February 12, 2019 - Bond Statement
Franklin Discovery Academy (“FDA”) has prepared the following response to questions regarding the bonding of its building.
No one affiliated with Franklin Discovery Academy will have any further comments. We decline any interview requests on this topic both now and in the future. We would, however, be more than happy to provide interviews on the amazing things our school is doing, like taking 20 students out on a field trip every single day.
An exciting day for any charter school is being able to buy its building. Because our school had a rocky start with later disproven rumors that were salaciously reported by the media, we were at a disadvantage in finding investors willing to provide us financing. Finding commercial capital is similar to individual credit. The lower an individual’s credit score, the higher the interest rate and fees. Likewise, our school was perceived as being a higher risk transaction due to the negative publicity two years ago. Investors kept saying to wait a few more years and then ask. After months of searching, we finally found a group that came to the school, did a tour, saw the great things going on, and was willing to invest in us.
Results speak for themselves. Our bond payments are better than our lease. We have more money for our students. To say we got “fleeced” when we are saving money over our lease is nonsensical.
The private and for-profit financial advisors that the State Treasurer prefers charter schools to use in Utah showed little interest in assisting FDA in getting a financing. As noted in his remarks, we are not required to use them nor are they required to help us. We are at liberty to use whoever will provide us with a deal better than our lease, which is what we chose to do.
The savings we have received from our bond are substantially greater than any savings we could have potentially realized by using the State Treasurer’s preferred private businesses. The process described by the State Treasurer at a recent USBE meeting would have almost certainly taken much longer to get us financing—or quite possibly resulted in no financing at all.
After the terms of the financing were put together, a team of professionals was brought in to close the deal. The terms were also sent to the State Charter School Board for their review, as required by code, however no comments were sent back.
We pulled these professionals together based on our understanding of who would get the financing done and who we had the most confidence in, since our students stood to benefit so greatly if we were successful. Our decisions were made solely with the best interests of our students in mind that a financing that was an improvement over our lease would provide us with better financial resources to educate our students.
In October 2018 we were able to close on a bond financing that over the course of the bond will save us more than 4.8 million dollars over staying in our lease. Additionally, we are seeing a savings on property taxes of approximately $90,000 per year. This savings is net of all fees associated with the bond.
The fees we paid to Kirton McConkie as school’s council are within the norm found on the Utah Charter School Finance Authority’s cost of issuance summary file. In that document, it lists a range of fees from $9,000 to $130,000 for school’s council. For instance, Maeser Academy, a school with an impeccable reputation, lengthy history, and strong financial record, paid $45,000. We paid $50,000. Considering the complexity of our history and the transaction, we are confident this fee was fair and appropriate.
Jim Blandford, our underwriter on this transaction, is on the list of eligible municipal advisors provided by the CSFA. Gilmore Bell, serving as our Bond counsel is also on the list approved by CSFA.
We believe the savings over staying in our lease are in the best interest of the school and our students. We believe it is misleading to characterize otherwise. It was the unfair actions of two years ago that resulted in us being viewed as a higher risk and therefore pay a little higher interest and fees. We also believe that it is not helpful to imply schools should limit options to those preferred by the State Treasurer.
What would be much more useful to charter schools is transparency and training from the Treasurer’s office, such as information on the debt covenants imposed on charter schools on each financing, the spread between the interest rates and the municipal market index, and a comparison of interest rates against other charter school deals sold that day.
We find it strange that our bond transaction would attract any interest from the treasurer’s office since to do so is taking an active role in an area of government that is not the purview of the office. According to the Utah Constitution, the State Treasurer is the “custodian of public moneys” and nothing more. In addition, the State Treasurer has often claimed that the State of Utah is financially liable for all charter school debt issued by the Utah Charter School Finance Authority, even though the Utah Attorney General has repeatedly given legal opinions saying this is not correct. The state is only responsible for debt issued with the credit enhancement program, which ours was not (we have several more years before we qualify for that program.) If the State Treasurer truly believes all bonds, both enhanced and unrated, are an obligation of the state, he should be happy that FDA did not issue their charter school debt with Utah Charter School Finance Authority, which decreases the financial liability on the State of Utah.
As a school, we report to the State Charter School Board, not the State Treasurer. Instigating the press to investigate our school for not hiring the preferred private businesses of the treasurer’s office diverts attention from the real story: bottom line, we got more money for our students. This is the only story.