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

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

3. 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

4. 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)

5. 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

6. 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

7. 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

8. 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

9. 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

10. Accounting for state aid and charges – “Cherry Sheets”

11. 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?

12. 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?

13. 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?

14. 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

15. Boston in-district per pupil spending vs charter enrollment

16. 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

17. 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 application cycle

18. 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

19. Questions and Discussion