Question 2: The Big Short of Public Education

“Facts are stubborn things, and whatever be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts or evidence”
– John Adams

For the past year, there’s been much discussion among education journalists about the possibility of a “bubble” in the charter school sector after University of Connecticut Professor Preston Green III and his co-authors published a piece in University of Richmond Law Review, "Are We Heading Toward a Charter School 'Bubble'?: Lessons from the Subprime Mortgage Crisis." 

Professor Green presents some troubling parallels between the subprime mortgage crisis; a lack of government oversight, federal regulators allowing the expansion of a parallel system, multiple authorizers leading to new charter schools without proper screening, and predatory targeting of low income and African American communities. 

Many of Preston Green’s concerns were confirmed in a recent sweeping Federal Audit of charter schools that found:

“The Department’s internal controls were insufficient to mitigate the significant financial, lack of accountability and performance risks that charter school relationships with CMOs (Charter Management Organizations) pose to Department program objectives.”

These same concerns were reflected in the NAACP’s recent passage of a resolution calling for a moratorium on the further expansion charter schools until significant issues of accountability and transparency are addressed.
 

"We are calling for a moratorium on the expansion of the charter schools at least until such time as:
(1) Charter schools are subject to the same transparency and accountability standards as public schools
(2) Public funds are not diverted to charter schools at the expense of the public school system
(3) Charter schools cease expelling students that public schools have a duty to educate and
(4) Cease to perpetuate de facto segregation of the highest performing children from those whose aspirations may be high but whose talents are not yet as obvious.”

As the contentious battle of Ballot Question 2 continues here in Massachusetts, there is one area of concern that we haven’t heard discussed. Many of our most successful charter schools are highly dependent on philanthropic giving to thrive. In this post we’ll explore how MUCH they are dependent on philanthropy and how Question 2 might impact the financial stability of existing and future charter schools.

Let’s start with current philanthropic intake of charter schools. We examined the FY15 revenue for each Commonwealth Charter School and the results are surprising:

• Commonwealth Charters statewide took in over $81 MILLION in Private Grants and Philanthropy.
• Boston Commonwealth Charters took in over $35 MILLION in Private Grants and Philanthropy.
• Boston's Commonwealth Charters were supported by an average 18.3% Private Grants and Philanthropy, and an average of 64.9% Tuition revenue.
• Statewide charters do not do as well with philanthropy; some took in none at all, but the statewide average was 11.2% in Private Grants and Philanthropy and 76.5% Tuition revenue.

The wide variability in the amounts of Private Grants and Philanthropy to charter schools is of particular concern to us; all public schools should be equitably funded and that’s simply not the case. For example, the Sizer School in Fitchburg took in a whopping $6.2 million in private money in FY15, making up 57.3% of their total revenue. Tuition payments made up only 38.3% of their income. On the other end of the spectrum, Collegiate Charter School of Lowell did not report ANY Private Grants or Philanthropic donations in FY15, resulting in tuition payments accounting for 86.6% of their total income. 

View high resolution figure HERE. View all of our collected data from DESE HERE. View raw data from DESE HERE.

We found this wide discrepancy in private funding intriguing and decided to examine the student populations that were being served at the two schools on the opposite ends of the spectrum.

The Sizer School is located in Fitchburg. By state law, charter schools should be recruiting and retaining a demographic similar to the sending district, but Sizer enrolls a much more affluent demographic than the home district.

Fitchburg Public Schools has 53.2% Economically Disadvantaged students, while Sizer Charter enrolls only 28.5%. Additionally, Sizer enrolls lower numbers of ELLs, Students with Disabilities, High Needs, and Hispanics. The Sizer Charter School has 76.6% white students compared to 33.4% white students in the home district. 

Data collected from DESE

How is the Massachusetts charter school that has the LEAST philanthropic support doing with the mission of serving at-risk populations? Pretty well, actually. They're serving higher numbers of African Americans, Hispanics and English Language Learners than the sending district. The Collegiate Charter of Lowell serves 39.1% Economically Disadvantaged students while the home district serves 50.4%.

Data collected from DESE

We examined Boston Commonwealth Charter Schools as a group and also found a tremendous amount of private money, as well as wide variability in the data. Boston Charters benefit from 18.3% private money on average, while statewide the average is 11.2%.

View high resolution figure HERE. View all of our collected data from DESE HERE. View raw data from DESE HERE.

The award for the highest percentage went to Boston Preparatory Charter School, with Private income of nearly $7 MILLION, representing 49.5% of their FY15 revenue, while their tuitions made up only 44.8%. With only 415 students, that’s about $16,794 per pupil in private money.

These staggering numbers and wide variability raised a lot of questions for us:

• In the event of another recession, will our public charters schools succumb to market volatility? Does this reliance on private money add to the possibility of a “charter bubble”?
• If Question 2 passes and we add 12 more charters PER YEAR, will foundations and private donors be able to maintain this level of giving? Where is the ceiling for philanthropic giving in the education sector?
• How can we ensure equity for all children with such wide discrepancies in charter school incomes and per pupil expenditures?
• Is DESE or anyone else monitoring this? Could increased statewide monitoring of funding composition be used to distribute grants more equitably?

Let’s take a look at how our current Education Secretary Jim Peyser described charter sector philanthropic giving back in 2014, when he was still the Managing Director at New Schools Venture Fund, and implementing a 5 year “investment” in Charter Schools in eastern Massachusetts. The quote below comes from a 10 page “pre-reading” for participants in Philanthropy Roundtable’s May 6 Evening Discussion of Boston’s Charter Sector, led by Jim Peyser and Stig Leschly:

Exhibit 7: Growth Costs and Philanthropic Need
The figures below (chart omitted) include the (projected) budgets of five CMOs in the NewSchools Venture Fund Boston charters portfolio.  This includes Edward Brooke, Excel, KIPP, MATCH, and Roxbury Prep.

The average school in this portfolio reaches a breakeven point after 3 years of operation. These CMOs do not achieve breakeven during the 5-year time frame, however, because they are continuing to grow.  If we assume that the Boston CMOs stop growing at 18 schools and that in the aggregate the breakeven in FY2017, the all-in cumulative net operating deficit they incur to create 134 new schools is ~ $18.5m.

Wow! Just in case you missed it, our current Education Secretary told investors that in order for Boston’s CMOs (Charter Management Organizations) to expand they will need an additional $18.5 million in philanthropic giving over 5 years just to break even.

By the way, these same Boston CMOs already took in $26.2 MILLION in contributions from Boston’s philanthropic community in 2014 alone (data compiled from HERE).

Let’s stop and take in a couple of key points that Secretary Peyser’s presentation gives us:

1. When a CMO launches a school or expands, it costs significantly more than the funds it receives from state tuition dollars - a.k.a IT IS MORE EXPENSIVE THAN ITS EXISTING PUBLIC SCHOOL COUNTERPART.
2. Charter schools ARE DEPENDENT UPON PRIVATE FUNDRAISING IN ORDER OPERATE, LET ALONE TO COMPLY WITH MA REGULATIONS CONCERNING THEIR FINANCIAL HEALTH AND STABILITY.

Are you starting to wonder how the passage of Question 2 would increase Charters’ demand for philanthropic funds here in MA? Well, it’s funny that you should ask! According to documents we have recently acquired from KIPP Charter Schools in Massachusetts, the demand would be far more so than even Secretary Peyser’s 2014 calculations would suggest. Below is a figure from KIPPs expansion plan if Question 2 passes. They hope to have a total of 10 schools in Lynn and Boston, with philanthropic needs of $62.1 – $74.8 million. 

How “public” will our schools be if they’ve been established with millions of dollars from private investors? How sustainable is this model of expansion? Please vote NO on Question 2 until we can consider the answers to many of these questions.