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Legislative committee finds that charters cause financial issues for many districts

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

A state Senate and House report found that while almost all school districts in the state have at least one charter school, half of those districts account for over 80 percent of Pennsylvania’s charters, and 40 percent of districts with “significant” charter enrollments are facing financial troubles.

The report, authored by the Legislative Budget and Finance Committee, was based on surveys and interviews with 36 school district superintendents. Four of them identified positive impacts of charter schools within their district, while 29 cited negative impacts.

“The Legislative Budget and Finance Committee study gives the General Assembly an excellent analysis of how charter schools operate vis-à-vis local school districts and where improvements can be made,” said a statement from Sen. James Brewster (D-Allegheny, Westmoreland), who commissioned the report. “The report includes a long list of recommendations that, if adopted, will aid public schools and provide charters with a reasonable path forward.”

The common theme throughout the report’s findings is that the current public education funding system is unsustainable—especially since the elimination of the charter school reimbursement line item within the state budget, along with several other block grants, under Republican Governor Tom Corbett.

“Our charter law needs to be changed significantly with reforms that make sense,” said Sen. Vincent Hughes (D-Philadelphia, Mongtomery), a longtime advocate for reform of the state’s charter law. “Charter schools play a role in our education system and have a place, but they cannot be positioned in such a way that they financially put our traditional public schools in a bind.”

The report found issues with the state’s funding of charter school transportation, special education payments, cyber school payments, and the state’s practice of sending funding to charter schools without first independently verifying what they are owed.

When a district’s payment to its charters is late, the state intercepts—or withholds—the amount of money due to the charter schools from the state funding it would normally send the district, and sends that money directly to the charters instead. However, the report found that the state does not first verify the residence of all charter students or check to make sure the District did not already pay the charter themselves.

However there is an appeals process, with 317 general appeals pending for a total of nearly $30 million in potential overpayments. A 2016 state audit of the District found that between 2012 and 2015 the state Department of Education withheld $15 million from the District for disputes “primarily related to tuition payments in excess of enrollment caps but also included inaccurate invoicing by charter schools, such as double billings or incorrect special education billings.”

The report cited multiple studies finding that expenditures at cyber charter schools exceed the actual costs, and concluded that the schools are collecting more money than they need. Large cyber charters can spread relatively low fixed costs across many students.

“All students get hurt in this situation. When you look at the cyber charter spending… that’s $100 million that could be going to other students whether they’re charter schools or traditional public schools,” Hughes said, referring to one study’s estimate of the amount cyber charters are being overpaid by the state. “That doesn’t make any sense. These are things that need to be fixed.”

Hughes said the report confirms what critics have been saying since the inception of the state’s charter law, and what the state’s auditor general said last year: that Pennsylvania has the “worst charter law in the nation.”

“This is not an attack on charter schools, this is an attempt to try to correct the charter school law which does a disservice to all students,” Hughes said.

The report recommends a flat-rate payment for cyber charters, a recommendation also made by the Task Force on School Cost Reduction in 2007. In 2014 the state auditor general went even further, recommending school districts no longer be responsible for cyber charter payments at all, and that the state should take over that responsibility directly.

It also recommends that the state allow school districts to consider how their own finances would be affected when choosing whether or not to authorize a charter, and to allow districts to negotiate per-pupil payments with their authorized charters.

Now, the charter law determines charter payments through a fixed formula and requires districts to consider a charter’s application on its own merits without factoring in its fiscal impact.

The report calls for more transparency and accountability for charters in regards to “shell” ownership of buildings, lease arrangements, state payments, and conflict of interest policies. It also recommends allowing audits of funds transferred to associated entities and for-profits, prohibiting the guaranteeing of loans where there is no direct school involvement, and requiring charters to submit financial records for the district to review.

Many of the report’s recommendations around transparency and accountability are already part of two pieces of legislation sponsored by Hughes and Brewster.

Hughes’ legislation, Senate Bill 198, would give more oversight to local school boards to better regulate charter schools in their district.

“There are many ideas to incorporate and plenty of work to do to achieve a better charter law,” Hughes said in a statement. “Our local school district and charter schools both need to be treated fairly. We can strike that balance.”

Brewster’s legislation, Senate Bill 670, would redefine how local school districts interact with charter schools; allowing districts to impose limitations on newly authorized charters, among other things.

“The law needs to be changed to include financial reforms, accountability measures and alterations to how the charter school appeal board operates,” Brewster said in a statement. “The recommendations made by the [Legislative Budget and Finance Committee], combined with provisions in my legislation, Senator Hughes’ bill and others would go a long way toward improving how charters interact with local school districts.”

When asked about the chances of the Democrats’ bill getting traction in the Republican-dominated legislature, Hughes said he was “optimistic.” He pointed out that the Committee issuing the report is bipartisan.

House Speaker Mike Turzai is backing a charter reform bill that has already been approved by the lower chamber.

“How can you not consider the financial impact of charter school growth [on a district]? It’s like a kid wanting to eat all the ice cream in the world and thinking they don’t have to worry about getting fat,” Hughes said. “You can’t divorce one issue from the other.”

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