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Judge rejects state plan to rescue Chester Upland district and cut charter payments

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Photo: NewsWorks WHYY

This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.

Updated | 11:30 a.m.

Delaware County Judge Chad Kenney rejected the key piece of Gov. Wolf’s plan to rescue the troubled Chester Upland School District on Tuesday: slashing payments to charter schools for their special education students.

In a 13-page opinion, Kenney wrote that the two days of hearings showed that the state-mandated funding formula sends to Chester charters far more money than they need or use to educate these students.

Nevertheless, he concluded, Wolf’s overall plan is "wholly inadequate to restore the school district to financial stability." It would not, he said, prevent a more than $20 million deficit from opening up before the end of this school year. He also noted that the district owes $8.7 million to charter operators, which the state did not include in its calculations.

Charters educate more than half the students in Chester, one of the poorest districts in the state. Charter school payments, especially those for special education students, are the major financial drain on the district, the Wolf administration argued. Chester Upland is running at a $22 million structural deficit, and the reduction in charter payments that the governor proposed would have saved about $24 million.

Kenney did approve three smaller measures included in the proposed recovery plan: an independent forensic audit of the school district, the hiring of a financial turnaround specialist, and a loan forgiveness agreement with the Pennsylvania Department of Education.

Kenney also rejected Wolf’s proposal to reduce payments to cyber charters.

In a statement Tuesday evening, Wolf said the judge’s decision would "allow a decades-old problem to persist" and predicted that the district’s financial situation would "worsen."

Wolf’s spokesman Jeff Sheridan said the state would move forward with implementing the approved measures while "evaluating options for further financial reforms."

Michael Churchill, an attorney with the Public Interest Law Center, is not involved in this case, but has been part of past Chester litigation. He said it was significant that Kenney made his ruling "without prejudice," meaning he was inviting the administration to submit a more comprehensive proposal that would not only reduce costs going forward but also deal with the accumulated debt.

Representatives for the district argued that without a drastic change to funding, the school district would not be able to operate for a full school year and might not open on time. The district is under the control of a state receiver due to its financial woes, and it was through these powers that Wolf sought to unilaterally change the charter funding formula.

The special education funding debate

Under the peculiarities of that formula, Chester charters get more than $40,000 per special education student. But at the hearing, witnesses for the state Department of Education said that none of the schools claimed spending more than $25,000 per special-education student in annual self-reports. Wolf proposed to reduce the payment to $16,000, based on what was recommended by a bipartisan legislative commission last year charged with reforming special education funding in the state.

Kenney concluded that the formula allows charter operators to "pocket somewhere between $14,000 and $40,000 per student," and that the legislature "did not mean for its averages to produce such windfalls to the charter school industry in a distressed district." Nevertheless, he said, Wolf’s rescue plan could not depend primarily on reducing the charter operators’ payments.

The debate about how much money charters need to fulfill federal requirements for a "free appropriate public education" for special education students is at the heart of reforms proposed by Wolf and the district’s receiver, Francis Barnes, last week.

At the hearing, charter operators did not offer evidence or testimony on how much they spend for the education of each special education student. Nevertheless, they said that losing the money would hurt their schools.

Paula Silver, chair of the board of trustees at Widener Partnership Charter School, said the state-proposed reduction would mean cutting 10 to 12 teaching positions and "threaten the very existence of the school."

Silver, who could not say how much the school spends per special-education student, said the average cost across all 411 students in her school is about $12,000.

At the current reimbursement rate of $10,600 for students without special needs and $40,000 for special-education students, Widener received an average of $14,534 per student, presuming that there were 55 special-ed students and 356 other pupils, as reported in the state’s school performance profile.

Silver also said the school has a fund balance but could not testify as to the size.

Joseph Baker, vice president of finance and administration at Widener University, testified that the school’s cumulative fund balance is about $1.4 million.

Arguing against limit on cyber-charter tuition

Akosua Watts, CEO and head of school at Chester Charter School for the Arts, also testified that a reduction in special education payments would have "a significantly negative impact."

She brought up the example of an integrated reading program, in which special-ed students take part, that’s "not captured" in the state’s calculation of how much the schools need. Watts also could not say exactly how much the school spends per special-education pupil.

Lawyer James Flandreau asked Watts whether the Chester Charter School for the Arts has a fund balance.

The total fund balance is $3 million, she said. That includes $1.8 million that the school district owes the charter, but cannot pay without money flowing from a state budget. In the second month of the fiscal year, the state still has no budget in place because to a political standoff.

Although Chester Community Charter School — by far the biggest player in this chess game and the largest charter school in the state — did not put forth any witnesses nor did it explain how it spends $40,000 per special education student, CEO David Clark said outside the courtroom that he believed the reimbursement rate is justified.

"We have programs for children that aren’t necessarily on paper," he said.

Early Wednesday, Vahan Gureghian, the founder and CEO of CSMI LLC, which operates Chester Community Charter for profit, said in a statement that he was "pleased" with the ruling and looks forward to working with the Wolf administration on behalf of Chester’s students and families.

Gureghian is a major Republican campaign contributor. He was among the largest donors to former Gov. Tom Corbett, whom Wolf defeated in November.

"As far as we were concerned, the hearings and the public debate were never about charter public schools vs. traditional public schools," the statement said. "In fact, we know that about 40 percent of Chester Community Charter School’s parents also have at least one other child in a traditional public school. This effort was simply about ensuring continued, improving educational and economic access for all of Chester’s students and families."

Lawyer Brian Leinhauser represented several cyber charters that host Chester Upland students. He made a motion to strike another component of the proposed recovery plan, one that would limit the amount of cyber-charter tuition to $5,959. Kenney agreed in his decision that the Department of Education had not sufficiently vetted that figure.

Numbers are not adding up

Churchill, the PILC attorney, said that to negate the recovery plan, lawyers for the charter schools had to show either that the administration’s calculations were "arbitrary and capricious" or that the plan was "wholly incapable" of fixing the district’s financial crisis. They failed at the first but succeeded at the second, he said.

"It’s not arbitrary or capricious to use an amount that’s been recommended by [the bipartisan legislative commission] and apply to the districts themselves," he said.

The intent of the charter funding formula was to pay charters what the districts spend — on average — for their own special education students. But it gets skewed in districts like Chester Upland.

There, district schools have a higher percentage of students with more severe disabilities than the charters, so the district’s average is higher than what the charters need for the students with less expensive disabilities. The payment has gone up from $23,000 to $40,000 since 2012.

According to the state code, school districts calculate per-student costs under an assumption that 16 percent of their students require special education services. In Chester Upland, that number is closer to 24 percent. That also inflates the per-student calculation.

"Chester Upland is not spending $40,000 per student," said Churchill.

Updated with a more current reaction from Michael Churchill.

Additional reporting by Notebook contributing editor Dale Mezzacappa.

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