Charter School Flexibility Leads to Enrollment Growth During Pandemic

Charter schools in Colorado increased enrollment by 3.9%, or 5,000 students, during one of the most challenging years for education in our nation’s history. Municipal bond investors in the sector should be thrilled with the strong demand and positive enrollment trends that transpired during 2020.

Statewide, the total number of Colorado students enrolled declined by almost 30,000, a -3.3% annual decline. However, charter schools attracted students at the fastest rate in three years and now educate a record 15% of the total statewide student population.

The decline in statewide student enrollment can be almost entirely attributed to the earliest grade levels. In fact, 92% of the decline is related to pre-kindergarten through 5th grade as parents are confronted by the depressing and, at times, hilarious challenges of distance learning.

So why were charter schools able to attract students during the pandemic? By design, they are nimble and more flexible. This allowed them to create a hybrid model of in-person and remote learning that was attractive to parents and students alike. Larger school districts had difficulty managing the hybrid approach, and many opted for remote learning as a result. Parents migrated to charters because there was a better chance of maintaining some sense of normalcy for their young children during the pandemic. With more flexibility, charters were able to increase enrollment in all grade levels (PK-12) except for preschool.

In Colorado’s municipal bond market, K-12 Education is the largest sector, comprising over 20% of the market, and state funding is largely dependent on enrollment. School district bonds are less dependent on fluctuations in student population because they are typically general obligations supported by property taxes. Charter schools, on the other hand, are a very small subsector of the market and depend heavily on per-pupil funding as it is by far the largest source of revenues for the school. Persistent declines in enrollment can lead to financial difficulties or even school closures. In contrast, rising and stable enrollment are signs of strong demand for the program and solid financial footing.

For municipal bond investors, it is important to remember that not all charter schools are alike. It remains to be seen whether the boost in enrollment is short-term with a potential to reverse once in-person learning returns to normal in the coming year. Nevertheless, municipal bond investors should be pleased with the results of the positive enrollment trends during this difficult time. Growing enrollment during 2020 continues a decades-long trend of increasing demand for school choice and provides strong evidence that charters will continue to be a valuable educational alternative for years to come.

Equus will continue pursuing attractive opportunities in the charter school space for our clients. If you have any questions about your municipal bond holdings or would like to learn more about our services, please call (970) 963-5810. We would enjoy hearing from you.

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