entities with the explicit authority to issue tax-exempt bonds on behalf of charter schools.
The Colorado Educational and Cultural Facilities Authority has sponsored bond issues for three charter schools in the state, including the Core Knowledge Charter School. The state entity is empowered to grant tax-exempt bonds for nonprofit groups; state lawmakers added charter schools to the roster last year.
A number of charter schools across the country have struck deals with lenders to finance their facilities with tax-exempt debt, such as bonds and loans. Roughly half a dozen states offer facilities aid to charter schools.
Charter schools are publicly funded schools designed to operate free from certain state rules in exchange for being held accountable for student results. Nationwide, an estimated 1,200 charter schools operate in 27 states and the District of Columbia.
The Washington-based Charter Schools Development Corp. last fall announced plans to design programs to make it easier for charter schools to obtain private financing for facilities through loan guarantees, interest-rate subsidies, and other lender incentives. ("Grant Targets Experiment in Charter School Financing," Nov. 18, 1998.)
Many charter schools have an uphill climb attracting private financing because the schools are a relatively new concept and lack a financial track record.
But S&P analysts ranked the Core Knowledge Charter School as having a "stable" outlook, taking into account factors such as the state's supportive environment for charter schools and the school's positive relations with its sponsoring district, among other considerations. The school opened in 1994 and has a waiting list for all grades.
Strip Mall to Schoolhouse
Dan Farland, who serves on the charter school's operating council, said school leaders knocked on bank doors for years seeking affordable interest rates, but were rejected.
"We operate at the whim of legislature and the Douglas County schools. So most people turned us away," said the 43-year-old father of three, all of whom attend the charter school.
Some of the state's charter schools are paying up to 10 percent interest on loans from commercial banks or other lenders, according to Jim Griffin, the executive director of the Colorado League of Charter Schools. "That's just brutal on a school's budget," he said.
The Core Knowledge School's S&P rating could translate into a 6 percent interest rate, Mr. Farland said.
And it should enable the school to move out of its 17,000-square-foot space in a strip mall and into a 26,000-square-foot building in the booming suburb about 20 miles from Denver.
For now, the school's library is next to a bakery, the 5th grade class has a ski shop as a neighbor, and the playground consists of a partitioned section of a parking lot, Mr. Farland said. The school hopes to move into its new building by fall 2000.
Vol. 18, Issue 42, Page 13