After a brief lull, participation in one of Gov. Doug Ducey’s signature projects that allows charter schools to borrow against the state’s credit line is picking up again.
Three schools have received approval over the past two months to receive financing through the Arizona Public School Credit Enhancement Program, becoming the first schools in more than a year to partake.
Public schools that join the Arizona Public Schools Achievement District can participate in the Arizona Public School Credit Enhancement Program, under which they can apply to take out lines of credit – backed by the state’s credit rating – to fund infrastructure projects like expansions and new schools, and to refinance existing debt.
By using the state’s credit rating, schools can get better interest rates than they could through traditional financing methods.
Though the program is technically open to all public schools, it has thus far been used only by charter schools. Unlike school districts, privately owned charter schools can’t ask voters to approve bonds backed by local property taxes for new construction projects.
In all, it has approved nearly $213 million in new funding for charter schools.
To join the achievement district and get access to state-backed funding, a school must meet a number of criteria. Among them, a school must be at capacity and have a waiting list; it must be A-rated under the state’s letter grade system; it must have a sound financial plan; and it must be committed to helping underperforming schools by providing things like technical assistance, business services, curriculum development and teacher training.
After two years of legislative wrangling, the program finally went online in 2017. Participating schools can go to the bond market, with their financing backed by about $100 million in an insurance fund in case those schools default, which reduces the risk for lenders.
When Ducey pitched the plan, critics worried that the state would be on the hook for missed payments, but so far, that hasn’t happened.
The achievement district was created to fulfill one of Ducey’s campaign pledges from 2014 to “fully fund the wait lists” at Arizona’s top charter schools, which often can’t keep up with the demand from parents who want to enroll their children at schools like BASIS and Great Hearts.
Through the end of 2017, its first year, the Credit Enhancement Eligibility Board, which oversees the program, approved seven requests for financing made by four schools. The board has approved financing for four more schools since then.
Kaitlin Harrier, Ducey’s education policy advisor, estimates that the state-backed financing added about 7,500 seats to the qualifying schools, though she said the exact number is hard to nail down, especially since some of the expansions funded through the achievement district are still underway.
It’s not clear why participation in the credit enhancement program dropped so much after its initial year, or why it’s now surging again. Harrier said there could be a number of explanations: such as limits on existing debt; a rise in interest rates from 2017 to 2019, which made it less attractive to borrow and take on new debt; and cycles between growth and non-growth years.
“There’s probably not a one-size-fits-all reason,” Harrier said.
Harrier pointed to Vista College Prep as a “notable example” of the Achievement District in action.
Vista College Prep opened its flagship Hadley campus south of downtown Phoenix in 2013, followed by a second campus in Maryvale two years ago. Initially, the school rented space from a church at 45th Avenue and McDowell Road for what started as a K-2 school. But it wanted a space of its own in Maryvale, and turned to the achievement district for financing. In June 2018, the credit enhancement board approved $10.5 million in financing.
With that financing, Vista College Prep opened a new campus adjoining adjacent to the church with space for more than 400 students. The Maryvale campus began as a K-2 school, and now serves students through the seventh grade. Vista College Prep is now trying to determine the location of a future middle school that both its Hadley and Maryvale campuses will feed into.
Julia Meyerson, Vista College Prep’s founder and executive director, said the school wanted to locate in an area that lacked high-performing schools. The school puts an emphasis on preparing its students for college, and makes that expectation clear. The halls are adorned with pennants from colleges and universities, while future college graduation classes have individual signs lining the stairwell.
“We’re very committed to this idea that demographics do not determine destiny. And our goal is to close the achievement gap for our students,” Meyerson said.
Through the more favorable interest rate the school was able to get through the Achievement District, it will save about about $1 million over the 35-year life of the $10.5 million bond, which Meyersen said translates to about $35,000 a year.
That may not sound like much, but there are costs that add up. Vista College Prep puts a high premium on teacher development, and provides three weeks of training over the summer. The school provides free uniforms to all of its students. And unlike many charter schools, Vista College Prep provides transportation to and from school for its students.
“I deeply believe that it’s not true choice unless you have access to that choice,” Meyerson said. “We think it’s an obligation. A lot of our families don’t have access to reliable cars.”
Meyerson said access to financing and capital is probably a bigger issue for smaller schools like Vista College Prep. But Arizona’s biggest charter schools have found it useful, as well.
BASIS Schools, which operates top-rated charter schools in Arizona, Louisiana, Texas and Washington, D.C., took out $31 million in bonds through the Achievement District program in 2017. With that financing, BASIS was able to fund new buildings or additions at four of its schools. At its Mesa and Flagstaff campuses, BASIS added K-2 grade levels, while BASIS Phoenix is now on track to expand to a full K-12 school system that would serve 1,800 students, said spokeswoman DeAnna Rowe. BASIS Phoenix began the current school year with about 1,560 students, Rowe said.
“If we hadn’t had the opportunity to participate in the credit enhancement (program), we might not have built as quickly as we did and be able to offer these additional seats,” Rowe said.
By using the achievement district program to go to the bond market, BASIS will save about $127,000 per year on interest payments throughout the 30-year life of the $31 million bond it took out. That totals about $3.8 million. The savings will be reinvested back into charter school operations, Rowe said.
Even as BASIS has increased capacity at its schools, through the achievement district and other expansions, it still has wait lists. But Rowe emphasized that those are based on demand. Some of the new names on the wait lists are for grade levels that weren’t available at some schools before the recent expansions, she said.
Most recently, the Credit Enhancement Eligibility Board in October approved an application from Legacy Traditional Schools, which sought $38 million in financing to build a new school in Surprise, expand a school in Phoenix and buy a campus it’s been leasing in Goodyear. The plan is expected to add nearly 2,000 students to a charter school system that already serves about 17,500 and has a wait list of nearly 1,300.
Legacy officials emphasized to the board that it serves a largely minority and low-income student body. The majority of its students, about 52 percent, are minorities, and 36 percent receive free or reduced-price lunches.
Financing approved by the Credit Enhancement Eligibility Board:
- Academy of Math and Science: $23.4 million to expand schools in Phoenix and Tucson, and $24.8 million to refinance existing debt.
- Great Hearts Academies: $16 million to expand its Maryvale campus, $19.9 million to expand its Veritas campus, and $19.5 million the acquisition, renovation and expansion of two sites in Scottsdale.
- BASIS Schools, Inc.: $31 million to build and expand schools in Phoenix, Mesa, Flagstaff and Goodyear.
- Arizona Agribusiness and Equine Center: $5.1 million to expand capacity by about 550 students.
- Vista College Preparatory: $10.5 million to build its Maryvale campus.
- Highland Prep: $10.3 million to purchase a facility it had been leasing in Surprise.
- Paradise Honors High School: $14.3 million to build a new school in Surprise.
- Legacy Traditional Schools: $38 million to build a new school in Surprise, expand a campus in Phoenix and buy a leased facility in Goodyear.
Correction: A previous version of this story incorrectly labeled Great Hearts Academies as a for-profit institution.