Dow Jones – “Getting Personal: Gates Foundation Invests In Charter Schools”
by Shelly Banjo | November 11, 2009
New York (Dow Jones)–Even the country’s richest foundation is looking for a way to conserve assets while using them to fulfill its charitable mission.
The Bill & Melinda Gates Foundation on Wednesday announced it is making $30 million in bond guarantees to high-performing charter schools in Houston. It is part of a new two-year, $400 million push in so-called program-related investments, which can consist of direct loans, equity investments, bond guarantees and other non-traditional forms of financial support.
The first bond guarantees are going to the Knowledge Is Power Program, or KIPP, to help its schools in Houston secure funding in tax-exempt bonds. The financing is aimed at expanding student enrollment from 4,500 in 15 schools to 21,000 students in 42 schools in the next decade. It is the first time a private foundation has backed charter school facility bonds at this scale.
Charter schools, which are publicly funded and typically employ nonunion teachers, are granted more freedom by states in curriculum and hiring but often receive nearly 40% less public funding than conventional district public schools, according to the Center for Education Reform, a Washington advocacy nonprofit.
As one of the main pillars of President Barack Obama’s education strategy, charter schools are looking to expand their programs and capacity. However, many lack the access to capital that conventional public schools have: They don’t receive direct funding from the state for capital expenses, such as school construction or improvements, and can’t issue voter-approved general obligation bonds, which are secured by taxes, to raise money. The problems were only heightened when the capital markets seized in the last two years amid the financial crisis.
The Gates Foundation’s investment will allow KIPP Houston to obtain favorable borrowing terms, saving an estimated $10 million over the 35-year life of the bonds, said the charter network’s founder Mike Feinberg. It will also allow the Gates Foundation – whose assets declined by about 20% in 2008 – to use their balance sheet to support the causes they care about without having to give the money away.
“Like Mom and Dad backing us to buy a home, the Gates Foundation agreed to a total of $30 million in credit enhancements. So we are still responsible for the loan, but the bank knows if we’re in trouble they can go to Mom and Dad,” Feinberg said.
The first financing through the program was priced last week, a $67 million bond issue that will allow KIPP Houston to expand its enrollment from 4,500 to 11,500 students over the next five years.
“The foundation’s leadership is committed to supporting the very important work of charter school programs in the U.S. in new ways,” said Allan Golston, President of U.S. Programs at the Gates Foundation.
“Leveraging the foundation’s balance sheet is a low-risk way to provide big returns for the programs we support and spur additional investment interest,” he said.
SOURCE: KIPP Charter Schools, http://www.kipp.org/news/dow-jones-getting-personal-gates-foundation-invests-in-charter-schools-1