Thursday, July 22, 2010

Plan to invest in Texas charter schools gets first defeat

Plan to invest in Texas charter schools gets first defeat
State Board of Education to have final vote today on proposal to spend $100 million in charter schools

By Kate Alexander

Updated: 11:08 p.m. Thursday, July 22, 2010
Published: 8:38 p.m. Thursday, July 22, 2010

The State Board of Education opted Thursday not to dedicate public school endowment dollars to finance charter school facilities.

But that decision probably will not be the final word on the proposal to invest as much as $100 million of the $23 billion Permanent School Fund into developing and leasing Texas charter schools.

The 7-7 split that scuttled the proposal Thursday could change when a final vote is taken today .

Even if Thursday's decision holds, the proposal could be revived if the Texas attorney general deems the investment approach suitable. Chairwoman Gail Lowe , R-Lampasas, agreed to seek the attorney general's opinion, as the board's legal adviser recommended, despite her own reservations about the proposal.

In the meantime, legislators have an opportunity to address the lack of state assistance for charter school facilities, said board member David Bradley , R-Beaumont.

"I beseech the Legislature to fix it for us," said Bradley, who has pushed this idea for the past two years.

Legislators could extend to charter schools, which are privately managed public schools, a debt guaranty similar to the benefit that the Permanent School Fund provides traditional school districts. That guaranty significantly reduces the districts' borrowing costs because they get lower interest rates with the state backing.

Another possible legislative fix would be to provide a property tax break for landlords who lease space to charter schools and require them to pass on those savings to the schools, said David Dunn , executive director of the Texas Charter School Association.

The cost to the state, Dunn said, is estimated at $2 million to $3 million a year to make up the lost tax revenue to school districts.

Both changes might require voters to approve changes to the state constitution, Dunn said.

At issue Thursday was how the board should invest the full Permanent School Fund, an endowment created in 1876 to benefit Texas public schools.

The $100 million charter school allocation would have been a very small piece of that pie, but it dominated much of the discussion.

Decisions on investing the fund must be based on achieving a return that is commensurate with the risk.

The board's investment adviser, Rhett Humphreys of NEPC LLC, said it was "very tricky business" to land on an accurate risk-return expectation for a charter school investment because there is no performance history for such an investment.

The NEPC analysis put the expected return at 4.75 percent with a high risk level.

For comparison, the return for non-investment grade bonds, also known as junk bonds, was 8 percent with much lower risk, NEPC estimated.

Opponents said such an investment would not be a prudent use of Permanent School Fund money.

"I certainly want to help charters, but not in this way," said board member Bob Craig, R-Lubbock.

But Bradley maintains that members' opposition was grounded in hostility to alternatives to traditional public school.

"The vote wasn't about the Permanent School Fund," Bradley said.

The opponents roundly disagreed.

"I am not hostile to charter schools, but I am hostile to ill-thought-out concepts," said Mavis Knight, D-Dallas. "I'm also hostile to having a decision forced upon me without having adequate supporting information.

"I will not abrogate my fiduciary responsibility ... to satisfy someone else's agenda."

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