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Charter School Bonds: The Next Thirty Years
Alan Wohlstetter
April 6, 2021 | Reporting + Disclosure Practices

Charter School Bonds: The Next Thirty Years


I think I’ll take a moment, celebrate my age
The ending of an era, and the turning of a page
Now it’s time to focus in on where I go from here
Lord, have mercy on my next 30 years

Tim McGraw, “My Next Thirty Years

Thirty years ago, Minnesota became the first state to authorize charter schools.  Today, 7,500 charter schools educate 3.3 million students, according to the National Alliance of Public Charter Schools. About $30 billion of charter school bonds have been issued to finance the construction and expansion of charter schools and CMOs around the country.  What lies ahead for charter school bonds for the next thirty years?  A mix of more transparency, greater social impact and fairer pricing.

More Transparency.  Required disclosures for material events on the SEC’s Electronic Municipal Market Access website have improved in their organization and completeness – a trend that will continue.  With charter schools and trustee banks often ill-equipped to aggregate this essential data in the proper format, dissemination agents like School Improvement Partnership help ensure that the everything from current enrollment to quarterly financial performance to leadership changes is filed on a complete and timely basis.  The challenge over the next thirty years for charter school bond investors: finding, aggregating and sorting data from the various sources, including EMMA – much of which is locked in PDFs.  The School Improvement Partnership Database contains financial, operating and academic data on every charter school – and every charter school borrower – in the country.  Since the data can be exported into Excel and is continually updated, the SIP Database has value for charter school bond investors and analysts alike.  Easily accessible data over the next thirty years means more transparency.

Greater Social Impact.  More investors are concerned with doing well – while doing good.  According to Bloomberg, the amount of Social Bonds increased seven-fold in 2020 to $147.7 billion.  Less than $200 million were Social Bonds benefitting charter schools.  Unlike Social Bonds for environmentally sustainable purposes, there is no widely accepted verification system for determining whether a tax-exempt municipal bond for a charter school or CMO is a Social Bond, until now.

  School Improvement Partnership offers Second Party Opinions in connection with charter schools bonds furthering the Sustainable Development Goals of the United Nations as endorsed by the International Capital Markets Association. The SIP Database allows for the annual recertification of social bond status through the tracking of key data metrics. Everything from the percentage of economically disadvantaged students served to academic performance among BIPOC students is measured. The interest rate paid on a Social Bond can be lower than the interest rate paid on a non-Social Bond due to demand from social impact investors.  Over the next thirty years, charter school bonds will be incentivized to have an impact in communities where the need is greatest.

Fairer Pricing.  One challenge charter school bond investors face is determining the fair value of their bonds when they are lightly traded.  With a buy-and-hold strategy, institutional investors can be subject to factors having little effect on the ability of a charter school borrower to pay its debt service and educate its students.  Pricing services that focus solely on recent trades of similar charter school bonds are helpful only if there is a trade in the charter school bond in question.  On December 3, 2000, the SEC adopted Rule 2a-5 setting forth the basis for good faith determinations of fair value of a security such as a lightly-traded charter school bond under the Investment Company Act of 1940.  Also adopted was SEC Rule 31a-4, requiring the funds and their advisors maintain appropriate documentation to support fair value determinations.  The SIP Database, with current financial, operating and academic metrics on each charter school, will play a key role in satisfying these SEC requirements over the next thirty years.

My next 30 years I’m gonna settle all the scores
Cry a little less, laugh a little more
Find a world of happiness without the hate and fear
Figure out just what I’m doing here, in my next 30 years