September 19 — 4:19 pm, 2013

Analyzing the role of charter school funding in the District’s budget problems

School Reform Commission member Joseph Dworetzky sent the following observations and analysis of charter funding in response to a story on the District’s budget gap that appears in the Notebook’s latest issue on "Schools in Crisis." 

by Joseph A. Dworetzky

I wanted to compliment you on the piece you wrote about the budget gap. Despite all the complexity, I thought that you did a great job of keeping track of the many moving parts.

I want to offer a couple of observations about one additional area that, to my mind (and I am speaking for myself and not on behalf of the SRC), is a fundamental part of the story.

1. Whether or not one supports charters in general, the economics of their funding are central to the District’s budget problems. For convenience, I will use rounded numbers to set out the analysis.

If the District spends $10,000 per student on the all-in costs of education, when a student in a District-run school leaves to attend a charter school, the District must pay the charter school $10,000 for that student over the school year. In order for the District to avoid a negative financial consequence, the District must reduce its costs by $10,000. However, it isn’t easy to shed costs: Some costs are variable (they vary with the student), but many are fixed or semi-variable (they don’t vary or they are slow to vary). Historically, the District has been able to shed only about $4,500 in costs per student, meaning that the net loss to the District when the student transfers is $5,500, a huge loss.

2. The point above only tells part of the story. Suppose a student transfers to a charter school from a parochial school or from an independent school. As above, the District must send the charter school $10,000 on account of that student, but, because the student was not in a District-run school before transferring, the District had no prior costs associated with that student that can be shed. Thus, for that student, the net loss to the District is not $5,500, it is $10,000. This is not an occasional situation; about 30 percent of charter students were not in the District schools before they moved to charters. 

3. When you "blend" the two groups described above, the average net loss to the District when a student goes to a charter school is $7,000 per student. This loss is essentially borne by the students who remain in District-run schools. Moreover, the loss is not a one-year loss. It continues annually, many years into the future.

4. There are several theoretical ways to manage or mitigate the costs associated with the growth in charter school enrollment. The most obvious is to find a way to quickly reduce the District’s "fixed costs" to take account of the loss of students. Another is to manage the growth of charter schools by limiting their enrollment. A third is to close low-performing charter schools. A fourth is to change the way that charters enroll additional students from the current process to the "Renaissance" process in which high-performing charters take over low-performing District schools, and in that process, take over all the costs for the school facility.

5.  Each strategy has its own challenges. Shedding fixed costs means closing schools — a process that has profound implications not just for the students and parents in the school but also for the surrounding community — and cannot be done in the same time frame as the loss in funding. While this painful process may change the losses in the long term, it doesn’t address the costs in the near term.

6.  Moreover, when students leave the District for charters, they don’t all leave a single school building until it has emptied. They move from all over the District through the usual lottery-enrollment process. This means that even the loss of several thousand students from the District as a whole may not create any particular school that should be closed in consequence.

7. Enrollment management by limiting charter enrollment has been the subject of extensive litigation, and the District’s flexibility to take this action has been repeatedly challenged. Some charters have over-enrolled their existing enrollment limits and have been able to end-run the District’s refusal to pay for over-enrolled students by going directly to the state for payment. 

8. Closing low-performing charter schools is a time-consuming and difficult process. First, the SRC must decide to approve a notice of revocation or non-renewal. Then there is an administrative hearing, which may span months of testimony and fact-finding. After the hearings are concluded, a hearing examiner makes a recommendation, and then there is another SRC consideration and vote. If the vote is to revoke or non-renew, the charter school has a right to appeal to the Charter Appeal Board in Harrisburg. The charter school can remain open pending this process. It would not be unusual for the entire process to take two or more years.

9. Finally, while the Renaissance process is cheaper than the usual lottery process for charter enrollment, it is far from cost-free, particularly when the school involved is small and under-enrolled. In that circumstance, in order for the school to be economically viable, the charter operator needs to draw students who were not previously enrolled in the school. When that happens, students leave other schools in the District (as well as non-District schools), replicating the cost problems discussed above. For example, the recent cohort of Renaissance charters approved by the SRC cost the District thousands of additional dollars per student.

10. As difficult for the District as the problems attending the growth of brick-and-mortar charter schools, the problems with the growth of cyber charters are also serious. A cyber charter gets the same amount of money from the District, per student, as a brick-and-mortar charter school, even though the cost of online instruction should be far less. Moreover, the SRC does not authorize cyber charter schools and therefore has little influence on the number and enrollment of such schools. 

11. Regardless of how one feels about charter schools in general, the enormous costs that their funding imposes on the District cannot be denied. 

12. There are two ironies in this funding structure. First, given how much it costs to fund charter schools, there ought to be really spectacular results. Yet while there are some charters that perform very well, there are many that do not. 

13. The second irony is more difficult to grasp, but it is even more important. Despite the enormous amount the District incurs to fund the charter sector, much of that taxpayer money is not going to fund the cost of instruction. Rather, it is funding the ongoing losses that the District must incur because  – over many years – it built an infrastructure to support a far greater quantity of students than are currently in District-run schools. The legacy costs of that infrastructure are real and expensive, but at the end of the day the money spent on them is simply lost to the system. And given that the education system was underfunded to begin with, the scope of those losses should be a cause of enormous concern for anyone who cares about public education.

Joseph Dworetzky is a member of the School Reform Commission and a shareholder in the law firm of Hangley Aronchick Segal Pudlin & Schiller.

The opinions expressed are solely those of the author. 

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