Hosted by The Center for Education Reform
Hosted by The Center for Education Reform
EMERGING ISSUES IN CHARTER SCHOOL FINANCING.
By Louann A. Bierlein and Mary F. Fulton
Government Finance Review, August 1996
Charter schools are illuminating education finance issues that could have implications for high-performance schools, decentralized schools, and education funding in general.
As of May 1996, 22 states had some type of charter school law on the books, and more states are likely to follow. This response is significant given that the first charter school law was enacted just five years ago.
Charter schools are independent public schools formed by teachers, parents, and/or other community members. Such schools are freed from most state and local laws and/or policies in exchange for a written contract (or charter) which specifies certain learner results that must be met.
Each charter school law is different (as are the resulting schools), and much has been written about the characteristics of stronger and weaker laws. Charter schools formed under weaker laws tend to remain a legal part of their school district and pose few serious school finance challenges. Those schools formed under stronger laws, however, are often legally and fiscally autonomous entities. This situation is raising new issues about how charter and other public schools are funded.
Charter schools with fiscal autonomy could serve as laboratories to study whether funding schools directly - versus the current system of funding districts - results in resources being more closely connected to student performance.
School-based Funding Systems
The cry to have "the money follow the student" is frequently heard as policy makers enact charter school legislation and other choice-based initiatives. Indeed, many legislators assume this happens once they enact such laws, but this is far from reality. Pilot voucher programs provide the best examples of cases in which the money follows the student.
While K-12 financing systems do use individual student counts as the main way to distribute state or federal aid, funds still are distributed through, and therefore controlled by, the district.
Initial attempts to increase student choice did not raise issues around school-based funding because money was still directed toward the district, and only a few students took advantage of such initiatives. The more than 240 operating charter schools, however, provide the first solid opportunity to examine the issues that arise in moving to a school-based funding system. Some of these key issues are highlighted in the next section.
School Issues
No or Limited Access to Local Operations Funds. Under current charter school laws, most charter schools do not have access to some or all of the local district funds levied for day-to-day operations. Many charter schools receive only the state portion of the funding formula allotted for operations (e.g., Minnesota). In some states, charter schools by law are to receive the full state and local per-pupil average, contingent on local school board sponsorship (e.g., California and Louisiana). In others, the law guarantees charter schools only a minimum percentage of state or local revenues (e.g., 80 percent in Colorado; 90 percent in New Jersey).
With the exception of charter schools in Massachusetts, only a handful of currently operating charter schools receive 100 percent of the combined state and local operations funds. This situation is due to legislative language and technical issues (e.g., how to provide local funds to the charter schools). For the most part, however, it results from political pressures not to interfere with locally controlled funds.
No Access to Capital Funds. Charter schools do not have access to local district funds levied for capital improvements (e.g., buildings and major equipment), nor do they have the ability to issue bonds. Most charter schools, therefore, must use a portion of their operations funds (which, as noted above, are usually less than those available to other schools) to secure, furnish, and maintain facilities. Districts, in contrast, have extra capital funds to cover these activities. Other state statutes also carry significant costs, such as building codes, zoning ordinances, and other health/safety issues.
Capital funding traditionally has been acquired through the sale of bonds using the taxing value of the property within a given district. Because charter schools often do not have attendance boundaries, this same mechanism does not apply to them. Charter schools could be authorized to issue special bonds, however, or state loan programs could be established. Facilities represent perhaps the most significant cost issue facing charter schools and will require greater attention by policy makers.
Limited Access to District-based State or Federal Funding. Beyond per-pupil state funding formula allocations, other aspects of the formula and many state grant programs are based upon district characteristics; therefore, charter schools frequently are not eligible for such funds. For example, many charter schools are eligible for federal Title I funds (the federal funding program for low-income students) if their state department allows this but might not receive the state supplement for this program.
Cash-flow Problems. State and local funds flow to districts through periodic payments, and states have established mechanisms whereby districts can use other means to keep paying expenses between payments. In addition, district budgets are often large enough to allow districts to defer some expenses until the district receives adequate revenue.
For small, start-up charter schools, such cash flow issues are significant. For example, Michigan's fiscal year begins October 1, although most schools begin in August. This means that schools in Michigan do not receive their first state-aid payment until mid-October. Most districts have funds remaining from the previous year, but new start-up charter schools do not.
"Seat-time" Funding Issues. States reimburse districts based upon the number of students they have in attendance for so many hours per day, per year. They often require enrollment in a certain number of subject-based classes. Some adjustments have been made for alternative schools, but for the most part, this "seat time" drives school financing formulas.
Many charter schools, however, offer different learning structures that question traditional seat-time approaches. Some use banks of file servers while students learn through cyberspace. Others use community-based projects and competency-based learning. The issue is whether such schools should be penalized for not having students in class for specified periods of time or whether funding systems should be modified to compensate for results, not seat time.
Special Education Financing. Charter schools must follow the same state and federal special education laws as other districts, including the provision of appropriate services. They also must accept all students who apply (given adequate capacity), including special-needs students. These requirements raise concerns that one or more very expensive special-needs students could "break the budget" of small charter schools.
Fortunately, this has not occurred to date. Many charter schools are attracting special-needs students (especially learning disabled and emotionally handicapped), but "extra" costs have not been of great concern since many charter schools offer individualized education plans and instruction for all students. Other charter schools have arranged for the district to deliver these services.
Minnesota allows excess special education costs to be billed back to the district of student residence. A number of real and potential special education issues remain, however, since individual per-pupil special education funding "weights" seldom cover the additional cost of educating these students.
Additional Funding Restrictions. Political pressures have forced some states to place funding restrictions on charter schools that do not apply to other schools.
For example, in Minnesota, charter schools are not allowed to accept any outside private funds or grants once they have moved beyond start-up. They also are not allowed to use state funds to buy a facility or property (meaning they must lease a site forever). In Michigan, charter schools may only apply up to 5 percent of their funding toward debt each year. These types of restrictions are not placed on other state public schools.
Funding-related Paperwork. State departments of education often require extensive procedures and paperwork associated with keeping accurate student counts and other accounting functions. Charter schools often must hire separate personnel to cover these duties. Such costs can be absorbed to some degree within larger district systems but pose more of a hardship for charter schools of 200 or fewer students.
Few state departments officials have begun to rethink whether the same finance-related paperwork (or any paperwork for that matter) required of large districts should be required of smaller school entities.
No or Limited Financial Technical Assistance. Creating a new independent charter school is similar to opening a small business, yet states have provided little technical assistance and start-up funding support for charter schools. While most states have special programs to support small-business development, there are few places for potential charter school operators to turn.
Banks, for instance, often do not know what to make of charter school operators when they seek loans. Traditional school-district business officials and their associations also offer little support. Given the unique nuances of public school financing (especially compared to the private sector , it is often difficult to find appropriate financial assistance.
District Issues
"My" Money Attitude. Districts often view state and local funding as "their" funding and strongly resist having such funds go directly to charter schools. Although there may be some legitimate fixed costs (as described below), this attitude is of particular concern when charter schools are forced to negotiate with their local school board for sponsorship.
District Fixed Costs. Because charter schools often pull students from across a given district or districts, districts have a hard time decreasing their costs (e.g., by eliminating teaching positions), even though they may no longer be serving these students. The question is whether state policy makers should "protect" districts to some extent from the full loss of charter school students.
In Massachusetts, the legislature voted to allow districts to "phase down" over three years any funding losses due to charter schools. This move, of course, represents additional costs to the state and reduces economic pressure for districts to improve. On the other hand, it minimizes any potential funding losses to students (as well as staff) who remain in the traditional system.
Charges for District-provided Services. School districts historically have not costed-out their expenses on a per-school or per-student basis. Thus, it is difficult for them to determine how much to charge charter schools for district services the schools may wish to purchase, such as transportation, accounting, or staff development. Even for districts that wish to help charter schools, this process of determining appropriate charges is often difficult.
Sponsorship Fees. Some district costs associated with sponsorship and contract oversight for charter schools remain regardless of who carries out the service - districts, state boards, or universities. These costs arise even if no other services are provided to charter schools.
Policy makers must consider: What is a fair amount to charge through application and/or other overhead fees? Should state policymakers set parameters for such fees or should the market prevail? The answers to these questions depend upon whether potential charter school operators can seek sponsorship from a variety of sources or whether they are forced to go to one entity, such as the school board.
State Issues
Additional Costs. Although nearly every charter school receives less funding per pupil than its neighbor schools, the overall charter school program may cost more money. A key reason is that charter schools attract a number of private and home-schooled students, as well as dropouts, back into the public system, which adds to the number of students the state and district must support.
Other reasons involve "funding quirks." One state, for example, allowed the federally funded Bureau of Indian Affairs schools to receive full state funding in addition to the federal funding. In other states, districts continue to receive state dollars for students they have lost to a charter school for a year or more (in effect, they get double funding). At least one state paid excess transportation funds to charter schools.
Less Funding but More Accountability. Although individual charter schools receive less funding than other schools, they must demonstrate student results or go out of business, a standard not required of regular public schools and districts. Preliminary data gleaned from a variety of reports depict that, for the most part, charter schools are succeeding despite the aforementioned funding issues. But this is often at the expense of facilities and salaries. The question is how long can charter schools continue to do more with less?
Creativity and Willpower Needed
Many policy makers believe strongly that initiatives such as charter schools are necessary to help support and improve the overall public education system. Few, however, have acknowledged that it takes more than simply writing a law allowing the creation of such schools.
To ensure the viability and survivability of such initiatives over time, traditional school financing systems also must be addressed. Significant education-funding policy changes will require a great deal of political willpower and expertise, but such change is needed if funding is to support and sustain school reforms and high student performance.
Editor's note: This article originally was published as a policy brief by the and is reprinted with permission. Copyright ECS. All rights reserved.
###
Louann A. Bierlein is an education policy advisor to the governor of Louisiana. Mary F. Fulton is a policy analyst with the Education Commission of the States.