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PDE handling of charter payment disputes costly to districts, audit finds

The state auditor general says that $30.5 million in contested payments remain unresolved. That includes more than $14 million related to Philadelphia.

Pedro Rivera
Pedro Rivera (Photo: Darryl Murphy)

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

The Pennsylvania Department of Education has no clear or efficient process for handling money disputes between school districts and charter schools, State Auditor General Eugene DePasquale has found. In a strongly critical report, he said that PDE’s system now in place favors charters and could be costing school districts millions of dollars. He urged changes in the charter law. Philadelphia, which has about half the charter schools in the state, is taking the biggest hit in potential overpayments to charter schools – more than $14 million of the state’s total, $30.5 million. The District is running a small fund balance this year, but over the last several years, it has slashed programming and personnel to balance its budget. Under the current system, a charter school bills a district for its students, following a formula that gives one amount for regular education students and another for those in special education. If the charter disputes a district’s payment, PDE automatically pays the charter the contested amount and deducts the sum from the district’s regular state subsidy. Districts have a right to appeal, but the appeals process has been moribund for about five years. The $30.5 million in DePasquale’s report represents money that has accumulated since 2011 without districts having the chance to have their side heard, he said. The auditor general called this system "seriously flawed" and said it favors charters over districts. Some of the disputed amount in Philadelphia arises from the School Reform Commission’s attempt to impose caps on charter school enrollment, an action that charters have successfully opposed in court. But most of the contested money, a District spokesman said, involves schools that have agreed to enrollment caps in their charters. In April, the state Supreme Court ruled that the SRC did not have the authority to limit charter growth, which it had done in an effort to control costs. According to the auditor’s spreadsheet, West Philadelphia Achievement House Charter School, the main plaintiff in the case before the state Supreme Court, is owed more than $2.5 million from the Philadelphia School District, going back to 2012. It could not be learned whether there has been any settlement in that case. Other charters in the auditor’s report have also fought against enrollment caps. District spokesman Kevin Geary said that as far as he knows, except for Achievement House, the other disputed amounts involve charter schools that agreed to enrollment caps and were violating them, as opposed to caps unilaterally imposed by the District, a tactic that was outlawed by the court. Achievement House did not sign a new charter when its old one expired before the years in question because it would not agree to caps.

"I am not aware of any charter payment appeals by the District currently that are not based on the enrollment cap in a signed and executed charter agreement," Geary said. And some of the disputed funds involve charter schools that have closed, so presumably there is no way for the District to recoup the money. For instance, disputed payments to Walter Palmer Leadership & Learning Partners Charter School, which closed in 2014, total more than $1.6 million. DePasquale criticized the charter law because it requires that PDE redirect the disputed funds to charter schools. He also took PDE to task for not conducting hearings, which are permitted in the law, to resolve the disputes.

“What we found in our audit is that essentially all a charter school has to do is claim to PDE that it is owed money, and PDE cuts the charter school a check and withholds the money from the school district’s state subsidy before providing the district a chance to challenge the payment,” DePasquale said in a statement. He added that this doesn’t mean the districts are owed $30.5 million. “Since PDE did not follow up on these appeals we just do not know," the report said. "It is possible that the school districts and the charter schools could have resolved the appeals on their own, but again, because PDE didn’t follow up, we just don’t know.” Jeffrey Sheridan, a spokesman for Gov. Wolf, noted that "at no point did [DePasquale] find that the Department of Education had incorrectly or unlawfully processed any redirection payment." He added that the $30.5 million being challenged "represents 3 percent of the total redirected funding." Wolf announced last week that he was establishing a division within PDE devoted to charter schools, increasing oversight of that sector. Whether that office would directly confront this issue wasn’t clear. Sheridan’s statement reiterated that the governor agrees that the charter law needs to be revised. An effort to do that last spring during negotiations over a new state budget fell short when various factions couldn’t agree on how to fix the law. PDE "has already taken a number of steps to strengthen accountability and oversight with respect to charter schools," Sheridan said. "However, as the report states, these steps are no substitute for urgently-needed statutory reforms." Geary said that the District hadn’t had a hearing on disputed charter payments since 2011. The audit lists 54 separate disputes between the District and many of its charters; he said perhaps five have been settled. “Withholding payments to an individual charter school is not a decision the School District takes lightly," Geary’s statement said. "Unfortunately, since 2011, the PDE has not given the School District of Philadelphia the opportunity of a hearing when a charter school appeals payments withheld by the district. The appeal process should be timely, open, fair, and consistent. It must protect the limited funds of the school district for all Philadelphia public school students as we work to create great schools close to where children live. The current process falls far short of that.”

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