Gates Employee Touts Gates Study Promoting Gates Schools as Worthwhile Investments

Alternative title: Don Shalvey Promotes LISC Study Promoting Charter Schools as Worthwhile Investments.

I am not going to be able to do justice in a single post to the absurdity of Shalvey’s claim that “Wall Street doesn’t fully understand charters” from his post on the Gates blog.  The whole point of this blog is to demonstrate through analysis of the charter financial dealmaking that these are risky investments for institutions and individuals and bad investments as education policy.  Wall Street ratings agencies price many many charter school bonds as just-above-junk status based on the individual schools’ financial or operational track record after evaluating each school deal.  (I can’t believe I am defending any ratings agency practices at all ever.)

What Shalvey attempts to do is what others like Bruce Baker have repeatedly nailed the charter industry proponents for when they cite specific, “anointed” charter school chains and then generalize and extrapolate across all charter operators.  Shalvey, like every other charter industry salesman, knows that for each single KIPP school or ASPIRE school there are a dozen or two dozen middling/wasteful or failing/corrupt school slipped through the process and into the “education portfolio” across the country.

Look at how Shalvey accomplishes this slight of hand (bold is mine):

• "…Even though charters, particularly those that have consistently raised student achievement, have long-since proven themselves both as educational institutions and as borrowers”

• "Investors assume stormy political threats. Both extrapolate from isolated school failures.  They put all of that together and assume charters are on shaky financial ground despite a default rate by the highest performers of less than one half of one percent.”

• "Charter school bond issuers, as a whole, beat market expectations.”

• "If charter bonds received a triple AAA rating – similar to what traditional school districts receive – they would have an additional $120 million per year to invest in academics."

Furthermore, as for putting charter schools on same footing with school districts, there is a fundamental difference at the origin of the revenue for charters or districts.  In most instances, districts issue debt that is backed by the ability to raise further revenue (Read: money derived from increased taxes) to pay off previous investors. So districts may have material weaknesses but the chance of default is almost nil.

In comparison, the charter schools have no taxing authority and most schools have the state transfer of per-student funds as their sole revenue (big chains do get substantial philanthropic support but most charter don’t have this teet to rely on).  Additionally in many charter school bonds, the ONLY WAY the deal is completed is if there is an intercept of state funds - essentially, an intercept is where the state deposits its funds into a bank account which pays out the bond investors first and the balance can actually, you know, be used to educate the kids. [More on intercepts later.]

But there is a some investing wisdom in Shalvey’s post.  He admits he doesn’t understand the the limitations of charter bonds from the perspective of the investor. And if that is the case, why would anyone take investment advice from a Gates Foundation employee that charter school bonds as an asset class are a good place to park your money?