Education: Program Offers Charter School Credit-Enhancement Grants

The Department of Education announced last week that it is accepting applications for credit enhancement grants to back debt issuance tied to charter school projects.

The Credit Enhancement for Charter School Facilities grants, which are available to state and local authorities as well as nonprofit and public entities, can be used to guarantee, insure, and reinsure debt or lease payments for charter school facilities.

The program allows charter schools to benefit from bonds because the schools generally lack the ability to issue general obligation bonds backed by property taxes and are often considered to be credit risks by lending institutions. But the grants cannot be used to directly purchase, construct, or renovate a school facility.

"While charter schools are typically eligible to receive these grants, we encourage them to work with our existing grantees to benefit from the program rather than to take the time to compete for a grant," an Education Department press release said. "While no current grantee is an individual charter school, all of them are assisting charter schools."

Congress authorized funding for the program through the No Child Left Behind Act of 2001, and since then the department has awarded a total of about $160 million in such grants and expects to award about $36 million in four grants for fiscal 2007, though funding levels would not be set until Congress later this month approves a long-term continuing resolution for the balance of fiscal 2007, which ends Sept. 30.

There are about 4,000 charter schools in about 30 states and the District of Columbia, serving more than one million students, according to a recent Fitch Ratings report. Though the sector has grown dramatically, volume remains relatively low, totaling just $325.6 million of taxable and tax-exempt bonds in 42 issuances during 2006, according to Thomson Financial.

Michelle Liberati, executive vice president of Charter Schools Development Corp., which helps provide financing for charter schools in 20 states and is based in Hanover, Md., said her group has used previous grant money to provide a so-called first-loss reserve payment to an insurer on behalf of an Arizona charter school. CSDC has received $21.6 million under the federal program, including $6.6 million awarded in fiscal 2006.

Lenders or schools that issue debt typically tap the grants through groups like CSDC, she said.

"It's a combination of lenders and schools seeking out our assistance, and we can also work with landlords as well," Liberati said. "Lenders will contact us when they are approached by a school that they would like to work with but might lack either the equity they require or the lender may require a debt service payment reserve that the school doesn't have."

The department plans to hold an information session on the program March 20 as part of the National Charter Schools Facility Financing Conference, which will be held at the Hyatt Regency in Crystal City, Va., in suburban Washington. Applications are due April 2, and more information can be accessed at www.ed.gov/programs/charterfacilities/applicant.html. (c) 2007 The Bond Buyer and SourceMedia, Inc. All rights reserved. http://www.bondbuyer.com http://www.sourcemedia.com

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