Charter School Funding in Massachusetts Policy and Practice Presentation to the Board of Elementary and Secondary Education March 26, 2019

How does the funding system work? 01 How does the funding system work? TOPICS 02 What is the financial impact on sending districts?

How does the funding system work? One of several tuition-based out of district enrollment options Commonwealth charter schools, inter-district school choice, non-resident Chapter 74, inter-district tuition agreements, Commonwealth virtual schools, private special education schools Common elements Students included in home (sending) district’s foundation budget and Chapter 70 aid Home district makes tuition payment to receiving district based on pre-determined tuition rates and the number of students

Charter school tuition rates Basic principle: replicate what the sending district would have spent if charter students were educated in-district Tuition rate established by DESE for each town/school combination Based on foundation budget for those students Additional increment for above foundation spending Applied to actual enrollment (including mid-year adjustments)

Why not school choice rates? Inter-district school choice funding assumes that incoming students are filling empty seats in existing schools and classrooms Marginal cost of educating these students is relatively low For charter schools, tuition is the primary source of revenue Need to cover full cost of all school operations through tuition

Surplus give-backs Achievement Gap Act (St. 2010, c.12) created requirement to identify “surplus funds” held by charter schools and return them to sending districts Calculation rubric established by DESE in consultation with State Auditor; included in required annual audits Charter schools permitted to hold funds for working capital and cash flow needs, contingencies, and planned capital projects

Facility and transportation costs Facility costs Charter schools not eligible for school building assistance grants State pays $893 per pupil in lieu of SBA funding May be supplemented by outside fundraising Transportation costs Host district must provide based on its own policies Regional charter schools eligible for regional transportation reimbursement

Who bears the cost? Basic premise – local taxpayers pay a share of charter tuition, just as they pay a share of costs for in-district students Example: Boston (FY19) Budgeted net school spending $1,174M Chapter 70 aid $ 220M (19%) Charter school tuition: $ 178M State share $ 34M (19%) Local share $144M

Transitional reimbursement Intended as temporary assistance to give districts time to adjust to lower enrollments Current statutory formula: any tuition increase triggers 100% reimbursement in first year, 25% in next five years Not fully funded (FY19 – 80% of year one, nothing for years 2-6) Proposed changes in Governor’s school finance bill Return to three year schedule (100%/60%/40%) Focus on significant enrollment increases, not minor fluctuations and tuition rate increases Increase funding to reach full funding by FY22

Accounting for state aid and charges – “Cherry Sheets”

What is the financial impact on sending districts? How would we define financial impact? What are the challenges in measuring financial impact? How much is too much?

Defining financial impact Level services benchmark Can the district respond to loss of enrollment with offsetting savings? Opportunity cost benchmark What would the district do with a higher funding level?

Considerations in measuring a district’s ability to reduce costs Potential marginal savings depend on how many students leave the district, what grades they were in, and what schools they attended Transportation costs for host districts also depend on where students live and what the district’s busing policies are The greater the enrollment loss, the more opportunities to achieve offsetting savings If there are potential cost savings, is the school committee willing to make the necessary budgetary decisions?

Other enrollment and revenue uncertainties Charter school enrollment patterns Overall district enrollment and chapter 70 trends Current building utilization and possible impact on future capital projects Future municipal appropriation decisions

Boston in-district per pupil spending vs charter enrollment

Research studies Fiscal and Education Spillovers from Charter School Expansion, MIT School Effectiveness & Inequality Initiative (authors Matthew Ridley and Camille Terrier), July 2018 The True Cost of Boston's Charter Schools, Boston Municipal Research Bureau, April 3, 2016 Public Education Funding in Massachusetts: Putting Charter Schools in Context, Massachusetts Taxpayers Foundation, September 28, 2016

How much is too much? Current statutory caps: Most districts: charter tuition cannot exceed 9% of net school spending Achievement Gap Act: cap increased to 18% in lowest performing districts Question 2 did not change the current caps Districts closed to charter expansion in 2018-19 application cycle

How much is too much? In setting statutory caps, Legislature indicates awareness of potential impact on sending districts and gives its answer to the “how much is too much” question Reflects policy decision that any negative impact is outweighed by the benefits of offering more high-quality educational choices to families Reinforced by Legislature’s decision to raise cap in lowest performing districts – which include many of the poorest districts In the charter authorizing process, the Department and Board have consistently over the years refrained from establishing lower caps, either as a general policy or in specific instances: Questionable legal authority given clear statutory language Difficulty in measuring impact Need for adequate school funding, for all schools, is a major focus of this legislative session

Questions and Discussion