Charter School Accounting Change
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FY2010 House 1 Budget Recommendation:
Policy Brief
Deval L. Patrick, Governor
Timothy P. Murray, Lt. Governor
Governor’s Proposal
Charter Schools are a successful innovation encouraged by the Education Reform Act of 1993. As we continue to learn more about the charter school model, our goal is to preserve the innovations and successes, of the experiment while recognizing that some districts struggle with the financing model that is currently in place to fund students who attend charter schools. The Governor’s House 1 budget recommendation implements changes to the current funding structure to address these struggles.
Current Structure
Currently, tuition payments for charter schools are based on the fundamental principle that the student generates Chapter 70 aid for the sending district as part of the formula, therefore, that aid should follow the student to the Charter School. This means that if 20 students, otherwise the responsibility of a district public school, choose to attend a public charter school, the district is responsible for sending a per pupil tuition amount to that charter school, equivalent to what would be spent on that student in the district school system. That amount is based on the Chapter 70 foundation amount that those students would generate were they to stay in the sending district, adjusted by the percentage by which the district chooses to spend above foundation. The tuition amount per pupil in fiscal year 2009 is distributed based on three factors:
- Foundation Budget Base Rate for the Students Attending the Charter from the Sending District
- Above-Foundation Spending Rate (if Sending District spends more than foundation)
- Facilities Fee Tuition Rate (determined by line item language)
This model is consistent with the principle that the funds follow the pupil, but the Administration recognizes that it also can create budgetary challenges for school districts as they adjust to the lower funding level. The district school may not always be able to adjust its budget to adapt to that revenue loss in a swift fashion, especially when the number of students attending the charter school isn’t always large enough to permit reductions in teaching staff and other services (e.g. even though 5 students moved to a Charter School, a classroom, teacher or overhead costs cannot be eliminated). To assist districts in that situation, the Commonwealth developed a reimbursement formula to help districts adjust to the reduced revenue stream over a three-year period by:
- fully reimbursing any enrollment or inflation driven tuition increases in the first year the district incurs them; and
- reducing that amount to 60% and 40% in the second and third year of the loss.
By the fourth year, districts are expected to have adjusted their budgets for the revenue loss, and state reimbursement ends. In addition to this reimbursement, the Commonwealth also fully reimburses the cost of facilities payments that districts send to charters.
While our Administration recognizes that the reimbursement formula is a work-in-progress, and that a more precise means of determining a district’s marginal cost structure would make the reimbursement formula a more precise tool for helping districts meet the transitional challenges of a new charter school, our current fiscal climate does not allow for any new resources to solve local challenges over funding tuition payments to Charter Schools. However, Governor Patrick’s fiscal year 2010 budget makes recommendations to adjust the current Charter School tuition payment structure to alleviate some of the funding challenges found in school districts. These changes will have no impact on Charter School students as the Charter Schools will receive the same level of funding. In addition, districts will still make tuition payments as they did before with two accounting adjustments. In addition, the Administration proposes special rules for approval of Charter School applications by the Board of Elementary and Secondary Education in fiscal year 2010, and establishes a reporting requirement for a Charter School's net asset balance at the end of the fiscal year.
Accounting Adjustment
The fiscal year 2010 budget includes one new line item appropriation in addition to the line item that previously reimbursed districts. In fiscal year 2009, charter school tuition payments and facilities fees that are paid by schools districts are reimbursed by the state under subsections (nn) and (oo) of section 89 of chapter 71 of the General Laws. Under this reimbursement method, districts are sending tuition and facilities fees directly to charters through a reduction of their Chapter 70 aid amounts. The state then reimburses the entire facilities fee (amount determined by line item language in fiscal year 2010), 100% of the new costs over the prior fiscal year, 60% of the costs from the new costs from 2 years ago and 40% of the new costs that occurred 3 years ago. The proposed model included in House 1 will send the facilities payments and 100% of the new costs of Charter School enrollment and inflation directly to the charters. Instead of reimbursing school districts after the payments have been made for the per pupil facilities fee and the 100% of new costs, the state will pay that upfront, which will alleviate some of the uncertainty around enrollment projections that districts face. The diagram below demonstrates the cash flow process included in House 1:
The problem this is intended to correct is caused by charter school enrollment projections that often turn out to be higher than the actual enrollment. While the tuition formula described previously accurately calculates a base rate for tuition driven by the type of students attending the charter and their relative level of educational need, that rate is applied, at the beginning of the fiscal year, to those enrollment projections, and corrected over the course of the year for actual enrollment at the Charter. However, while those corrections ultimately mean that the sending district pays less in tuition than projected because the charter has fewer students, that correction comes at a time in the year when the district can no longer spend the “saved” money effectively. By providing that portion of the reimbursement directly to the charter, the state effectively assumes the risk of high enrollment projections and provides a more stable tuition and reimbursement amount to the district for its fiscal planning. In fiscal year 2010 the Commonwealth will have the responsibility to fund the facilities payments and new costs, which will allow districts to have a more solid base that is not as reliant on enrollment projection fluctuations. This will assist locals as they begin planning local fiscal year budgets.
Special Rules for Approval of New Charter Schools
The Administration is aware of the intense interest among many parents in taking advantage of the educational opportunities and alternative delivery system provided by charter schools, as evident in the waiting lists that exist for entry into so many of these schools. We are respectful of the passionate desire of parents to exercise control over their children’s education and ensure the brightest future possible for the children who are not only their greatest pride, but, collectively, our greatest hope. However, we confront as well the legitimate concern that this model brings with it additional expense, and that expense is harder to justify when the existing delivery system is succeeding, or if the alternative system only serves the students who were already succeeding. In this budget, we accept the challenge of those advocates who ask us to provide more opportunity to those who need it most by increasing the net school spending cap from 9 to 12% in those districts with the lowest performance as measured by math and English MCAS results. However, we also issue our own challenge to those charters that will open as a result of this expanded fiscal flexibility, that they use their creativity and innovation to help us address the achievement gap that is our greatest educational challenge in the coming years. We can’t afford to fund an entire system of new schools if those schools merely “skim” the best students from our existing system and leave district schools with the challenges of reducing the achievement gap.
Outside Section 44 recommends these changes and under this proposal, charter schools are not eligible to apply unless their student population will be comprised of at minimum 80% students who meet the following criteria: low-income, limited English proficient, special education and drop-outs or those determined to be at risk of dropping out. On top of this threshold, the charter school will not be eligible to apply for a charter unless its student enrollment will be comprised of at least 5% more special education or limited English proficient students than the sending district’s special education or limited English proficient student enrollment. Finally, charter applicants under this proposal are required to have a demonstrated record of success serving these types of students. We insist that the new schools to be opened focus their efforts and innovation on the students who are most challenged by our standards based reform, and develop replicable models that show how we can get all our students to achieve at the world class standards that are necessary for them to survive in the world economy, and for us to rebuild our economy from its current challenges.
Financial Data Collection
The fiscal year 2010 budget recommendations also require that the Department of Elementary and Secondary Education adopt regulations creating a reporting requirement for a charter school's net asset balance at the end of the fiscal year. The report is to include information on the sources of funds, whether they are private or public, and the plans that are developed to use those funds. These reports will be used by the Department and the Executive Office of Education and the Administration to highlight the effective uses of funds at Charter schools, and also to learn more about the development of surpluses or deficiencies at Charter Schools. Charter Schools have experienced significant success in their efforts to raise private dollars to supplement public funding. They also frequently operate without the constricting and limiting contractual provisions that too frequently limit district school innovation. These unique characteristics allow Charter Schools to develop financial strategies that better serve the student population. If Charter Schools are doing something that is successful in terms of savings and efficiencies that creates a surplus, our Administration would like to further consider these strategies to see how districts may also be able to develop financial strategies that will provide a better environment for students.
Prepared by the Executive Office for Administration and Finance · Rooms 373 & 272 · State House
For more information contact:
Brian Gosselin (brian.gosselin@state.ma.us)
www.mass.gov/budget/governor
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