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.

What IS and ISN'T in the Text of Ballot Question 2?

Here’s how Question 2 will appear on the ballot and here's how it appears in the Massachusetts Information for Voters:

“QUESTION 2. Charter school expansion. The question, if approved, would let state education officials approve up to 12 new charter schools a year.”

The state education officials referenced in the question are the members of the Board of Elementary and Secondary Education (BESE), who have the power to approve or withdraw a charter school application under Massachusetts General Law, Chapter 71, Section 89. There has been much discussion about the Board’s role after we reported that Paul Sagan, the Chair of BESE, gave $100,000 to a fundraising committee supporting Yes On 2’s efforts.

As mentioned previously on this blog, we are firmly NO on Question 2 and explained our reasons in our last post. But let’s break down what is actually IN the Initiative Petition (linked here and pasted below) that would become part of Massachusetts State Law if passed on November 8th.

What’s IN ballot Question Number 2:

• The board may authorize up to 12 new charters or charter school expansions per year (or a combination of the two).
• These new authorizations cannot exceed 1% of the total enrollment of the student population in Massachusetts, which was 953,429 in 2016, so new charter authorizations cannot exceed more than ~9,530 seats per year. Obviously this number will go up with population growth.
• If the board receives more than 12 applications, BESE will “give priority to proposed charter schools or enrollment expansions in districts where student performance on statewide assessments is in the bottom 25% of all districts in the previous two years and where demonstrated parent demand for additional public school options is greatest.” A mystery to us: What method would BESE use to determine parent demand?
• The approved new charter schools must comply with the student recruitment and retention policies already in place and will be subject to annual performance reviews by BESE. 

What ISN’T in Ballot Question Number 2:

• There isn’t one word in Question 2 about how 12 new public schools will be funded. I’ll use my own shoe collection here as a metaphor: If I add 12 new shoes to my already full shoe rack each year, they will (a) cost me money and (b) I will have to toss out 12 pairs of shoes to put all my shoes away. If Question 2 passes, existing public schools in your town and mine will lose money and may have to close.
• There is no mechanism to stop the expansion of charter schools. This ballot question will remove from State Law the language that caps charter schools at 18% of a district’s total spending. We’ve written about how profitable charter schools can be, so the initial interest by investors will be high. But the unchecked proliferation of charter schools will weaken ALL schools, because the amount of money available and the number of students is finite. 
• Charter schools will be able to open anywhere in Massachusetts. Anywhere. While the ballot question states the Board will give preference to charter applications in lower performing districts if there’s more than 12 applications, there is absolutely no language stopping charter schools from opening in any city or any town in Massachusetts. As we mentioned in our last post, charter school applications are NOT subject to the approval of your local school committee or your local government.
• While we’re relieved that new charter schools would be subject to the existing recruitment and retention policies that were included in the 2010 Act Relative to the Achievement Gap, we've written how the Department of Secondary and Elementary education is not only not enforcing these policies, but has modified the metrics of measure to lower the standards for charter schools. 

Please vote NO on Question 2 and ask your friends, family and neighbors to do the same.

Link to file on mass.gov

Vote NO on Ballot Question Number 2

Public school parents know the Back to School drill: In the piles of paperwork that tumble from our children’s backpacks during the first weeks of school, we’ll find a list of all the basic classroom supplies that our teachers need to do their job. Families with enough extra money will buy paper, markers, soap, hand sanitizer, tissues, and deliver them along with our kids in the first weeks of school. Many of us will be asked to do this again and again throughout the school year.

There’s a question on the November ballot this year that could make public school funding shortfalls even worse. Ballot question number 2, if approved by voters, would allow up to 12 new charter schools every year without any additional funding attached to them. Just as the world has been blind-sided with the far reaching implications in the wake of the Brexit vote, the passage of the charter school ballot question will have a far-reaching financial impact on all K-12 education sectors and municipal budgets alike.

There are a number of reasons why a NO vote on Question 2 is the right choice, even if you are in favor of charter schools. We’ll explain briefly first for those short on time:

• Ballot Question Number 2 would bring more charter schools to Massachusetts, but NOT more students and NOT more funding.
• The Commonwealth’s funding structure for charter schools is broken; the expansion of charter schools defunds traditional public schools of critically needed state education aid.
• Over 200 Massachusetts School Committees, Mayor Walsh, the Massachusetts Democratic Party, The Massachusetts Municipal Association, 8 City Councils and the NAACP oppose Question 2 due to problems with funding and the negative impact the additional charter schools would have on existing public schools and municipal budgets.
• Charter schools open (and close) without the approval of the local government or the local school committee.
• Charter schools use public money, but are privately operated.

Sold on voting NO on Question 2? Stop reading here and thank you so much for voting NO (and asking your friends to do the same). Skeptical? We love geeking out about public school funding and we’ll happily explain.

Ballot Question Number 2 would bring more charter schools to Massachusetts, but NOT more students and NOT more money

When a new charter school opens, students from nearby traditional public schools (and parochial schools, or even other charter schools) may leave to attend the new school. Despite a decrease in enrollment, the cost of running a school does not go down. In some cases the district’s cost may go up, because according to State Law, the sending public school district must pay for the charter school’s transportation. Traditional public school districts are structured to educate students; they are not designed to constantly contract and expand to accommodate the flow of students to charter schools (and sometimes back again).

View high resolution file

Ballot Question Number 2 will add 12 more charter schools per year in Massachusetts with no endpoint in sight and no funding source. This unchecked proliferation will no doubt lead to public school closures and threatens to end public education as we know it in Massachusetts, even though we already have the best public schools in the country. If charter schools are able to expand at this accelerated rate, our existing under-resourced (and sometimes under-performing) public schools will get worse, not better. 

The Commonwealth’s funding structure for charter schools is broken

Under the current funding structure, the sending district pays the tuition cost for the charter school using the state education aid earmarked for the entire district. When charter school proponents say the money follows the student, it doesn’t exactly tell the whole story. Because charter school tuition assessments are paid FIRST, a relatively small number of students receive the bulk of the state aid allocated to the whole district. There’s a reimbursement formula to help off-set the financial impact of a student leaving for a charter school, but it’s never fully funded by the state legislature. Here's how that scenario played out in Boston last year:

High resolution file

It’s in part due to this imbalanced funding structure that a bill to raise the charter school cap failed in the Massachusetts State Senate in 2014. In 2016, an education bill passed in the Senate that would have tied a cap increase to an additional ~$1 billion in education spending, but the House failed to take up the bill before the legislative session ended in July.

Citing issues with the funding mechanism, Boston's Mayor Marty Walsh reiterated his opposition to the ballot question (31 minute mark) on Boston Public Radio in July. It’s worth noting that Mayor Walsh was a co-founder of the Neighborhood House Charter School and is a fervent charter school supporter. 

Over 200* Massachusetts School Committees, many elected officials, and the NAACP are opposed to Ballot Question 2

No school committee in Massachusetts has come out in support of question 2. In fact, over 200 school committees, 8 city councils, the Massachusetts Municipal Association, the Massachusetts Democratic Party, and the NAACP have passed resolutions denouncing the ballot question because of the issues discussed above. On the national level, Black Lives Matter has joined the NAACP in asking for a moratorium on charter school expansion. 
*EDIT: As of October 27th, 202 school committees have passed No On 2 resolutions.

Charter schools open (and close) without the approval of the local government or the local school committee
Prospective charter schools submit applications to open a new school to the Massachusetts State Board of Elementary and Secondary Education (BESE). Approval is given by BESE without the consent of the local government or school committee.

In February 2016, the state approved a new charter school in Brockton, despite opposition from the Brockton Public School Superintendent, the Brockton School Committee, the Brockton City Council and Mayor. After the construction of the New Heights Charter School of Brockton stalled, the school was forced to relocate 22 miles from their intended location just days before the school year started, forcing families to scramble and some to withdraw.

In January 2013, the state abruptly closed the Gloucester Community Arts Charter School and 110 students were forced to find new placements in the middle of the school year. In a post-mortem audit of the Gloucester Community Arts Academy, Auditor Bump wrote:

“The ripple effects of this school’s closing were widely felt by its students, their families, their teachers, and administrators, as well as the students, teachers, and administrators of the schools that had to absorb the displaced students mid-year. What makes this especially troubling is that it was preventable. I hope the lessons learned here will be appropriately incorporated into management and oversight practices to ensure a solid foundation for learning and to make this the last mid-year closing of a charter school.”

Better results, or apples to oranges?
Charter school proponents boast that their students are performing better on standardized tests, but they are often enrolling and/or retaining students with less complex academic challenges. In Boston, the student population of the Boston Public Schools district is composed of 30% English Language Learners and 20% Students with Disabilities, while the charter schools in Boston are composed of 13% English Language Learners and 17% Students with Disabilities. As the number of charter schools expands and the number of district schools decreases, are charters prepared to educate children with more complex needs?

A recent study of Texas charter schools by Harvard and Princeton researchers yielded a surprising result. Though charter school students may perform better on standardized tests while in school, that did not result in increased income or better jobs for the graduates. It begs the question: Are charter schools simply teaching to a test?

Public money, private governance

Charter school advocates have long argued that charter schools are public schools. They are correct in that they operate with public money, but their governing boards (and their profits) are largely in the realm of the private sector. A 2016 report on Massachusetts charter schools by the Annenberg Institute of School Reform found that approximately a third of the seats on charter schools’ boards of trustees are held by members of the financial sector. Parents of charter school students make up only 14% of charter school trustees statewide, and 60% of the Massachusetts charter schools have NO parent representatives on their boards, even though state law mandates that 50% of the board should be parents.

In August, the National Labor Relations Board decided in two cases related to unionization that charter schools are private corporations and not public schools. The decisions were specific to New York and Pennsylvania, but it will be interesting to see if related cases arise as more charter school teachers attempt to unionize.

In 2015, the Washington State Supreme Court overturned a voter approved charter school referendum that passed in 2004 on the grounds that “money that is dedicated to common schools is unconstitutionally diverted to charter schools.” Massachusetts has a similar clause related to funding in our state constitution, but a lawsuit has never been filed on this specific issue. 

Please:

Join us in opposing Ballot Question Number 2
Ask your friends, family and neighbors to vote NO on question 2
Share this widely with your networks until the election on November, 8th 2016

Too serious for you? We’ll leave you with this!

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UPDATE: Over the past week, we've received some great follow-up questions about state education aid in the context of the BPS budget. We include 2 new supplemental figures below to help answer these questions. Both include information on the source data for the figures. Thank you to everyone for sharing and asking great follow-up questions. It's also worth mentioning that in addition to losing $120 million in state aid to charters this year, BPS also spent $15 million in charter school transportation.

High resolution file

High resolution file