June 5 — 2:12 pm, 2014

City charters get $100M more for special ed than they spend; debate rages in Harrisburg

Philadelphia charter schools received more than $175 million last year to educate special education students, but spent only about $77 million for that purpose, according to a Notebook analysis of state documents.

That is a nearly $100 million gap at a time when city education leaders are considering raising some class sizes to 41 students and laying off 800 more teachers in District-run schools due to severe funding shortfalls. Payments to charters, which are fixed under law, make up nearly a third of its $2.4 billion budget.

The issue goes beyond Philadelphia. Statewide, charters, including cybers, collect about $350 million for special education students, but spend just $156 million on them, according to calculations from the Pennsylvania Association of School Business Officials (PASBO). The Notebook used the PASBO analysis of state data to calculate the numbers for Philadelphia, which has half the state’s 170 charter schools.

Although most parties agree that this situation is the result of a faulty state charter funding system, there is fierce disagreement over how to fix it. While legislators and the Corbett administration finalize a 2014-15 budget, school districts and charter school proponents are engaged in virtual war as they all scramble for their piece of what most agree is an insufficient pot of money.

“The charters are benefiting from an unfair system, although they didn’t create the system,” said Susan Gobreski of Education Voters PA. “But the basic issue is inadequate resources. People are trying to hold on to anything they’ve got, and they choose not to be concerned about what happens to others."

Charter proponents say that losing this money – now often used to pay for other educational services, but also sometimes plowed into the coffers of for-profit school management companies – will compromise their ability to provide for student needs and even endanger the future of some schools that have become dependent on the funds.

“Politicians that I’ve talked to just don’t understand what this will do to charter schools,” John Swoyer, CEO of MaST Community Charter in Northeast Philadelphia, told the Harrisburg news service Capitolwire. “There are schools that are on that list that within six months the formula would destroy their program.”

Perverse incentives

As it relates to charter schools and special education, the current funding system is laden with perverse incentives and the potential for abuse.

Under state law, charters receive the same supplement for special education students regardless of the severity of the child’s disability, a sum that is usually two to three times higher than the payment for regular education students.

The amount is based on the average of what the host district spent in the prior year. For instance, in Philadelphia this year, charters got $8,419 for each regular education student and $22,312 for each special education student.

The law does not require charters to spend their special education allotment on services for those students.

“Now charter schools have an incentive to identify kids with the lowest level of service needs and avoid those with the highest level of service needs,” said Gobreski.

And that is what’s happening. An analysis by the Education Law Center showed that in 2011-12, charter and District schools had about the same percentage of special education students. But the charters had many more students, proportionately, in the least expensive disability category – speech and language impaired – and fewer in the categories that include more severe and expensive disabilities such as autism.

“If a student is labeled special education, we pay that per-pupil amount,” said District Chief Financial Officer Matthew Stanski. “We don’t know the kind of disability. The range of disabilities in special education requires different resources.”

This pattern was repeated in other heavily charterized districts, ELC found, including Chester-Upland. There, the state’s largest brick-and-mortar charter school is managed by the for-profit management firm of Gov. Corbett’s largest single campaign contributor four years ago, Vahan Gureghian.

In that year, Chester Community Charter School enrolled 42 percent of the students in the bankrupt district, but 46 percent of the special education students – and 80 percent of those were diagnosed with the mildest, least-expensive disability.

The per-student payment for a special education student in Chester is among the highest in the state: $35,000. Because CCCS drains the mildly disabled from the district, Chester-Upland is left with a concentration of the more expensive students. That drives up the district’s average special education cost, which is then used to determine the charter schools’ payments.

On a smaller scale, the same thing is happening in Philadelphia. Despite the District’s declining revenues, the charter tuition rate for special education students has increased by 19 percent since 2011-12, while the tuition rate for regular education students has declined by 8 percent.

“The current system for funding special education assumes that charters will proportionately serve all students regardless of the level of disability,” said ELC’s David Lapp. “What exists is that the charter system, taken as a whole, is disproportionately serving students with mild or low-cost disabilities.”

A state legislative commission tasked with devising a new funding formula has, after months of study, recommended revisions in the funding rules that would bring charter payments for special education closer to actual expenditures by creating three tiers of disability for charters, each with its own price tag.

The commission would also revise the special education funding mechanism for traditional school districts to more closely align payments with actual expenditures. But the new rules would only apply to a proposed $20 million increase in state special education funding, “holding harmless” the money that districts already get.

This rankles charters, who are expressing alarm that they will be unable to adequately serve their special education students.

“We reject the notion that charters have been overpaid, but are appalled by the position of our opposition that who gets the money is more important than adequately serving all children with special needs,” Robert Fayfich of the Pennsylvania Coalition of Public Charter Schools has told reporters.

This argument and the charters’ campaign against two bills designed to implement the commission’s recommendations are trying the patience of State Rep. Bernie O’Neill, the Bucks County Republican who co-chaired the special education funding commission with Republican State Sen. Patrick Browne of Allentown.

O’Neill, interviewed during a recent education funding conference, boiled with anger.

Despite repeated invitations, he said, charter operators and their lobbyists declined to meet with the commission during its work, but then mobilized the troops against the bills. “They didn’t come to meetings, but then they went into panic mode,” he said.

“They admitted to me that they use special ed funding for basic education, for management company costs, for lots of things. I find it offensive that money designated for those kids is used for anything but those kids. What’s going on is wrong.”

Jonathan Cetel of PennCAN, a policy organization that supports charters, defended the charters’ position.

First, he argued, the proposed bills “don’t reflect the findings of the commission.” He also disputed PASBO’s calculations – he said they don’t account for all charter expenditures on special education students and exaggerate the amount that charters get for that purpose.

But primarily, he said, although there is acknowledgment that the special education formula needs to be fixed, the charter community is so upset because this is one of three funding hits that their schools could take for next school year.

Besides this change, lawmakers are also looking to end the so-called “double dip” state pension reimbursements to charters, another artifact of the 17-year-old charter law. And next year, charters, at least those in Philadelphia, face cuts in their per-pupil allotment for non-special education students, which is due to general school district spending reductions.

“It’s time to fix the whole system,” Cetel said.

State Budget Secretary Charles Zogby, likely to be influential in resolving the issue, said that the change called for in the proposed special education legislation would have a “large impact.”

There is concern “about pulling too much money out of the [charter] sector” too quickly, said Zogby, a former state education secretary who also worked for K12, a company that provides curricula to charter and cyber charter schools.

The legislation, SB 1316, has cleared the Senate Education and Appropriations committees with a six-year phase-in, compared to three years in the original bill. The House has taken no action on its bill, HB 2138, waiting to see what happens in the Senate.

In the meantime, the special education payments to charters are affecting budgets in school districts across the state, not just Philadelphia, as they raise taxes, cut programs, or otherwise struggle to make ends meet.

Philadelphia’s funding situation is so critical that the School Reform Commission refused to adopt what it called an “unsustainable” budget by the end of May, the deadline called for in the City Charter.

The District says it needs $320 million in additional funds to reach a basic level of services, $96 million of which will just avert further layoffs and other cuts to the current decimated budget. Superintendent William Hite told the SRC that, among other inadequacies, without additional funds all supports would be stripped from special education programs beyond basic mandated services.

Gobreski, of Education Voters PA, noted that parents in Philadelphia often wonder how charter schools can afford expenditures like art teachers while District schools can’t. This is particularly noticeable in District schools that have been converted to charters, the Renaissance schools, which often hire more teachers and other staff than the District said it could afford.

Although not the only reason – budgeting practices and teacher work rules are also factors – the high special education payments contribute to this, said Gobreski.

“That money helps answer the question, ‘Why do they [the charters] get an art teacher and my school doesn’t?’ she said. “They get a chunk of special education money that they don’t have to spend on special education services.”

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