How Ari­zona’s Char­ters Pres­sure Tra­di­tional Pub­lic Schools

The Bond Buyer - - News - By Richard Wil­liamson

Char­ter schools are putting in­creas­ing stress on the cred­its of tra­di­tional dis­tricts in Ari­zona, ac­cord­ing to Moody’s In­vestors Ser­vice.

Ari­zona’s share of stu­dents en­rolled in char­ter schools is sec­ond in the na­tion after the Dis­trict of Columbia, ac­cord­ing to Moody’s. The Grand Canyon State’s char­ter school en­roll­ment as a share of pub­licly funded ed­u­ca­tion grew to 16.5% in 2017 from 12.4% in 2012.

“Be­cause op­er­at­ing rev­enues for school dis­tricts and char­ter schools are driven by en­roll­ment, com­pe­ti­tion for stu­dents is a crit­i­cal as­pect of the fi­nan­cial health and credit qual­ity for both types of schools,” said Moody’s an­a­lyst Wil­liam Oh. “Char­ter schools are win­ning the com­pe­ti­tion, although Ari­zona’s school dis­tricts have fea­tures that will help mit­i­gate some of the credit strain as­so­ci­ated with weaker en­roll­ment.”

From 2012 to 2017, en­roll­ment in K-12 school dis­tricts shrank by 0.7% to 942,288, ac­cord­ing to the state De­part­ment of Ed­u­ca­tion, while char­ter school en­roll­ment grew by 38% to 185,900.

“Char­ter school en­roll­ment grew by an av­er­age of 7% per year, while school dis­trict en­roll­ment shrank by an av­er­age of 0.1% per year,” Oh noted. “As a point of com­par­i­son, Ari­zona’s pop­u­la­tion grew by an av­er­age of 1.37% per year be­tween 2012 and 2017.”

Tra­di­tional dis­tricts lose rev­enue when a stu­dent leaves a dis­trict for a char­ter school, Oh said. But the dis­trict is left with in­struc­tional, ad­min­is­tra­tive and fa­cil­i­ties costs for the stu­dent that can­not be re­duced quickly.

“Ad­di­tion­ally, the neg­a­tive fi­nan­cial im­pact of los­ing stu­dents to char­ter schools will likely in­crease as dis­tricts com­pete by adding pro­grams, or are un­able to find cost ef­fi­cien­cies and/or re­duce ex­pen­di­tures,” Oh said. “Fur­ther, as dis­tricts lose mar­ket share, they face the prospect of lo­cal voters fail­ing to sup­port cap­i­tal im­prove­ment bonds or sup­ple­men­tal op­er­a­tions and main­te­nance tax levies.”

A 2017 re­port by the Grand Canyon In­sti­tute found ques­tion­able fi­nance prac­tices at some char­ter schools, in­clud­ing ex­cep­tion­ally high salaries for ad­min­is­tra­tors and low pay for teach­ers.

“The losers in this mix ap­pear to be tax­pay­ers, teach­ers and stu­dents in a ma­jor­ity of cases,” the think tank re­ported. “Char­ter school teach­ers on av­er­age earn 20% less than their pub­lic dis­trict school col­leagues while 43% of char­ters do not of­fer a re­tire­ment or sav­ings plan to their em­ploy­ees.”

The 2013-2014 An­nual Re­port of the Su­per­in­ten­dent for Pub­lic In­struc­tion said that char­ter schools spend 45% of rev­enues on class­room in­struc­tion com­pared to pub­lic dis­trict school spend­ing at 52% of rev­enue.

One of the ad­van­tages tra­di­tional schools en­joy is the abil­ity to ask voters for higher prop­erty taxes, though char­ter schools could un­der­mine voter sup­port for those mea­sures, Moody’s said. “Credit qual­ity for school dis­tricts is fur­ther en­hanced by a statu­tory lien and a lock­box struc­ture whereby the county col­lects and re­mits prop­erty taxes to the pay­ing agent for gen­eral obli­ga­tion bond debt ser­vice,” Oh wrote. ◽

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