Senate approves charter school finance bill that uses state 'moral obligation' credit enhancement

The Utah Senate on Feb. 14 passed Senate Bill 152, a charter-school financing measure that uses a state "moral obligation" credit enhancement to lower borrowing costs for qualifying charter schools and establishes a reserve account to protect taxpayers.

Senator Valentine, sponsor of the bill, explained an adopted Amendment No. 2 that requires mutual agreement in the closure process for qualifying charter schools. He told senators the financing model borrows the approach used for higher-education non–general-obligation financing: "It's sometimes called a moral obligation," the sponsor said, explaining the state would not provide full faith-and-credit backing but would offer an enhancement to improve market ratings.

Valentine described the program as available only to charter schools that can obtain an investment-grade rating (a BBB- rating or better in the bill’s terms), with the enhancement reducing interest by roughly 300 basis points ("300 basis points or 3% interest," he said). The floor presentation cited a one-time $3,000,000 seed for a reserve account in the fiscal note to backstop possible failures and estimated total interest savings in the range shown on the fiscal note.

Senators raised questions about whether the arrangement shifts risk to taxpayers and whether the enhancement could be overstated. Senator McAdams pressed for clarifications on bond-rating effects and contingent liabilities; Senator Valentine corrected that the measure would not elevate bonds to a AAA rating but could improve them to AA levels typical of similar moral-obligation enhancements.

On third reading, the Senate recorded 24 yeas, 0 nays, 5 absent and placed the bill at the bottom of the third-reading calendar.