Phila. charter schools turn to bonds for financing

Posted: February 21, 2014

As the Philadelphia School District's money struggles continue with no end in sight, the city's charter schools are becoming financially bolder, taking on significant debt.

The nonprofit that runs Frankford's Tacony Academy and First Philadelphia Preparatory Charter School, for example, plans to borrow $57 million this month to build a new elementary school and high school.

That bond offering, expected to be completed next Thursday, comes on top of $111 million in debt issued last year by four schools, including $55 million for the Philadelphia Performing Arts Charter School and $32 million for Esperanza Academy.

With the addition of this month's new bond debt, 16 of the 86 charter schools in Philadelphia will owe more than $300 million.

Green Woods Charter School is among the borrowers, turning to the bond market in 2012 for $18 million to build a new school building in Upper Roxborough. The school opened last month.

"From my perspective, there is no other way to get funding," said Jean Wallace, the school's chief executive.

"It's not like I can save 20 percent down and go get a commercial mortgage. It's not like the state is providing any kind of opportunity for charter schools to get facility funding," she said Wednesday.

Philadelphia charter schools' overall bond debt is a pittance compared with the Philadelphia School District's $3.4 billion in debt, but Standard & Poor's Ratings Services said in November that risks for Philadelphia charter school debt were growing because of the district's resistance to allowing higher enrollments in charter schools.

The money to pay off School District debt and charter school debt comes from the same source: local taxpayers. The School District pays charter schools a set amount for each student they enroll. This year the per-student payment is $8,597, with the total reaching nearly $700 million.

The payment per student is expected to fall in the coming school year by 5 percent to 8 percent, a level that could put some charter schools under financial pressure.

"Charter school credit profiles are sometimes considered among the riskiest within the municipal bond market. We advise investors to constantly monitor charter school performance and enrollments," Tom Kozlik, a municipal credit analyst at Janney Montgomery Scott, said in an interview.

Kozlik explained in a published report that a single event, or even the rumor of an event, could drive students away from a charter school.

That could leave bondholders holding the bag, rather than the School District or any other public entity.

What happens to charter school finances matters because they are an increasingly popular option for Philadelphia families. Since 2003, enrollment in Philadelphia's charter schools has tripled to 67,000, while enrollment in district schools has declined 29 percent to 135,000.

The School District also has no say over borrowing by charter schools. Approvals come from the Philadelphia Authority for Industrial Development, which oversees tax-exempt bond offerings, and a unit of the state Department of Community and Economic Development.

A key figure in the charter-school community is Gerald Santilli, a former School District chief financial officer and an executive in a company that manages back-office finances for 17 charter schools in Philadelphia.

"We have handled the lion's share of bond issues" for charter schools in Philadelphia, Santilli said.

Some of Santilli's clients said they face huge demands they can't meet, turning away students at a greater rate than Harvard University.

Wallace, at Green Woods, said she received 1,150 applications for 35 openings in September.

Green Wood had 413 students last year and has plans to expand to 665 over the next four years, which could ease some of its pressure.


hbrubaker@phillynews.com

215-854-4651

@InqBrubaker

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