Sunday, Nov 15, 2009

 

Akron Beacon Journal

 

Molly Peterson and Jeremy Cooke , Bloomberg News

 

 

The Bill & Melinda Gates Foundation is providing $30 million in bond guarantees to help charter schools expand in Houston, the first in an initiative by the charity to support groups through ”non-traditional” financing.

 

The Knowledge Is Power Program (KIPP), which runs 15 charter schools in Houston, is the first beneficiary of the initiative, Gates Foundation spokesman Chris Williams said. The foundation provided $10 million in guarantees to help KIPP secure $67 million in 35-year bonds to add more Houston schools, Williams said.

 

The Gates Foundation’s move is ”a very big, very significant deal,” Nelson Smith, president of the National Alliance for Public Charter Schools, said. ”This is the first time that a foundation has directly backed a bond offering that’s going to build charter facilities.”

 

The charter-school guarantees are part of a $400 million initiative announced by the foundation in September to provide new methods of financing. The charity was created by the billionaire founder of Microsoft Corp.

 

Charter schools operate under contracts with school districts and are exempt from certain state and local regulations that govern traditional public schools. The financing will help KIPP almost triple the number of students it serves in Houston in the next five years, to 11,500 from 4,000, KIPP spokesman Steve Mancini said. About 3,000 Houston families are on KIPP’s enrollment waiting list, he said.

 

The Gates Foundation’s backing ”shows KIPP’s ability to attract this type of support, and it goes a long way in showing their long-term viability in the community,” said James Breeding, an analyst with Standard & Poor’s in Dallas. ”That may be as important as the dollar support.”

 

The bonds were sold on behalf of KIPP by the La Vernia Higher Education Finance Corp.

 

Underwriters led by Royal Bank of Canada’s RBC Capital Markets set prices and rates on the bonds and marketed them to investors.

 

Tax-exempt yields ranged from 4.125 percent on securities due in 2014 to 6.4 percent on 35-year bonds, according to data compiled by Bloomberg News.

 

Standard & Poor’s and Fitch Ratings gave KIPP Houston’s $67 million bond issuance a BBB, the second-lowest investment-grade rating. It’s unusual for any charter-school organization to rate higher than that, in part because there’s always a potential for its charter to be revoked, Breeding said in an interview.

 

KIPP earned an investment-grade rating because of ”the success of the schools, the financial results they’ve been able to generate, the continued demand for the school services and the management team that’s in place,” Breeding said.

 

KIPP, started by two teachers in Houston 16 years ago, has since become the biggest U.S. charter-school network, operating 82 open-enrollment schools for low-income children in 19 states and Washington, D.C.

 

Students apply for enrollment and are selected by lottery.

 

The nation’s 20,000 KIPP students spend an average of nine hours a day in school and must attend Saturday classes and summer school. The Obama administration is pushing public schools nationwide to adopt such methods.

 

”A longer day, a longer week and a longer year — particularly for disadvantaged students — has to be a huge part of the solution,” Education Secretary Arne Duncan, who is using $100 billion in stimulus funds to try to reshape U.S. education, said in a Nov. 9 interview.

 

Duncan and President Barack Obama are among Democrats who back charter schools as a way to develop alternatives to traditional public schools while opposing vouchers, which provide government payments for children to attend private schools.

 

The Gates Foundation said its bond guarantees, coupled with a new state credit-enhancement program, might help other Texas charter schools attract investors.

 

The foundation expects its $10 million in guarantees for KIPP bonds, along with the remaining $20 million in credit support yet to be allocated in Houston, to help secure a total of $300 million in tax-exempt bond issues, according to a news release.