Public Charter Schools Borrowing With Tax-Exempt Bonds, Second ...

competing public schools do not serve (either through a unique curriculum or
delivery model or higher quality, or a combination of all three), and sufficient
demand for the program is evidenced by a well documented and regularly updated
waiting list. Other factors include the retention rate between grades (higher is
better), the growth trend of the school’s enrollment area (growing is better), student
performance relative to competing programs, the program’s reputation (researchbased
validation and positive press coverage) and the school’s relationship with
parents and other community constituents (indicating support). Finally, the
prospect of future competition is also analyzed (i.e., is the number of charters
limited, do other barriers to entry exist, or could competing schools be established
in the future?).
3. Management Team and Organizational Structure. The strongest public charter
school management team represents a broad array of organizational expertise,
including programmatic, financial, managerial, operational, and legal knowledge.
Leadership is vital; however, over-dependence on the skills of one founder can
jeopardize a school’s longevity. Thus, effective cross-training of key personnel,
institutionalized management policies and practices, and effective financial, debt
management, and operational controls all benefit the credit rating process. In order
to borrow using tax-exempt bonds, the school must be organized as a nonprofit
corporation exempt under Section 501(c)(3) of the Internal Revenue Code or be
characterized as an instrumentality of the government. Both individual schools and
larger CMOs (or networks of collectively managed charter schools) may be eligible
to borrow. 20
4. Financial Management and Operating History. A minimum of three to five
years operating history, ideally having successfully completed at least one charter
renewal process, is uniformly viewed as the strongest scenario for investment grade
credit rating. Sound financial management practices (as evidenced by prior financial
reports and the existence of strong internal controls and procedures) are equally
important, the former not likely possible without the latter. Rating agencies have
uniformly acknowledged that the most prominent cause of public charter school
failure is financial mismanagement and thus focus heavily on these characteristics
in the rating process. 21 Important factors in this analysis include maintenance of
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