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

Education And Non-Traditional Not-For-Profitsfacilities financing. Others provide special per-pupilfacilities funding. While each state’s formula fordistributing funds to its charter schools differs, thestrongest systems occur when the state standardper-pupil funding of public schools follows the studentsto the charter schools. Additionally, per-pupilfunding may flow-through a sponsoring district, orcome directly from the state.Standard & Poor’s will evaluate the fundingmechanism and payment requirements to determineif cash-flow difficulties of a sponsor, such as asponsoring school district, could create cash-flowdifficulties at the charter school. A stand-alonecharter school typically has less flexibility to withstandfunding reductions or timing delays than atraditional multi-facility and multi-grade publicschool district.The statutory authorization for issuing charterschool debt needs to be clear. If specific fundingunder statute for facilities is available, it is alsoevaluated and considered a credit strength. Somestates provide direct funding for facilities, whileothers provide statutory authorization for localschool districts to provide facilities funding.Other states provide no capital funding provisionsfor charters.Student DemandStudent demand for the charter school is one of thekey elements of a rating evaluation. State fundinggenerally follows pupil attendance for most charterschools. Charter schools need to demonstrate arecord of demand for their educational services, asmeasured by stable-to-increasing enrollment, inorder to retain funding.Standard & Poor’s does not have a minimumenrollment size threshold for any given rating category.However, a small school may sometimesbecome dependent on only one or two key administrators,or be less able to be withstand minor randomfluctuations in enrollment. There may also beeconomies of scale involved with some largerschools, although every example must be examinedon its own merits.Specifically we look at the following:■ A well-documented waiting list that is regularlyupdated and maintained. A positive trend is particularlyimportant if the charter school is issuingdebt to significantly expand its facilities. Thequality of waiting lists will vary dramaticallydepending on its requirements, such as, the age ofthe list, the level of detail required per applicant,parent volunteer time agreed to serve uponenrollment acceptance, and other requirements.■ An overview of competition in the area thataffects the long-term viability of the school. Thiswould include an analysis of other charterschools currently operating in the area andwhether competing new charters could beauthorized in the future or whether competingcharter schools have authorization in their chartersto expand enrollment. In addition, the localpublic school district is examined as a potentialcompetitor in terms of quality of school offeringsand its degree of overcrowding. Analysis ofother private school alternatives in the area isalso done. Forecast assumptions should be basedon reasonable well laid out assumptions asregards public and private competition andanticipated future competition.■ A charter school enrollment trend that is stableor growing is also preferable, with good retentionrates and manageable student turnover.Enrollment forecasts should be based on reasonable,well laid out assumptions.Unlike private independent schools rated byStandard & Poor’s, charter schools are required tomaintain open admissions policies. If demandexceeds supply, most charters use a lottery systemto fill available spaces.Unusual curricula present a challenge in the ratingprocess. Standard & Poor’s has to determinewhether a unique academic focus is relevant to thecommunity and will continue to attract students.Another challenge associated with charter schools isa frequent absence of recreational and student facilitiestypically found in large suburban high schoolsor private independent schools. Limited athleticfacilities and related programs can significantlyhamper recruitment efforts for older students, particularlythose in high school and junior high,although they may reduce charter school operatingcosts. Some charter schools have the ability tocharge a facilities fee to offset activities’ costs; otherscannot. Some charter schools may be able tocoordinate with their local public school districts toprovide recreation programs.Financial FactorsThe charter school’s own management of itsresources is a key determinant of its creditworthiness.Since most charter schools are likely to besmall, there will be fewer opportunities to realizeeconomies of scale; therefore, careful financial managementis critical. Of particular importance is theformula by which revenues are derived, often net amanagement fee to the sponsor. Revenues in some196 Standard & Poor’s Public Finance Criteria 2007