Nov 19 - Fitch believes votes in Georgia and Washington indicate growing
public support for the charter school movement and that the number of charter
schools will increase, but credit fundamentals for the sector remain weak.
Georgian voters approved a constitutional amendment by a wide margin and
established a statewide entity to authorize charter schools. In Washington,
supporters of a ballot measure to authorize the state's first charter schools
declared victory this past weekend, but votes are still being counted and a
legal challenge has risen.
Georgia's ballot decision, which allows the state to directly authorize charter
schools through a state commission, will provide existing and prospective
charter schools with an alternative authorizer to the local school board and is
considered a credit positive by Fitch. However, the ballot measure does not
fundamentally change primary credit factors such as charter renewal risk and the
limited financial flexibility. A lawsuit against the legality of the ballot
measure was filed just before the election and is pending.
In Washington, the secretary of state count continues to count the votes. The
latest official report shows the measure to authorize charter schools has a slim
lead. Supporters of the measure declared victory on Saturday, Nov. 10. If the
margin holds, Washington will become the 42nd state to authorize charter
schools. Three prior voter initiatives to establish charter schools in the state
failed. The measure would allow up to 40 charter schools to be founded in the
state over the next five years. They would be authorized by either a state
commission or local school board. As in Georgia, the establishment of multiple
authorizers provides a more favorable statutory environment in our view. But
the ballot measure also explicitly limits charter schools to initial five-year
contracts and appears to limit charter schools' ability to pledge state
per-pupil revenues for capital financing. The state's superintendent of
instruction, who opposed the measure, is reportedly considering litigation to
Last week's publication of a national study provides a baseline of data that
could give investors and other market participants further clarity into this
growing sector. "Charter School Bond Issuance: A Complete History, Volume 2,"
by Local Initiatives Support Corporation (LISC), provides an important and
comprehensive snapshot of the charter school financing marketplace.
Our view of charter schools generally remains negative. Following a recent major
revision of our rating criteria, all of charter school ratings were placed on
Rating Watch Negative, and new ratings are expected to be announced within the
next several months.