Pa. charter schools wary of the fine print in Gov. Wolf’s budget

Cautious optimism flutters in the hearts of Pennsylvania educators, but less so among the state’s charter schools.

Gov. Tom Wolf’s first budget proposal showed an intention to invest substantially in public education.

Over four years, Wolf would like to boost the state’s share of preK-12 education spending by $2 billion through a comprehensive set of tax increases, tied to a plan to offer relief from the local tax primarily used to fund education, the real estate levy. In Philadelphia, the tax relief funds would go to cut the wage tax.

Traditional public school districts and charters alike have much to gain if the Democrat can successfully navigate his vision through the capitol’s Republican-held legislative chambers.

Despite their support for the improved funding, charter school leaders have been scratching their heads at some of the fine print.

Under the Wolf plan, beginning with 2014-15 school year, charters would face annual audits and be forced to return any funds beyond their yearly expenditures to the home school district — depriving the charter of its ability to have an emergency fund.

Scott Gordon, CEO of the Mastery Charter system in Philadelphia, gives Wolf “a tremendous amount of credit for taking a courageous stand and stepping out of the box” with his overall funding initiative. But Gordon says eliminating charter fund balances is “problematic, because that creates an incentive for poor financial planning.”

“Charter schools and all public schools need to plan for the future and future unexpected costs,” said Gordon. “At Mastery we have been planning for the cuts that have occurred now, and have had reserves that were meant to tide us through difficult times where our budgets have been slashed.”

Gordon, who oversees 13 charters in Philadelphia, does support the push to ensure that the entire sector undergoes yearly audits “to ensure that public dollars are being spent appropriately.”

Some recent history led the Wolf administration to the idea of the annual charter audits and refunds.  While many school districts, Philadelphia chief among them, limped from austerity budget to austerity budget, slashing classroom resources along the way, charter and cyber charter schools ended last school year with $156 million in unassigned fund balances.

“If they do not spend all of the tuition money they received, which is meant for students, they would have to return it,” said Wolf spokesman Jeffrey Sheridan. “This is fair to both students and taxpayers.”

Wolf’s plan would allow charters to retain their existing reserves, but once depleted, the concept of a charter school hanging on to some contingency cash would be forbidden.

“It’s to ensure that the investments being made to educate those students is going directly into the education of students, and not being set aside or put into unrestricted fund balances wholesale,” said Pedro Rivera, the acting secretary of the Pennsylvania Department of Education.

Special-ed inequities

The Philadelphia School District, overseer and funder of by far the most charter schools in the state, lauded Wolf’s proposal.

Chief financial officer Matt Stanksi links the issue to what he sees as the existing inequities in how charters receive funding for special-education students.

Instead of paying for the actual needs of individual special-ed students in charters, districts are compelled to provide charters the average per pupil amount the district spends on special-ed.

Because districts often serve more students with severe and costly disabilities than charters do — as is the case in Philadelphia — the special-ed rate that charters receive is often inflated.

In general, this atmosphere provides a fiscal incentive for a charter to enroll students who need relatively mild special-ed services.

“If they’re getting paid a certain amount of dollars for students that they’re serving that may not need those dollars, it could be one of the factors as to why there are surpluses in charter annual financial reports,” said Stanski.

Unequal treatment

Wolf’s plan also calls for traditional districts to cap their reserves, barring districts from raising property taxes if fund balances exceed four percent.

An Associated Press study showed that about 420 school districts out of 500 collectively held $1 billion in unassigned reserves above that four percent marker in 2012-13.

Charter school leaders decry Wolf’s plan to treat the two sectors differently.

“Charter schools need to have an adequate reserve, like an 8-12 percent fund reserve, undesignated, unreserved fund balance, which is what we shoot for here,” said Lars Beck, founder and CEO of Scholar Academies, which runs three charters in Philadelphia. “It’s only 30 to 45 days cash on hand, which doesn’t allow for many unexpected contingency issues.”

A bill advanced in the Pennsylvania House by a coalition of mostly Republican representatives calls for charter fund balances to be capped at that 8 to 12 percent range, depending on a charter’s total expenditures. Existing legislation holds traditional school districts to these levels.

Charter school advocates harshly critiqued Wolf’s plan.

“That is tremendously poor fiscal stewardship. It’s in violation of generally accepted accounting practices,” said Robert Fayfich, executive director of Pennsylvania Coalition of Public Charter Schools. “And it’s also inconsistent with what the districts are allowed to do because they’ve retained fund balances in the millions of dollars.”

A theme?

To charter advocates, Wolf’s fund balance proposal is just one of a constellation of changes — both real and proposed — that undermine the sector.

Wolf also proposes reducing cyber charter funding to a flat $5,950 per student, which would drastically undercut the current average rate.

He also urged Philadelphia’s School Reform Commission to deny all 39 new charter applicants in February. After the panel approved five, Wolf demoted chairman Bill Green – replacing him with former district principal Marjorie Neff, the sole commissioner to vote against any expansion.

In Wolf’s hometown of York, chief recovery officer David Meckley resigned late last week. Meckley, who had proposed converting all of York’s public schools to charters, said that Wolf’s “anti-charter position has made it impossible” for him to continue.

“The reforms are not really reforms,” said Fayfich. “They’re methods of undermining the financial viability of charter schools in Pennsylvania and eliminating that option for parents and children.”

Wolf spokesman Sheridan argues that the need for fund balances will diminish as the state ups its financial commitment to public education.

“The best way to ensure stable funding for high-performing charter schools is to have adequate, equitable, and predictable funding for school districts,” he said, “which is exactly what Gov. Wolf has proposed.”

The last time the Philadelphia School District had a positive fund balance without borrowing cash was 2011. Then, the balance was under one percent.