Back Without Vengeance: SBOE Looks at Charter School Funding [UPDATED]

Can Texas' Permanent School Fund help charter schools through investment? Maybe, maybe not, but the State Board of Education is considering it—respectfully.
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UPDATE 10:50: Oh the fickle minds of the state board members! David Bradley has now said he will raise the issue and poll the board. He will offer the charter school investment plan as a tentative asset allocation and from there, see the response. Lowe has said that if the board votes for the tentative allocation, she will seek an AG opinion.

UPDATE 10:10: Statesman reports Bradley will not pursue the plan.

Wednesday’s State Board of Education meeting was the first in quite some time that didn’t feature crowds of T-shirt-clad activists and  cameramen with news trucks double-parked outside. After the raucous debates over just who and what should go into the state’s social-studies standards, this week’s meetings will feature dull—if important—discussions on nuts-and-bolts issues. And evidently, such issues don’t bring the crowds like a good, old fight about Thomas Jefferson.

After parking right outside the Education Agency building (which would have been a minor miracle at the last meetings), I walked into the strangely quiet building and listened to a courteous but intense debate that may impact just about every charter school in the state.

At the heart of things: Can the state board use the Permanent School Fund investments to help charter schools with their facility expenses?

The answer isn’t entirely obvious. Charter schools receive some state money, but their funding is about $1,000 per student below traditional school funding because nothing goes toward facilities like, you know, the building. Republican member David Bradley wants to help them, potentially by getting the state to invest between $25 million and $100 million in buildings and effectively become charter schools’ landlords. (For more on Bradley’s plan, see Kate Alexander’s excellent story in the Statesman.)

But the Texas Constitution charges the board with fiduciary responsibility for the Permanent School Fund, which provides much of the state’s education funding—meaning they must do what’s in the best interest of growing the fund, not helping the charter school movement. Specifically, the board must adhere to the “prudent person” rule, which basically demands that investments have a reasonable return rate that correlates with the investment’s risk. Charter schools are generally seen as risky investments at best and even top ones only have a credit rating around of triple B-plus—hence why they have trouble getting loans in the first place.

So can the SBOE help the schools and stay within the rules? After several hours of discussion between the board and its advisers, the answer seemed to be possibly, but probably not.

In fact, as one lobbyist joked to me, the whole argument was quite reminiscent of that old Saturday Night Live skit—the one where Bush Sr. shakes his head and repeats, “Wouldn’t be prudent.”

“You must proceed with great care because it is embarking on new territory,” said Gary Lawson, one of the board’s fiduciary lawyers. If it went through, Texas would be the first state to try such a plan, and according to the lawyers, it might open the board up for litigation; those so inclined might argue that board did not live up to its role as guardian of the state fund.

“Thing is you’ve got a job to do and being tied up in controversy is not probably in your best interest,” Lawson told the board.

His colleague Gus Fields thought along the same lines. “I would think that before you would embark upon [the effort], you would indeed still want to get an opinion from the Attorney General,” Fields said.

The debate hinges on whether the board can argue that such a plan would be a good investment. To make that argument, members would have to compare the unorthodox investments to something similar and show why the decision made sense. Rhett Humphreys, a representative from the board’s investment advisor NEPC, Inc. compared the investments to wheat or gold—volatile and with a low rate of return. And he wasn’t overly confident about his assessments and declined to make a recommendation about the overall plan. “Is this perfect science? How can it be?” he asked the board.

According to Lawson, risks aren’t something fiduciary counsel tends to support. In fact, he said, Christopher Columbus only found funds to get to America “because [he] was an explorer backed by a Queen,” he told the board with a grin. “He did not have a fiduciary.” (This is evidently what passes for humor amongst fiduciary lawyers.)

While the debate didn’t include arguments over Davy Crockett’s legacy, it was still a shocking meeting: Members were engaged and respectful. Though the entire discussion was technically for the five members of the finance committee, Bradley had encouraged the rest of the board to show up and his colleagues readily took him up on the offer. By the time the meeting was in full swing, 12 of the board’s 15 members were there. More interestingly, the old alliances—the social-conservative bloc looking for a swing vote—were nowhere to be seen. While social conservative Bradley clearly advocated for the effort, Gail Lowe, the chair of the board and a socially conservative member, has publicly questioned its merits.

Few of the members took firm positions, although Bob Craig and Pat Hardy, both moderate Republicans, didn’t take long to show reticence. Craig worried that by investing in land, the board wouldn’t have an easy exit strategy, particularly because the board does not oversee charter schools once the charters themselves are granted. “I just see many pitfalls when we no longer have any control,” he said.

Hardy was more blunt. “You would be making a really bold step in really dangerous economic times,” she told me after the discussion.

A final decision is a ways away. For now, even Bradley agrees the board needs the Attorney General to determine whether the plan is consistent with the board’s obligations to protect the fund. It takes about six months for the Attorney General to issue an opinion once someone asks for it—and Lowe might not be so inclined. “We need the consent of the chair to move forward,” Bradley said. While Lowe doesn’t appear to support the plan, she has prided herself on being a fair and impartial chair and may make the request if there’s enough board interest. If she does, he promises there will be more discussions to come as the board waits for what he calls “a get-out-of-jail-free card” from the Attorney General.

Bradley says he’s simply eager for solutions to funding charter schools adequately. “A lot of this discussion is really an attempt to get the discussion going,” he told his colleagues. Several members, included Hardy, seemed eager to help generate solutions, even if not the original plan of investing in buildings. Guaranteeing bonds for the charters came up several times, as well as helping the charter schools find and move into unused traditional school buildings. Some members hope that by simply emphasizing the difficulties that charters face, the board might encourage the Legislature to take action.

Compromise on the State Board of Education? Between this and the Saints winning the Super Bowl, you might wonder if a certain place is now frozen.