SBOE Enters Un-Charter-ed Territory

After days of flipflopping, the board takes up a controversial investment plan to benefit charter schools


“It’s all a chess game,” State Board of Education member David Bradley told me Thursday on his efforts to get the board to invest $100 million of the Permanent School Fund into facilities for charter schools. That was when the proposal appeared to be all but dead. Now, less than 24 hours later, the plan will go into the effect assuming the Attorney General deems it acceptable. If this was a chess game, Bradley is surely ranking Grand Master right about now.

Between Wednesday and Friday, the board swung back and forth on the proposal—initially voting it down Thursday before reviving it the next day.

While charter schools are public, they receive significantly less money than traditional schools (by about $1,000 per student) because they get no direct state money to pay for facilities. That can leave many schools unable to cover their costs. Bradley argued that the board needed to take the lead on dealing with the problem. “A lot of this discussion is really an attempt to get the discussion going,” he said on Wednesday.

But when the plan was first presented to board members Wednesday, fiduciary lawyers and the investment consultants emphasized the potential legal pitfalls with investing part of the $23 billion fund in charter school facilities.  As I wrote then:

[T]he 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.
…”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 the board did not live up to its role as guardian of the state fund.

By Thursday, it looked like the whole thing was on hold if not dead. “I don’t think it’s a sound prudent investment,” said member Bob Craig, one of the board’s Republican moderates. Craig pointed to the 71 charters returned to the Education Agency after the schools either failed or could not get the charter renewed. It’s “100 million in real estate to charters that we don’t have control over,” Craig said of the plan.

He wasn’t the only one concerned. Thursday morning, in a 7-7 vote, the board voted against allocating money to the charter school investments plan. Chair Gail Lowe promised to ask the Attorney General for an opinion on the controversial plan.

Fine, decision made. Let’s start the weekend early I say.

But Bradley was nowhere near done. When the meeting began this morning, across the room, lobbyists noted two absences—Democratic member Mary Helen Berlanga and Rick Agosto. Berlanga spoke out against the measures at the Wednesday committee meeting but was gone for both Thursday and Friday.

As for Agosto, expect rumors to swirl. While he voted against the measure on Thursday, he’s  been a swing vote for Bradley in the past on financial issues and having attended Thursday’s meeting, he would likely know what the vote counts were when he left. But he’s adamant that any accusations are unfair. “I’m being picked on!” he says, pointing to the members who supported the effort.

“For the record I voted against this thing in committee and I’ve publicly denounced this,” he said to me. “I don’t even know what the hell that thing is.”

Asked when he found out Agosto wouldn’t be at the meeting, Bradley just laughed and declined to comment, though Agosto says everyone on the board knew he was leaving before hand.

At any rate, Agosto’s absence along with Berlanga’s allowed Bradley to move forward. His investment plan passed—contingent on the AG opinion. Notably, chairwoman Lowe, normally a political ally of Bradley’s, voted against the measure while Democrat Rene Nunez voted in support.

Among the lobby, there was clear perception that too few on the board understood the complexities of the plan. “Can you use ‘clusterfuck’ in the Observer?” one lobbyist muttered to me as he walked by during the debate. (Guess that answers that.)

However, Bradley has argued that the specific plan is almost irrelevant to his efforts. “There are no details, there is no program,” he told colleagues Thursday. Passing the plan, he said, “at least signals intent” to deal with the charter school problem.

The problem is significant. Many people who run charter schools have backgrounds in education and not business. They can’t easily turn to bonds since, unlike traditional districts, they have no tax base and state gives charter schools $1,000 less per student than traditional schools. With little credit history, charters have trouble getting the funding they need. They can wind up teaching out of strip malls, churches and pretty much anywhere with an empty room or two. Last session, the legislature created the Intercept Program to help lower interest rates for charter schools that could show private funding sources using legitimate financial tools, but according to David Dunn, executive director of the Texas Charter School Association that alone won’t solve the problem.

The SBOE plan offers “a pretty sweet choice” for charters, said Jill Willis, spokesperson for YES Prep charter schools in Houston. (YES Prep only recently closed on a $22 million bond using a federal stimulus program and supported by Capitol One.) “This isn’t philanthropy,” she says of the board’s potential investments. “It was a savvy, smart business deal.”

But Rep. Scott Hochberg, D-Houston, who chairs the House appropriations subcommittee dealing with education funding, doesn’t see it that way. “If you make it a good deal for the PSF, it can’t be a good deal for the charter school,” he says of the board’s investment plan.

There’s certainly a perception among some, including Bradley, that opposition to the investment plan was linked to opposition to charter schools in general. “I am not surprised at the knee jerk reaction from the educational establishment,” Bradley said of the opposition. Bradley says he keeps hearing from superintendents who don’t believe charters should be treated as public schools. (For the record, charters are public schools.) That opposition, he says, makes it much harder to solve the problem.

And he’s not the only one. Rep. Rob Eissler, R-The Woodlands, chairs the House Education Committee, is known for being bipartisan and flexible. But he’s clearly frustrated. While much of the opposition comes from outside groups, Eissler says, “it takes both [groups and lawmakers] within the legislature to get something.”

Hochberg says that while he supports charter schools, they get to choose how much they want to grow and which students to accept. “There are legitimate differences in the prioritization” between traditional and charter schools, he says.

“All of this would go more easily if TEA or the state board or someone were more aggressive in closing down failed charter schools,” he told me.

Many members on both sides expressed hope that the legislature would deal with the problem and let them avoid making the investment decisions. After all the decision today won’t take effect until the board asks for and then receives the opinion from the Attorney General—which likely won’t happen until after the 2011 legislative session is over. “My ultimate goal would be for the legislature to fix it,” said Bradley, “whether it’s a bond guarantee program or maybe if there’s an allotment to help pay for the ultimate lease.”

Eissler’s optimistic. “I think we can find a way to get charters some facilities funding although there is resistance to it,” he told me.

Hochberg doesn’t paint such a rosy picture.

“The state’s going to have a hard time coming up with school district projects let alone charter projects,” he said. “I think it’s a tough sell in this environment.”

Under certain circumstances, evidently, the state board is an easier environment than elsewhere. Who knew?


Clarification: Just to be clear, charter schools are funded based on the same formula as traditional schools, however they get no money for facilities—which averages out to about $1,000 per student less for charters than their traditional school counterparts.