My fellow charter operators, lend me your ear!!
I wrote the following column four years ago this month (October 2005). It was intended as both a “historical highlight” and in anticipation of a bond pool established in March 2000 by seven of the original group of Arizona charter schools dissolving and the schools becoming financially independent of each other in terms of their capital needs. It is now four years later. Many people, but none more so than Brent Van Alfen of Providence Financial Company, have worked very hard to accomplish that separation/independence. It has not happened for several reasons: Closure of one of the seven; another one into Chapter 11; funding needs being met from other sources for one school’s expansion needs; and the “Crash of 2007-08” in the real estate and capital markets have all contributed to our “continued togetherness.” But the story of those pioneers is the story of the charter movement, when it still was a movement during those early years and not yet the industry it has become. The story bears repeating, so I have included it again for all the “newbies” who will be attending this year’s state charter schools conference and might be asking, “Was it always like this, or are there still some bodies out on the prairie?”
I thought I would share with all of you a little charter history and why Arizona charter schools now have the opportunity and access to IDA bond funding. I call this little story “Surviving the First Five Years of the Very 1st Charter School Bond Pool.”
Once upon a time…Seven Arizona charter schools, pioneers by every possible definition, including the one where you are found lying face down on the prairie with a bunch of arrows in your back, came together in mid-1999 and, on March 30, 2000, established the very first charter school bond pool in the country.
Even though today we still look sideways at each other, this $29 million pool required a level of togetherness where we all still wonder how it ever got done. This act of financial salvation/funding (oh yeah, that was the reason we got it done) was preceded by many hours, days, months, and years of creative activities to meet our capital needs not unlike what many charter holders had to deal with back in the early years of our conception. Such as: title loans on our cars; second mortgages on our homes; selling your wife’s jewelry; family loans; cash out our retirement accounts; and not to forget, paying “prime plus 20%” to Luigi for a 120-day handshake loan, guaranteed by your femurs.
When you are the first, the unknowns are astronomical. Therefore, the terms were rather tying, and always in the bondholder’s favor (of course they always are). After all, they have the gold! We had to get Moody’s to provide a rating for a “new classification” of lendee; we agreed to have our state ADM funding sent to a trustee, where our bond payment was deducted prior to the funding being sent to our own financial institutions. We also agreed to pay an additional 5 percent on the principal into a liquid reserve account in the event any one of the seven schools became insolvent and/or was unable to make their bond payments. We were all betting on each other’s success. Pretty heady stuff, but we all needed the money now (then), not later after others had been the pioneers.
Our willingness to jump in, take the risk, and meet our obligations for the last five years has made it better for every charter school in the country, not just here in Arizona, to have access to capital funding. I will point out here the role that our state’s 15-year contract policy played in this happening. It wouldn’t have happened without it. We need to continue to hold back any and all attempts to shorten that contract time. It is vital to our access to all capital markets.
Back to the pioneers: Our contribution to the movement has been dramatic, and we appreciate your understanding and acknowledgement of that contribution. But, after five years, the world has changed. There are much better situations available in the financial markets today, in no small way due to our pioneer spirit. Some of the restrictions we were happy to live with then are hampering our ability today to implement our redefined goals as schools, businesses, and individuals. We are currently looking at our options, and hope to have acceptable solutions for our individual needs in the not too distant future.
One could not write about this experience without acknowledging some very important people who worked very hard on getting the original opportunity in place prior to March 2000, during the first five years of charter schools here in Arizona. The first would be Gene Hildreth, who was always looking for and working on a way to make this happen; Bill Coats with the Leona Group for his work with the state legislation (from 15-14 against to 15-14 for) to allow nonprofit charter school participation in the Industrial Development Authorities’ bonding programs within the state of Arizona. Not bad for a guy who was “for-profit”; and Bill Wildman with RBC Dain Rauscher as the banker/broker for this first ever charter school bond pool. (Although Mr. Wildman did not require “femurs” as collateral, we did contribute to RBC Dain Rauscher’s profit portfolio.) But, as I said earlier, we were the pioneers, and we could not have accomplished establishing this capital funding source without these gentlemen, and we thank you all for all your help and support in getting this done.
I hope all of you have enjoyed this little bit of charter history, and don’t hesitate to email me, anytime. Look forward to our next “chat.” Take care!!
And just what have you been doing for fun lately?
Greg Miller is CEO of Challenge Charter School, Inc. Feedback? Contact Greg through the following email address: jkrygier@resolutions-esp.com. All emails – good and bad – will be forwarded on to him.