Bonds

Texas places charter school network under conservatorship

IDEA Public Schools in Texas will operate under state oversight as part of a settlement agreement with the charter school network, which was the target of a probe since 2021 into alleged financial and operational improprieties.

The Texas Education Agency (TEA) appointed two conservators to oversee and direct IDEA’s actions, facilitate a needs assessment, conduct onsite inspections, and help create a corrective action plan. 

“The terms of the settlement provide that the district will accept the appointment of one or more conservators who will provide TEA assurances that the district makes every effort to be in compliance with all applicable statutes and regulations,” the agency said in a March 6 letter to IDEA’s board president.

An IDEA Public Schools classroom in 2018. Under a settlement agreement, the Texas Education Agency assigned two conservators to oversee the charter school network, which was the target of a probe into alleged financial and operational improprieties.

IDEA Public Schools

The Weslaco, Texas-based nonprofit, which was formed in 2000, serves about 80,000 students at 143 schools under a charter granted by the Texas State Board of Education effective until July 2025, according to its latest financial report.

IDEA (Individuals Dedicated to Excellence and Achievement) has $1.112 billion of revenue bonds issued between 2010 and 2022 outstanding, with $908.4 million of the debt guaranteed by the triple-A-rated Texas Permanent School Fund, according to TEA data. The bonds were sold through various conduit issuers in Texas, including the Clifton Higher Education Finance Corp.

In May 2021, S&P Global Ratings placed IDEA’s A-minus underlying rating on CreditWatch negative, citing the termination of two top IDEA executives in the wake of an independent financial audit covering 2015 to 2019 that revealed “significant employee misconduct.”  

The rating was removed from CreditWatch that October, “following comprehensive measures taken by IDEA to strengthen its risk management practices and internal controls, led by a highly experienced interim leadership team and plans to identify a permanent chief executive officer and chief operating officer in the coming months,” S&P said at the time.

S&P last assigned an A-minus rating and negative outlook to $45.6 million of bonds IDEA sold through the Clifton issuer in May 2022.  

“The negative outlook reflects the continued uncertainty associated with the Texas Education Agency’s ongoing investigation and any potential outcomes, although we understand there is no concern at present regarding IDEA’s charter, which extends through June 2025,” the rating report stated. “In addition, while we believe IDEA’s tenured staff provides significant continuity and leadership at various tiers of the organization, the negative outlook reflects the potential impact, in our view, on the school’s demand profile, financial measures, and fundraising due to the nature of major transitions.”

TEA appointed Christopher Ruszkowski as lead conservator. Dr. David Lee, who was appointed IDEA’s monitor in April 2022, was also tapped to support improvements to financial systems and controls.  

In a disclosure notice posted on the Municipal Securities Rulemaking Board’s website last week, IDEA said it welcomed the conservatorship.

“Over the last three years, IDEA leadership has implemented a number of corrective actions including bringing oversight of federal funding under a single team, retaining outside experts to design effective and efficient structures, processes, and controls for managing funding from public and private sources, strengthening training for grant-funded employees, implementing updated standard operating procedures to ensure compliance with technical requirements of federal grants and regulations, among others,” the notice said.

It added that an agreement was also struck with the U.S. Department of Education under which IDEA is returning $28.7 million in grant and formula funding “to resolve compliance issues flagged by an independent audit commissioned by IDEA’s board.” 

“We anticipated this consequence during the last fiscal year and set aside funding,” the notice said. “Also, the department has set a generous repayment schedule to avoid adversely affecting our schools and students.”

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