PA Auditor General Jack Wagner Says Flawed Charter School Formulas Costing Taxpayers Millions
Calls for moratorium until General Assembly, Rendell Administration close loopholes
HARRISBURG, Pa., Oct. 5 /PRNewswire-USNewswire/ -- Auditor General Jack Wagner today called for a statewide moratorium on the creation of new charter and cyber charter schools until the General Assembly and the Rendell Administration fix a flawed funding system that bears no connection to the actual cost of educating children and is costing taxpayers hundreds of millions of dollars a year in additional questionable spending.
In a special report issued today, Wagner said the funding problem was accelerating at an unaffordable rate. As more Pennsylvania children enroll in these alternative public schools, the more it costs taxpayers in additional millions of dollars each year. Taxpayers now spend about $1 billion a year on the approximately 73,000 children enrolled in Pennsylvania charter and cyber charter schools.
Wagner said that he voted for charter schools as a state senator and that he supports them as a positive force in education reform. However, he believes that the funding method for charter and cyber charter schools is a bad deal for taxpayers.
"The big problem is that we are trying to finance 21st Century education with 19th Century funding methods," Wagner said. "With Pennsylvania still mired in its greatest economic downturn since the Great Depression, we can't afford to be wasting precious financial resources on schools whose costs have absolutely no basis whatsoever on what is actually needed to educate our children."
Wagner's report is available to the public at www.auditorgen.state.pa.us.
Wagner said that Gov. Rendell, the Department of Education and school districts have the legal authority to impose a moratorium on authorizing new charter and cyber charter schools, and he noted that several states, including Ohio, Delaware and New Hampshire, have imposed moratoriums to address charter-school issues. Wagner said the moratorium would apply to charter and cyber charter schools that have not yet been authorized.
Enacted in 1997, Pennsylvania's charter school law allows for the establishment of independent public schools operated under a charter from a local school board of directors, which operate as public nonprofit, nonsectarian entities. During the 2009-10 school year, there were 124 charter schools and 11 cyber charter schools, which educate children via the Internet and are overseen by the Department of Education.
Wagner's special report found that taxpayers spent $936 million on 116 charter and 11 cyber charter schools with enrollment of 73,054 students during the 2008-09 school year. Wagner's auditors found that, during the 2008-09 school year, the charter and cyber charter schools reported $108 million in excess profits, euphemistically called "reserve funds."
Wagner said that the current charter school funding formulas for non-special and special education students, as codified in state law, resulted in tuition inequities that were unfavorable to both school districts and charter schools. He noted that, based on state law, school districts paid different tuition rates for students attending the same charter school, resulting in some districts partially subsidizing other districts. For example, Propel Charter School – Homestead, located in Allegheny County, received students from more than 10 sending school districts during the 2008-09 school year, but each student paid a different tuition rate. At the high end was Clairton City School District, which paid a non-special education tuition rate of $11,337 per student. Conversely, East Allegheny School District, which was at the low end of the spectrum, paid only $7,201 per special education student.
"This disparity among tuition rates represents an inefficient use of taxpayers' money for both the charter schools and the school districts," Wagner said. "We recommend that the Department of Education provide more active leadership and direction in the debate surrounding how to modify the commonwealth's existing charter school funding mechanisms in order to correct the current funding disparities so that both school districts and charter schools can work in tandem to effectively educate the commonwealth's children."
Moreover, these tuition inequities are never resolved because, unlike school districts, state law does not require charter schools to reconcile tuition payments with actual costs at year-end, nor does the law limit charter school general fund reserves. "Because these inherent financial inequities are never corrected, the current funding system places additional strains on school districts, charter schools and the commonwealth," Wagner said. "Revised funding formulas tied to actual year-end education costs could resolve many of these disparities and foster more viable relationships between school districts and charter schools."
Like the charter school tuition payments, the commonwealth's reimbursements to school districts for up to 41.96 percent of their total charter school costs have no relationship to the charter schools' actual education costs. According to unaudited data from the Department of Education, the commonwealth reimbursed Pennsylvania school districts an aggregate $690,798,326 for tuition payments made by the school districts to charter schools for the 2004-05 through 2008-09 school years. This amount represents a 183-percent increase in the state taxpayer contribution to charter school education in the last five years, and in essence created a premium of $3,122 for each charter school student in 2008-09.
Wagner's report further noted that a review of data provided by the Department of Education revealed that variances in tuition rates are not specific to a particular charter school. In fact, a review of school district tuition rates for the 2009-10 school year found that non-special education tuition rates per student ranged from $6,493 to $16,249 and special education tuition rates per student ranged from $12,333 to $111,033. Wagner said because school district tuition rates are the basis for the charter school funding formulas, the differences in rates create differences in the required charter school tuition payments.
According to Wagner's report, the difference among tuition rates becomes more significant as the number of school districts sending students to the same charter school increases. For instance, the Pennsylvania Virtual Charter School received students from more than 425 school districts in Pennsylvania during the 2008-09 school year, all paying a different tuition rate to the same cyber charter school. Specifically, Grove City Area School District in Mercer County paid $6,753.21 per non-special education student, and Jenkintown School District in Montgomery County paid $15,124.72, an amount more than double the tuition rate paid by other districts like Grove City Area School District for students attending the same cyber charter school and receiving the same education. The report also found that cyber charter schools educate students at a lower cost than brick-and-mortar charters. Consequently, cyber charters could potentially be attaining additional revenue surpluses, while their brick-and-mortar counterparts operate with much smaller margins.
Wagner made 12 total recommendations to the General Assembly, the Governor, the Department of Education, and the affected school districts and charter schools to fix Pennsylvania's flawed charter school funding formulas, including:
- Establish a tuition rate based on the actual cost of educating students, including special education students.
- Require charter schools to perform reconciliations at the end of each school year and to return any overpayments to the school districts, or collect any underpayments from the school districts.
- Specify a limit on carry-over fund balances consistent with traditional public school limits, and require any excess fund balances to be returned to the paying school districts.
- Evaluate the basis for the required state reimbursement and determine its efficiency and appropriateness in the Commonwealth's annual budget.
Wagner said the Department of Education must take an active rather than passive leadership role in charter school oversight and implementing his recommendations, which include:
- Conduct a study of charter school funding in other states and identify other potential funding mechanisms and revenue streams to ensure Pennsylvania taxpayers are not being charged an additional expense for charter school education.
- Strengthen accounting and reporting requirements specific to charter school portions of public education funding so that the public and policy makers can more precisely follow taxpayers dollars.
- Increase publicly available financial data specific to charter schools in an effort to provide the public and policy makers with reliable and accessible data to determine whether taxpayer dollars are being spent for their intended purpose.
Wagner first called on the General Assembly, Gov. Rendell and the Department of Education to work together to standardize the funding system for Pennsylvania's charter schools in June 2007, after audits of three charter schools showed that all three were paid hundreds of thousands of dollars more in funding than their actual costs for educating students.
After the state authorized charter schools, only six schools operated in the 1997-98 school year. As of the 2009-10 school year, 135 charter schools operated in the commonwealth and the number is growing each year, making the inequities greater. This is all the more reason to create better equity in the system for the sake of Pennsylvania taxpayers, Wagner said.
Wagner's report is available to the public at www.auditorgen.state.pa.us.
Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the Commonwealth's elected independent fiscal watchdog, conducting financial audits, performance audits and special investigations. The Department of the Auditor General conducts more than 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department's Web site at www.auditorgen.state.pa.us
SOURCE Pennsylvania Department of the Auditor General
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