Don’t Blame Charter Schools for Philadelphia’s Money Problems

Joseph Dworetzky, a board member on Philadelphia’s “School Reform Commission” (which took over financial management of the district in 2001), put out a 13-point observation yesterday in response to a recent article on the financial woes encountering Philadelphia public schools. We looked at his response, point by point, and we have an observation of our own.

The original question: How did the school district get into such a financial mess?

Well, how does any district corner themselves with a $305 million budget gap? The short answer is that it happens on a slippery slope over a long period of time, and to be fair, a lot was done in a short span of time by the new leadership to fix glaring problems. In 2011, the gap was as high as $629 million, but massive budget cuts seemed to work like a charm. Unfortunately, in 2012 the district borrowed $300 million just to meet its now trimmed budget, mainly because almost half the staff they laid off in 2011 were brought back in 2012.

Pennsylvania’s Governor, Tom Corbett, who has balked on charter schools before, has offered relief money to the beleaguered district, and the budget gap for 2013-14 is technically gone…but the district has already restored $83 million dollars of the cuts it took to re-balance, so we’re looking at a repeat of 2012 all over again if Philly isn’t careful.

Dworetzky’s take on this: Blame charter schools for the financial problems in Philadelphia.

Now, Dworetzky was questioned about his anti-Charter stance before he even took office, so it stands to reason he’d lump charter schools into whatever mess Philadelphia has gotten itself into. We could talk all day about the irrationality of blaming charter schools for any budget-related problems, especially when just about every district in the country is holding a smoking gun. Today, we’ll just focus on his point surrounding enrollment caps in Philadelphia.

He seems to think that capping charter enrollment will help solve the budget gap in Philadelphia. He points out that when a child leaves a district school to join a charter school, the FTE dollars follow that child and the district school gets no more FTE funding for that student. On this point, he is absolutely correct.

However, he further asserts that the district school is not able to cut “fixed costs” fast enough to account for that loss in revenue, so although the operating costs should be dropping to meet decreasing enrollment, the district is essentially paying for the same student twice: once for the student at the charter school, and again for the costs the student left behind, which have yet to completely disappear. This, he maintains, is a huge reason for the financial deficit in Philly.

Dworetzky postulated a list of solutions:

“There are several theoretical ways to manage or mitigate the costs associated with the growth in charter school enrollment. The most obvious is to find a way to quickly reduce the District’s “fixed costs” to take account of the loss of students. Another is to manage the growth of charter schools by limiting their enrollment. A third is to close low-performing charter schools. A fourth is to change the way that charters enroll additional students from the current process to the “Renaissance” process in which high-performing charters take over low-performing District schools, and in that process, take over all the costs for the school facility.”

Options #1 and #4 make the most sense. It’s the district’s responsibility to cut costs when and where they can, and it’s not anyone’s fault but their own if the bureaucracy they have in place slows the process. As for the fourth option, although takeover schools don’t have the best track record yet, having a high-performing charter operator absorb a low-performing charter school is better than abruptly closing it. Option #3 is certainly a priority, as we should always focus on academic results regardless of financial concerns, but closing a charter school in Philadelphia is actually harder than letting a larger operator absorb it.

However, option #2 is misleading in its cost-cutting methodology. Dworetzky seems to think that capping charter enrollment will slow the retreat of children from district schools, or even stop it altogether (especially if the city’s moratorium holds). His wish would be for the FTE dollars to stay with district schools and help slowly wean each school off its operational costs.

But this tactic would actually have the reverse effect. Let’s assume that a cap is placed on charter school enrollment, meaning that kids are trapped at existing public schools. The support costs for keeping these kids is actually far higher than the cost of losing them to a charter school.

You want to know how charter schools influenced Philadelphia public education finance in past years? Take a look at this data sheet from 2009-10, the year before Philadelphia went into crisis mode and had to start slashing. The Philadelphia school district was spending $13,272 per kid, but payments to charter schools (for non-special ed) were $8,184 per head, roughly 62% of the amount spent by the district. The cost of running a 22-student classroom in Philadelphia in 2009-10 was almost $300,000. How much do you think went to teacher salary, maybe 10% of that?

Keeping students in district schools cost the Commonwealth of Pennsylvania (which is paying a majority the bill for public education in each state) over $5,000 per kid more than if they had simply been allowed to go to a charter school. Capping charter enrollment basically assures the unnecessary expenditure of a huge amount of money.

Considering that a charter school would be forced to run the same 22-student classroom for $180,000, we’re looking at a huge gap in how the district spends money compared to charter schools. Charter schools historically receive less funding than district schools, and the reasons are case-by-case. In some states, charters miss out on some categorical funding, and in others they miss out on transportation funding. In Pennsylvania, charter schools receive the same amount of funding for special-ed kids as they do for non-special-ed kids. That gap is often substantial. For instance, non-SPED kids in Philly still get under $9,000, but SPED kids are funded at a rate over $22,000.

Furthermore, the “fixed costs” that Dworetzky claims to be so difficult to phase out only represent about 30% of a school’s total operating costs in Pennsylvania. We’re talking construction, debt-payments, administration, building maintenance, transportation, and central support. This means as many as a quarter of all of Philadelphia’s students could leave for charter schools and the district schools could still meet their fixed costs.

The $944 million that went to charter schools in Pennsylvania in 2009-10 represented under 4% of the entire state’s spending that year. Pennsylvania is clearly under-utilizing charter schools, and markets like Philadelphia are paying the price. Students are locked out of charter schools by moratoriums, and the state is having to pay more money than it should to a district that simply refuses to cooperate with charter schools. But why should Philly cooperate when it has guaranteed revenue from the state, its local taxes, and the occasional injection from the teachers unions.

There was one note on which we tend to agree with Dworetzky, which is his take on virtual programs. Although the cost of setting up a technological infrastructure to run an online program takes a lot of time and effort, the cost of educating students after that is not nearly as high as that of brick-and-mortar charter schools. Pennsylvania’s auditor general has already come out in opposition to the concept of paying virtual schools the same amount as brick-and-mortar, and we strongly feel that the only way a virtual program can justify FTE dollars is with a blended model. 100% online charter schools just open the door up for corruption, apathy, and criticism, which are all things this movement is trying to avoid.

PS – If you’re interested in learning more about school choice and education policy in Pennsylvania, visit the website of the Commonwealth Foundation.

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