Collaborative post by BPS Parents Bob Damon (Research and writing)
and Kristin Johnson (Writing and graphics)
and Kristin Johnson (Writing and graphics)
Here we go again! It’s a new and improved version of the annual 20-year old ritual: Adults engaged in a bitter, often acrimonious ideological battle with each other about “THE BEST” educational model “on behalf” of “OUR” students. And after 20 years of battling it out, what have we created? A “brand new” system that behaves a lot like the old system. It puts a whole ton of money in the hands of adults, and keeps it from going where it really belongs: with the students.
This is the first in a series of posts about the most important (sorry teachers, administrators, and education thought leaders) component of our ongoing debate about lifting the current cap on the number of Charter Schools in Massachusetts: Resources. This entry is about a little known but very important part of how we fund Charter Schools in Massachusetts: Operational Gains.
What are Operational Gains?
Operational gains, also known as an operational surplus, occur when a Commonwealth Charter School, and/or its supporting Foundation, collect revenue that exceeds its expenses. This commonly accepted financial management practice for non-profit organizations is permitted under Massachusetts State Law. According to the law, “Commonwealth charter schools are permitted to retain a reasonable surplus as working capital for the upcoming fiscal year”. It turns out that most, if not all, Commonwealth Charter schools have “operational gains”. And not just every once in a while, they have them every year.
So naturally, this concept started to intrigue us, especially given the stark contrast of the millions of dollars of deficits that continue to plague Boston Public Schools. We decided to dig a little deeper. Had the system been designed this way? Or was something else going on? Here’s just a snapshot of what we found:
- All three State statutes related to operational surpluses (either for non-profits or Charter Schools) provide calculations for permissible single year-over-year surplus. All three also use the term “cumulative,” but provide little or no clarification about whether the term refers to a carryover for a single year or for multiple years.
- A 2009 Independent State Auditor’s Review of Certain Aspects of Charter School Financial Results and Financial Reporting identified operational gains as an important factor for assessing the financial health of Charter Schools. The audit determined that “For charter schools to remain fiscally solvent, sufficient funding needs to be available over and above their annual operating costs in order to properly capitalize their operations.”
- Massachusetts Department of Elementary and Secondary Education (DESE) uses an online Financial Dashboard of standard financial indicators that incorporate factors such as “Change in Net Assets Ratio” to assess the financial health and risks of individual charter schools. Since 2011, DESE has posted annual Excess Surplus Reports, presenting annual amounts as outlined in the statute..
- DESE’s annual reports only include and evaluate operational surpluses for a single year. The Financial Dashboard does provide 5-year cumulative data, but for single schools, not whole systems. Little or no information exists on the cumulative impact of annual operational surplus upon the entire system.
It strikes us as odd that public charter schools in Massachusetts are being more thoroughly evaluated by DESE for their investment risk than they are for their ability to accurately collect student demographics and manage their own waitlists.
While the laws around cumulative operational surpluses sure seem fuzzy, the numbers definitely are not. Let’s take a look.
The Dollars: A Whole Lot of Them!
Before we do, it’s important to remember that the number of Charter School seats has been growing steadily since 2010 thanks to the last Charter cap lift. From FY11 to FY14, the number of charter students in MA increased by 6683, at an average of 6.83% per year. By the end of FY14, just a little over 3% of the state’s students attended Charter Schools. Below are actual operational surpluses made by all Charter Schools and their foundations during that time.
Operational Gains at Commonwealth Charter Schools FY11-FY14*
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*FY11 Marked the start of new reporting regulations for operational gains.
All data is from DESE End of Year Reports located at http://www.doe.mass.edu/charter/finance/revexp/FY15 End of Year Reports have not been released yet. |
Current statutes annually exempt fundraising revenues and significant portions of the operational gains created at the building level. However, the 2009 MA Audit of Charter Schools Financing took a different view of charter school income:
“In conducting our analysis, we combined the revenues and expenses from both the charter schools and their component units due to the significance of component unit’s operational and financial relationship with charter schools. Moreover, since charter schools have access to their component unit’s financial resources, we believe that combining the revenues and expenses of each charter school with those of its component unit provides a true picture of the charter school’s financial health and ability to operate effectively in the future.”
We made some startling discoveries when we began to look more closely at the combined assets of the Commonwealth Charter Schools and their Foundations.
Current Assets
Current assets are items on an organization’s balance sheet that are cash, a cash equivalent, or can be turned into cash within one year. By the end of FY14, Commonwealth Charter schools held over $277 million in current assets. From FY11 to FY14, the collected current assets of Commonwealth Charter Schools increased by $77 million dollars. The assets of their associated Foundations increased by $28 million during that same time. That’s a lot of cash from tuitions (paid with state and local taxes) and fundraising that didn’t get spent on students!
Current Assets at Commonwealth Charter Schools FY11-FY14*
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* Financial Data collected directly from DESE's Charter School Revenue and Expenditure Data webpage
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Net Assets
Net assets are the combined value of an organization’s current assets (cash) and their fixed assets (buildings, hardware, etc). From FY11-FY14, the Net Assets all Commonwealth Charter Schools and their Foundations increased by 13% per year, for a total $138 million. That’s the equivalent $20,614 per new Charter School student. Keep in mind that during this time, the numbers of students increased at an average rate of 6.83% per year; the Commonwealth Charters are able to accumulate assets at nearly twice the rate that they accumulate students.
Net Assets at Commonwealth Charter Schools FY11-FY14*
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*Financial Data collected directly from DESE's Charter School Revenue and Expenditure Data webpage
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The Sense
Shocked by the amounts? So are we! Now what do we do with this information? Well, from our point of view, it leads logically to this question:
Does Massachusetts have the resources to support an expansion of the current Charter financial system?
Our opinion? NO.
From our point of view, it’s pretty clear what Charter Schools and the 3% of Massachusetts students they serve are getting out of the system. But just in case you’re not convinced, we’ll close out this entry with some things for you to consider as you form your own opinion.
Massachusetts Education funding resources are at a tipping point. The existing Chapter 70 Foundation Budget Formula is severely out of date and underfunded. State reimbursement programs for Charter Schools tuition, transportation, and the Special Education Circuit Breaker are underfunded annually.
By design, the current funding system enables Charter Schools (who do not have the same financial obligations as whole school districts) to spend considerably more per pupil at the building level than their Public School counterparts.
The vast majority of cities and towns in the State will be seeing a rise in their property taxes next year, but proposition 2.5 limits our ability to leverage this growth.
We still don’t have information about how much more money was retained by Charter Schools as surplus during this year (FY16) and last year (FY15).
Under the current system, annual and cumulative operational surpluses from State and Local tuitions constitute approximately 75% of the funds retained by Charter Schools to ensure their financial stability.1 The FY11-FY14 data demonstrates that as the current Charter financing system grows, sound financial practices dictate that over time it must pull more and more resources out of the system. 2
Charter Foundation fundraising operations constitute 25% of the funds retained by Charter Schools.1 The FY11-14 DESE Charter School data clearly demonstrates that the long-term financial health of Charter schools is a direct function of their abilities to fundraise, both locally and in the Charter Education marketplace.2 This leaves the existing Charter School financing system vulnerable to market forces far beyond its control.3
Stay tuned for Part 2: We will look more closely at what expense reports can tell us about who and what Charter Schools actually spend their money on.
1. Based on calculations of financial Data collected directly from DESE's Charter School Revenue and Expenditure Data webpage: http://www.doe.mass.edu/charter/finance/revexp/
2. See Charter School “Dashboard” evaluation system used by DESE to rate the financial/operational health of Commonwealth Charter Schools: http://www.doe.mass.edu/charter/finance/dashboard/
3. See The Boston Foundation’s June 2012 report Understanding Boston: Passion and Purpose Revisited – Massachusetts Nonprofits and the the Last Decade’s Rollercoaster http://www.tbf.org/understanding-boston/~/media/TBFOrg/Files/Reports/PP2012Final.pdf
