Charter and Cyber Charter School Reform

Charter School Reform Package (House Bills 355, 356, 357, and 358)

With House Bills 355, 356, 357 and 358 in position for a vote in the House, we wanted to comment on charter school reform and call for action on the important issue of charter school funding reform—something not included in this package of bills.
While PASBO recognizes that the 1997 charter law is in need of updating and revisions, as an association made up of members responsible for managing developing and managing school district budgets, our priority remains reforming the charter school tuition calculation to provide some relief in the amount school districts are mandated to pay charter schools each year. We believe that changes in charter school funding must be part of the charter school reform discussion.
We believe the changes in House Bill 355 (Rep. Reese) and House Bill 358 (Rep. Marshall) are beneficial. House Bill 355 will apply current school district requirements in the School Code to charter schools. These requirements include annual independent audits and limitations on unassigned fund balances. House Bill 358 will align dual enrollment agreements for charters and exclude grant revenue that charters receive for dual enrollment programs from the tuition calculations. PASBO supports both bills.
PASBO opposes both House Bill 356 and House Bill 357. House Bill 356 (Rep. Dowling), requires school entities to provide a right of first refusal to charter schools when a school district plans to sell a building and allows charter schools with no limits on enrollment to operate multiple schools within the district that authorized the charter. House Bill 357 (Rep. Topper) generally creates a standard application, modifies the process for a charter or cyber charter school requesting amendments to its charter, allows for enrollment expansion by a charter school via notification to the authorizing school district and clarifies the process for charter school enrollment.
PASBO’s objections to these bills is due to the fact that they impose financial implications for school districts by allowing charter schools to expand without providing any relief for school districts and taxpayers through the funding formula.
We have watched each year as the charter school tuition calculation has benefitted charter schools at the expense of school districts and taxpayers simply due to rising mandated costs for pensions, special education and charter school tuition. These three school district budget cost drivers are built into the charter school tuition calculation, and in addition to charter school enrollment growth, ratchet the tuition rate up each year.

Growth in Charter School Tuition Costs

The total amount that school districts paid to charter and cyber charter schools has nearly tripled since 2007-08, and in 2017-18, school districts paid $1.8 billion in charter school tuition costs, representing nearly 7% of total school district operating costs.
This $1.8 billion in charter school tuition costs grew by nearly $170 million from 2016-17, more than a 10% increase from one year to the next.
The result of this massive cost growth and the impact of failing to revise the underlying charter school tuition calculation to curb it, is that school districts continue to struggle to cover this growth each year. In fact, the $170 million increase in total charter school tuition for 2017-18 meant that $0.37 of every $1.00 in additional property tax revenue collected last year went to pay charter schools.

Overall, the $1.8 billion in total charter school tuition costs for 2017-18 represented nearly 14% of the total property tax revenue collected. The map below shows, for each school district, both the percentage of charter school tuition costs to total property tax revenue collected for 2017-18 and how much of every $1.00 in local property tax revenue is going to charter schools in each school district.

Further, while the median increase in charter school tuition costs was about 7.8% for the median school district last year, the median adjusted Act 1 index was only 3.3%, illustrating just how financially challenging it is for school districts to cover these rising costs.

To put charter school tuition costs and increases in the context of state basic education funding, charter school tuition increases over the past five years wiped out all of the state basic education funding increases in nearly 20% of school districts. For these school districts alone, charter school tuition increases totaled $394 million over five years, eclipsing their basic education funding increases by more than $135 million.
Additionally, almost 10% of school districts sent at least $0.50 of every dollar of their basic education funding increases and property tax increases over the past 5 years directly to charter schools.
PASBO has consistently advocated for charter school funding reform and specific changes to the charter school tuition calculation to both provide relief to school districts from these increasing mandated costs and to ensure that the calculation is fair for school districts, charter schools and taxpayers alike.
The amount of tuition a school district must pay a charter or cyber charter school each year is dependent on a formula defined in the charter school law. Based on this law, each school district must pay a unique charter school tuition rate for each regular and special education student enrolled in a charter school. Therefore, each charter school collects a different tuition rate for students based on the sending school district.
Based on this calculation, in 2017-18, regular education charter school tuition across school districts ranged from $7,600 to $18,500 per student, and special education tuition ranged from $15,100 to $48,000 per student. None of these rates corresponds to a charter or cyber charter school’s actual costs to educate a student.
As PASBO has examined the financial implications of all aspects of the charter school tuition calculation, there are many ways to provide relief to school districts and taxpayers, move towards a tuition calculation that takes into account a charter school’s actual costs or simply slow the growth in the charter school tuition rate from year to year. Unfortunately, charter school funding reform is missing from this discussion.
There is no more egregious flaw in the charter school tuition calculation formula than the mandated assumption that each school district has a 16% special education population. In 2017-18, the median special education population was nearly 20%. As a result of the law’s use of an outdated and inaccurate number, many school districts overpay charter schools for each special education student. Any school district with a special education population greater than 16% is paying more than they should. This is a blatant and inarguable flaw in the charter school tuition calculation, and it can be easily updated to reflect the actual data for every school district. The result would mean that many school districts would pay less per student in their charter school special education tuition rate; some school districts would pay more.
Additionally, as we discussed in our recently released PASBO/PASA School District Budget Report, mandated cost growth and limitations in the ability to raise local revenue is requiring school districts to continue to cut programs and personnel. While Act 1 limits school district ability to raise local revenue to cover rising mandated costs, charter schools have no such limit that regulates expenditures, and they benefit directly from the mandated cost growth in special education, pensions and charter school tuition that plagues school districts. To provide further parity between school districts and charter schools, limiting the growth in a school district’s charter school tuition rate each year to the district’s adjusted Act 1 index would allow an annual increase in the charter school tuition rate but would limit that growth to the extent to which a school district could raise additional revenue.
In addition to these two common sense and practical changes to the charter school tuition calculation, there are many others. All of which are missing from this important charter school reform discussion.
As an association that represents school leaders responsible for the finances of school districts across the commonwealth, we know that charter school funding must be at the center of all charter school reform discussions. We know there is certainly a better way to fund charter schools—a way that will work for school districts, taxpayers and charter schools—and there are many options for getting there.
PASBO’s priority will remain revision of the charter school tuition calculation, and we will continue to work to include meaningful funding reform in this important conversation. Until then, we cannot support efforts that make the problem worse. 

Thank you for your time and attention.