Bill description: SB 1180 would establish a new mechanism by which charter schools can obtain lower interest capital bonds.
Does it increase government spending (for objectionable purposes) or debt? Conversely, does it decrease government spending or debt?
SB 1180 would establish a new mechanism for charter schools across the state to obtain bonds to construct facilities. The bill would set up a new public charter school facilities program, which well-established charter schools could join. A “well-established” charter school would be one that has been in operation for at least three years, has a commitment from a financial institution, and shows proof of financial stability through an audit, operating reserves, and proposed budgets, among other things.
A charter school participating in this program would have to keep in reserve at least 12 months of payments on the principal and interest, and any payments from the state to the charter school would be intercepted and would go to pay the debt first. A participating school would have to pay a one-time fee equal to 0.5 percent of the total face value of the bonds to the public charter school facilities fund, and an ongoing annual fee of 0.075 percent of the outstanding bonds.
The key provision of this legislation, however, is that it would give the Legislature authority to appropriate money to cover the amount of the bonds that any charter school has defaulted on. This would not create a legal obligation for the state to cover the defaulted bonds, simply the authority to appropriate if it chooses to do so, known as a moral obligation.
This mechanism would allow charter schools to issue bonds with a higher credit rating and thus pay lower interest rates. By issuing the bonds with the credit of the state backing them, lenders could have greater faith that their investments will not go into default, or, if they do, that they may still receive their investment back.
By increasing the credit rating of the bonds and lowering the interest rates public charter schools pay on their facility bonds, SB 1180 could save state taxpayers substantially. In total, public charter schools have roughly $96 million in outstanding bonds, currently. Reducing the interest rate on these bonds could save taxpayers substantially.
Does it increase government redistribution of wealth? Examples include the use of tax policy or other incentives to reward specific interest groups, businesses, politicians, or government employees with special favors or perks; transfer payments; and hiring additional government employees. Conversely, does it decrease government redistribution of wealth?
Charter schools established in the state of Idaho are granted a “charter” from an authorized entity, such as a school district, university, or the State Board of Education, and they remain incorporated as private organizations.
While the state would not be legally obligated to appropriate funds if a charter school defaults on the bonds issued under SB 1180, the Legislature would be highly likely to do so, in order to prevent the state’s credit rating going down. If the state credit rating were to go down, it would cost all taxpayers substantially, as would covering any bonds in default. Even though this would be an unlikely outcome, SB 1180 would put the faith and credit of the State of Idaho and her taxpayers behind quasi-private entities.