S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Education And Non-Traditional Not-For-ProfitsPrivate primary and secondary schools that showa combination of strong results when evaluatedagainst the criteria discussed above will be positionedto achieve investment-grade ratings.Standard & Poor’s is unlikely to assign ratings muchhigher than the ‘A’ category without significantendowment and financial strength. Furthermore,Standard & Poor’s expects that most institutionswith ratings at the higher end of the spectrum willcontinue to be very selective boarding schools witha diverse student draw. ■Charter SchoolsAcharter school is an independent public school,receiving public funds, that operates under acharter or contract for a specified period of time toeducate children according to the school’s owndesign, outside of the existing public educationbureaucracy. It may be a new school, a start-upschool, or an existing one that separates from anexisting school district. It is held accountable interms of its charter and continues to exist only if itfulfills those terms. The statutory framework underwhich charter schools operate varies significantly bystate and often requires the reauthorization of thecharter by the sponsoring entity after a specifiedperiod of time, typically three to five years. Afterrenewal, some charter authorizations may run aslong as 10-30 years. The first charter school openedin Minnesota in 1991.Charter schools pose unusual analytical challenges.Public school districts and charter schoolsdiffer in critical ways. Public school districts mustremain “going concerns”, regardless of managementperformance or economic environment.Financial stress does not cause a public school districtto go out of business, and may even generatepositive counter-measures due to state oversight andsupport. In addition, public schools do not need toget their charter renewed periodically to stay inbusiness. In contrast, charter schools may permanentlygo out of business. Most charter school closuresto date have occurred largely because of issuesrelating to financial mismanagement.Standard & Poor’s Ratings Services’ approach torating charter schools depends on factors affectingeach local school, as well as the state legal frameworkfor authorizing and funding charter schoolsfrom statewide revenue sources. Rating analysis willvary from state-to-state and continue to evolve,because each school and state charter structure isvery different.Standard & Poor’s rating methodology for bothschool districts and charter schools includes anoverview of the following:■■■■■■■Charter frameworkDemand for a schoolFinancesManagement and administrationDebt, capital planning, and expansion riskDemographicsLegal structure of the debtState Statutory FrameworkAn important ingredient of a creditworthy charterschool includes a clearly established state statutoryframework for establishing, maintaining, andfinancing charter schools.Charter authorityStandard & Poor’s examines who, under statute,has the authority to grant charters. Powers areusually vested with a state-appointed board, astate university, or most commonly, a local schooldistrict. When a local school district is grantingthe charter, Standard & Poor’s needs to feel comfortablethat the school district supports the charterschool, since the two may compete for thesame students. Local school districts may supportthe charter school for varying reasons, such asrelieving new building needs in growing districts,or providing a unique educational curriculum notcurrently provided. The number of charter schoolsand competing new entrants that are allowed bystatute or may be established in the future is animportant demand consideration. In some cases, alocal school district official may serve on a charterschool board, enhancing support and integrationof the charter school with the local school district.In some states, charters can be granted by a city,state, or a university that do not actually competedirectly with a local school district, thus eliminatingsome of the competitive aspects.State legal frameworkState charter statutes set the legal foundation—aswell as the payment mechanism—for charters in astate. A very important component of the statutes is194 Standard & Poor’s Public Finance Criteria 2007