School Funding Series | How Charter Tuition Rates Destabilized District Budgets in Pennsylvania by Frank Ayata

Following a lawsuit filed against the Pennsylvania Department of Education (PDE) about its guidelines for charter school tuition rates, PDE has decided to rescind the said guidelines during the 2018 school year. This sudden change in policy created a chaotic environment in charter school funding and has had a fiscal impact on school district and charter school budgets. In this analysis, I investigate variations in charter school tuition rates for all school districts that made payments to charter schools for nonspecial and special education as a result of this policy change. The change in policy produced an increase in charter tuition rates across the board. However, Philadelphia and Pittsburgh public schools suffered the most noticeable negative financial impact. The estimated fiscal impact for all districts due to the re-calculation of tuition rates totals $94,686,433 of which $66,003,300 was for nonspecial education tuition and $28,683,133 for special education tuition in 2018-2019.

Charter School Funding in Pennsylvania

The charter school movement has been subject to significant criticism for diverting funding from traditional public schools (Arsen & Ni, 2012; Bifulco & Reback, 2014; Ladd & Singleton, 2018; Ravitch, 2016). Relatedly, charter school funding has been a critical policy issue in Pennsylvania since the passage of the state’s charter school law in 1997. In recent years, charter school funding has become a major point of political contention in the legislature. Virtually everyone in the halls of the state legislature and the educational leaders in the field believes that Pennsylvania needs comprehensive charter school reform, yet no bill has made its way to the Governor’s desk (Hanna, 2020; Meyers, 2020).

Recently, Governor Tom Wolf presented a proposal for charter school funding reform. The proposal may be far from addressing the negative fiscal impact of charter tuition issues.  Instead, it is widely criticized for creating an incentive for not paying charter tuitions the proposal focused mostly on changing the cyber charter school funding. The proposal lacked a defined pathway forward for comprehensive reform that would create more accountability for charter schools and a more equitable distribution of resources among school districts and charter schools. Therefore, immediate pushback from stakeholders, particularly from charter schools have emerged. This pushback, coupled with the political reality of a move that addresses only a part of many issues, clouded the chance of the proposal being passed and implemented.

Though most policymakers and school leaders in the education field agree that the Pennsylvania charter school law needs an overhaul, there is a profound division about the specific ways the law should be reformed.

An analysis of charter school funding in Pennsylvania may shed light on the need for comprehensive reform and the reasons for political pushback against the Governor’s recent proposal. In Pennsylvania, schools are funded through a combination of federal, state, and local sources. The majority of school funding in Pennsylvania is derived from local school district taxes. The enrollment of charter schools has been rising since the early 2000s. As of 2019, there are 500 school districts, 155 brick and mortar charter schools, ten regional charter schools, and 15 cyber charter schools in Pennsylvania. School districts are the authorizing institutions of charter schools. Brick and mortar charter schools are approved to operate by the approval and authorization of school districts where the charter school is located. Cyber charter school operations are authorized by the Pennsylvania Department of Education. The funding of charter schools is based primarily on their enrollment numbers. Local school districts make payments to charter schools for each resident student that enrolls in a charter school. The payment amount for each student is determined by a statutory funding formula for nonspecial education and special education students separately.

The Pennsylvania Department of Education (PDE) prepared and issued a guideline for charter schools funding in 2012. The guidelines were intended to interpret the charter school funding requirements of the law with a verifiable process to calculate school district rates. The charter school law directs the districts to use average daily membership (ADM) and school district budget figures to calculate each district’s tuition rate. However, following various discussions with district officials and charter school leaders, PDE acknowledged that ADM figures are not readily available at the start of a school year, which may cause a reliability and predictability issues for the funding stream. PDE settled on using school district’s annual financial report (AFR) data to calculate each school district’s final charter school funding rates. The change from budget figures to AFR figures created a simplified way of calculating tuition. But the expenditures used in the AFR are actual data for the preceding year, though budget figures are estimates for the subsequent year. Therefore, there is a monetary difference between the two choices, which will become the epicenter of a significant issue in 2018. PDE guidelines have been in use since then, and they were successful in reducing the number of financial disputes between school districts and charter schools about the accuracy of the rates.

The existing tension between school districts and charter schools was fueled by the decision to rescind the guidelines for calculating charter school tuition rates. In 2017, a group of charter schools in the Philadelphia area filed a petition for review in the Commonwealth Court challenging the legal aspects of these guidelines. These charter schools stated that PDE guidelines were inconsistent with the Pennsylvania charter school law. The petition demanded that the guidelines use the school district budget to calculate charter school tuition rates instead of AFR data.

Based on the initial hearing in 2018, the court made it clear that the guidelines are indeed inconsistent with the charter school law. Accordingly, PDE rescinded the July 2012 guidelines immediately. PDE advised that they would stop receiving, calculating, or posting charter school tuition rates on their website. They instructed each school district to calculate its charter school funding rates and make that information available to charter schools. PDE advised that any disputes concerning the tuition rates between a school district and a charter school were to be resolved between the two institutions (Pennsylvania Department of Education, 2020).

After PDE decided to rescind the guidelines, the districts had to recalculate their charter tuition rates based on school district budgets and the most recently available ADM data. The new calculations generally created a higher tuition rate across school districts compared to the original guideline calculations. The reason for this increase is because expenditures used in AFR data are actual data for the preceding year. In the charter school law, expenditures are not based on actual spending from the previous year but projections for the next year. The budgeted expenditures are not necessarily how much the district will actually spend. Therefore, charter school funding increases if school budget data is used in the timeframe of this study. Besides the change from AFR data to the district budget, there were other disputes about the exclusion of federal dollars in the expenditures.

As a result of this calculation dispute, inconsistent and potentially unfair tuition amounts emerged among school districts and charter schools. For example, a school district sending students to multiple charter schools could end up with a different per-pupil amount for each charter school.  Similarly, charter schools could end up getting paid at different per-pupil amounts from different sending districts. This new environment of chaos has the potential to open doors to further disagreements. In fact, school districts and charter schools experienced a spike in the number of disputes about the interpretation of the law to calculate the tuition rates. For example, Rodgers (2020) reported that the tension between Coatesville Area School District and two charter schools (Avon Grove Charter School and Collegium Charter School) has recently “flared up even more” funding disputes tied to tuition calculation problem.

Some school districts have chosen to proceed with mediation, while others proceeded through the administrative processes to resolve the tuition payment rate issues. This new and abrupt change in the calculation of charter school tuition rates has created strains on school district budgets. Time and energy have been lost in the process, yet the budgetary impact is unknown.

The average yearly increase in charter school tuition rates from 2014 through 2018 is 4.95% for nonspecial education rate, and 5.76% for special education rate. By holding enrollment counts constant in 2018, the rate increase comes to 10.10% and 11.03% for nonspecial education and special education rates, respectively. As shown in Table 1, the estimated impacts due to the change in the calculation method to charter school tuition costs are 5.16% and 5.27% for nonspecial education and special education rates, respectively.

Table 1

Estimated Financial Impact

Type of Tuition Rate	Average Increase 2014 through 2018	Average increase from 2018 to 2019	Estimated Impact
Non-Special Education	4.94%	10.10%	5.16%
Special Education	5.76%	11.03%	5.27%

Interestingly, based on the estimation, Philadelphia City School District had the highest budgetary impact with $31,475,214 in nonspecial education increase. Charter schools in Pennsylvania are mostly concentrated in the greater Philadelphia area. The charter schools that sued PDE for the inconsistency of the charter school law are located in the Philadelphia area. This picture may explain the idea behind the litigation effort. Pittsburgh SD ($3,364,754), Allentown City SD ($1,874,467), and Chester-Upland SD ($1,652,025) followed the list with highest impacts.

A similar scenario is depicted with special education costs as well. Philadelphia City SD had the highest impact at $12,665,746. Chester-Upland SD ($1,194,382), Allentown City SD ($604,285), and Erie City SD ($457,206) followed the list with the highest impacts in special education tuition rates. Adjusting these costs per ADM may provide another perspective. For example, in 2017, Chester Upland SD paid highest charter school tuition expenses per ADM with $7,544 (nonspecial education and special education payments combined). Followed by Wilkinsburg Borough SD with $6,081 and Duquesne City SD $3,975. Philadelphia City SD was the 6^th highest in the rank with $3,826. In 2018, Chester Upland SD and Wilkinsburg Borough SD were still in the highest payment per ADM ($7,971, and $6,122, respectively). However, Philadelphia City SD were up in the third highest with $4,188.

The analysis shows that Philadelphia City SD bears approximately half of the overall tuition cost increase with $ 44,140,959 in total estimated budgetary impact. Philadelphia School District is an urban district where concentrated poverty is a chronic issue, with most of the students being students of color. Additionally, 87 of the 155 brick & mortar charter schools are located in the Philadelphia School District. The district budget sustained more considerable damage through this sudden and unexpected financial impact. Other districts throughout the state also endured the rising cost of the tuition rates in order to comply with the law. In aggregate, the estimated fiscal impact in 2018-19 for all districts that made payments to charter schools due to the re-calculation of tuition rates is $94,686,433, in which $66,003,300 for nonspecial education and $28,683,133 for special education cost.

The analysis reveals possible fiscal motives that may be behind the litigation process that was initiated by these charter schools. The fiscal difference between the calculation method of the guidelines and the charter school law was analyzed pragmatically to their advantage. Though their actions are legitimate and legal, they exposed deficiencies in the law. While school district and charter school officials recognize that PDE guidelines present a more precise means to calculate the tuition rates, the proper way to implement the guidelines is through legislative amendments to the antiquated charter school law. Though most policymakers and school leaders in the education field agree that the Pennsylvania charter school law needs an overhaul, there is a profound division about the specific ways the law should be reformed. The added tension between the education factions, namely school districts and charter schools, exacerbated the potential for comprehensive and cohesive reform of the charter school law. Governor Tom Wolf’s recent proposal to reform charter school funding seems like a step toward this effort. However, his proposal lacked stakeholder involvement and primarily centered around cyber charter school funding instead of addressing the overall budgetary issues across the board that all schools are experiencing. Consequently, the Governor’s proposal created considerable push back. Moving forward, the chance of success of his proposal seems slim to none.

This analysis demonstrates the significance of the impact of the current tuition calculation issue on school district budgets. The results show fiscal disruptions to school district budgets due to sudden changes in charter tuition calculation, exposing ambiguities in the law. This analysis suggests that comprehensive charter school reform through legislative channels is needed in order to distribute school funding to the students consistently, predictably, and fairly.

F. Frank Ayata is a Ph.D. student in the Educational Leadership program at Penn State University. He holds a M.S. in School Business Leadership from Wilkes University. His research interests include racial inequality in school funding, charter school funding, and the economics of education. He also serves as a business manager for a local school in State College, PA since 2007.

References

Arsen, D., & Ni, Y. (2012). The effects of charter school competition on school district resource allocation. Educational Administration Quarterly, 48(1), 3–38.

Bifulco, R., & Reback, R. (2014). Fiscal impacts of charter schools: Lessons from New York. Education Finance and Policy, 9(1), 86–107. https://doi.org/10.1162/EDFP_a_00121

Hanna, M. (2020, January 27). Pa. superintendents join to demand charter school reform ahead of Wolf’s budget proposal. The Philadelphia Inquirer.

Ladd, H. F., & Singleton, J. D. (2018). The Fiscal Externalities of Charter Schools: Evidence from North Carolina. Education Finance and Policy, 1–18. https://doi.org/10.1162/edfp_a_00272

Meyers, A. (2020, February 24). Pennsylvania needs a better charter rule, plus school choice support from Governor Wolf | Opinion. The Philadelphia Inquirer. Retrieved from https://www.inquirer.com/opinion/commentary/pennsylvania-charter-schools-tom-wolf-budget-20200224.html

Pennsylvania Department of Education. (2020). Charter Schools. Retrieved from https://www.education.pa.gov/K-12/Charter Schools/Pages/default.aspx

Ravitch, D. (2016). The death and life of the great American school system: How testing and choice are undermining education. Basic Books.

Rodgers, L. (2020, January 16). CASD, charter schools spar in funding dispute.