Legislative Testimony

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Testimony: Cyber Charter Schools
January 2006

Introduction
The Pennsylvania School Boards Association would like to thank Chairmen Stairs and Roebuck for convening this hearing on a topic that is frustrating and bewildering to a number of school board members and administrators. However, the funding of cyber charter schools, while still the major hurdle, represents just the tip of a much larger iceberg that has been created by the presence of cyber and charter schools. Despite the enactment of Act 88 of 2002, there are still many process issues regarding cyber schools. Additionally, there is an accountability issue with all charter schools that continues to fester, even though it has been almost nine years since the authorizing legislation was enacted. Consequently, we believe that the General Assembly needs to take a look at the reasons why these institutions were created and, after less than 10 years of existence are costing taxpayers almost half a billion dollars per year.

PSBA supports the development of distance learning concepts and other technology uses to enhance educational opportunities for students. Online instructional tools can be an effective component for expanding children's learning opportunities. In fact, school districts and intermediate units across the state had incorporated distance learning into their curriculums before the advent of cyber schools and since have collaborated to create blended school programs, which combine more traditional classroom learning and on-line instruction.

Despite the potential, PSBA is concerned about the diversion of millions of dollars to cyber charter schools from the commonwealth, its public school districts, and ultimately, local taxpayers. From a public policy perspective, cyber charter schools may serve an important need. As a matter of state policy, however, they pose their own unique problems. Shoehorning cyber charter schools under the Pennsylvania Charter School Law of 1997 (24 P.S. §17-1701-A et seq .) exacerbated the problems of funding, notification, and oversight that were not properly addressed in the law.

Local Funding Supports Cyber Charter Schools
Cyber charter schools receive funding in the same manner as do other charter schools. **Each school district must pay a selected expenditure per pupil for its resident students who attend a cyber charter school. That expenditure is equal to the resident district's budgeted total expenditure per student minus a pro rata share of the cost of certain programs that charter schools do not provide.

Rather than creating a less expensive public school alternative, this cyber school funding formula exacerbates public school finance anomalies and aggravates the current over-reliance on local property taxes. The current formula:

•  Causes each school district to be charged a significantly different amount for the same number of students in a particular charter school because the per pupil expenditures of school districts vary.

•  Requires most districts to fund cyber schools at a rate that is higher than the per student actual instructional expense of the cyber school, resulting in a net profit for those schools.

•  Results in a district payment that greatly exceeds the amount of the state subsidy a district may receive on account of a resident cyber charter school student.

•  Directs special education money to cyber charter schools based on their actual number of special education students while districts are funded by the state on the basis of assumed rates of the special education student population and equal special education costs.

Cyber charter school advocates would have you believe that this money is for the kids or that the money is intended to follow the child. This logic is incomplete. The commonwealth's system of funding public education has not included a "per student" allowance for almost 15 years. The idea of "the money following the student" is therefore a badly outdated and flawed system of funding based on a system that does not exist in Pennsylvania. The only money that could possibly follow the child is the share of local taxes paid by the student's parents - and that amount is typically far less than the average payment made by school districts to charter schools.

Even worse, badly needed money is leaking out to corporate entrepreneurs with whom nobody in the paying district is even familiar, and local districts are paying for an education and curriculum in which they have no say. Cyber school operators fiercely defend what they perceive to be their right to adopt and maintain their own curricula. However, they must also realize that they are public school entities and the individuals that are charged with ensuring that resident students receive an adequate public education in their school district are the elected school board members of that district, regardless of how or where that education is delivered. School boards are not in the business of micromanaging and their desire to ensure that resident students are receiving an adequate education stems not from any ill will toward cyber school operators but from a sense of doing their duty and fulfilling their responsibilities as elected school board members.

It does not take tens or hundreds of thousands of dollars in cyber or charter school expenses to create a problem. Depending on the wealth of the district, the loss of any funds hurts existing programs even if only a handful of students participate in a cyber school. Districts cannot reduce their utility bills or reduce staff if even 10 students from a district attend a cyber school.

School districts are essentially powerless to do much about the problem of cyber charter school funding. They are simply charged with paying the bills without much oversight authority.*** If they refuse to pay the charter school bill, the Pennsylvania Department of Education diverts the money from other state allocations.

Fair Questions
The Pennsylvania School Boards Association has been actively involved either as a party, intervenor or amicus in various lawsuits regarding cyber schools and the withholding of state subsidies. Throughout these cases, PSBA consistently argues that cyber and charter schools have not met their stated goals. The Pennsylvania Charter School Law was enacted to spur "a climate of innovation to enable alternative forms of education to better serve its students." It is fair to ask after almost 6 years whether cyber charter schools have served their purpose of laboratories of learning by creating innovative methods of education for students? How well can the following questions be answered:

•  Have cyber or charter schools spawned any innovations in teaching that can be shared by school districts?

•  Are cyber schools better, worse or about the same as school districts when it comes to educating their students?

•  With fewer overhead costs, should cyber schools receive the same funding as bricks and mortar charter schools?

•  Should cyber school funding be based on competency, seat time, actual costs or some other academic measurement?

•  If the commonwealth approves cyber schools, should they not have primary responsibility for the funding of those same schools?

•  How much access to cyber school records should taxpayers, who foot the bill under the current funding system, be entitled to?

•  How many cyber schools are enough?

Recommendations
The need for legislative action is growing more urgent. The financial effect that charter and cyber schools have had on school districts and taxpayers is serious and continues to grow as additional schools are created. According to the Pennsylvania Department of Education, school districts spent $291.5 million on reimbursing cyber and charter schools in 2003-04. That dollar amount was expected to reach $368 million in 2004-05, an increase of just over 26%. Act 88 of 2002 contained provisions that authorized the commonwealth to reimburse school districts 30% of their cyber and charter school costs; however, funding is reduced on a pro-rata basis if sufficient dollars are not available. While this new source of funding has provided some much needed assistance to districts, the percentage of costs covered has dropped to 27.6%; consequently the reimbursement from the commonwealth barely covers the increase in costs to school districts on a statewide basis. This reimbursement program needs to be re-worked if it is to be of any real help to districts. Either the dollars available for reimbursement must keep pace with growing costs, or the Legislature needs to find a new, alternative source of funding for these schools other than local school districts.

Particularly in the current environment where school property taxes and school district spending are under extreme scrutiny, it is important for the commonwealth to relieve mandates such as payments to cyber and charter schools and find alternative funding sources other than local school districts. Relieving districts of costly mandates will help to keep school district spending and local property taxes down to more manageable levels.

In the alternative, the funding formula under Act 22 should be changed to require a school district payment of either the tuition charged for out of district students or the charter or cyber schools operating costs, whichever is less.

For the time being, a moratorium on the creation of new cyber schools should be created until the Pennsylvania Department of Education takes the following interim steps to forestall the release of tax dollars that may never be recoverable:

•  Adopt a funding amount and mechanism for all approved cyber schools,

•  Adopt a special education funding formula for cyber schools, based more on the current system of special education funding for school districts,

•  Expand the details and amount of information required on cyber charter applications,

•  Create procedures for overall financial reporting and management of cyber charter schools including a uniform chart of accounts and monthly reconciliation of budget requirements,

•  Outline standardized billing practices - how, when or what type of form the schools use to bill the home districts for attending students varies by cyber charter school,

•  Prohibit cyber schools from seeking reimbursements from resident school districts for children enrolled before the age requirements for the admission of beginners set by the resident school district,

•  Halt all its efforts to withhold districts' subsidy entitlements on account of funds claimed to be owed to cyber charter schools, and

•  Require cyber charter schools to provide notice of student enrollment promptly so budgets can be aligned and contingencies created for cyber charter students by school districts.

No Public Accountability for Cyber Education
In addition to the outstanding operational and funding problems associated with cyber schools, their lack of accountability to the taxpayers who pay the bills and the school districts who are responsible for student learning is a constant source of frustration for school board members and administrators. The ability of school districts to promote success for the charter school concept, by setting ground rules or even screening out weak or poorly planned charter applications, has been almost eviscerated since about 2000 by a state administrative appeal panel that our courts have allowed to assume a far greater power than anyone ever imagined when the statute was first drafted. The state's Charter Appeal Board (CAB) has overruled nearly every school district denial of a charter to come before it. CAB has even issued its own charters directly when a school district has refused to do so or when the school district's suggests changes to a charter that the applicant does not like. The result is a charter school law with ineffective oversight mechanisms and a huge fiscal drain without a demonstrable return on investment.

The General Assembly has delegated to the governing boards of charter schools one of the most important governmental functions performed in Pennsylvania - the education of children at public expense. However, charter school boards are not accountable to the public. The public has no say in removing individuals from the governing board. The application process foregoes the public's right to know who is applying for a charter, who is on the governing board and exactly where the applicant is located. Existing nonprofit corporations whose purposes may be totally unrelated to education can apply for a charter. Excess revenues over actual expenditures for the operation of a school then can be used by such an entity for purposes other than education. Whatever arguments, pro or con, that may exist with respect to whether charter or cyber schools should be permitted in law, there should be universal agreement that state and local tax dollars collected and appropriated for public education should not be used for any other purpose by any entity that receives them.

The debate about cyber school funding is also about the larger issue of what constitutes public education and whether cyber students are really enrolled at all, or are merely receiving subsidies for what amounts to home schooling. Promises of district cost savings remain unfulfilled because savings are nonexistent when students from nonpublic schools or home-school programs transfer to cyber charter schools.

Conclusion
What the property tax reform debate has demonstrated is that taxpayers not only want relief, but also full accountability for the tax money they are spending. Public school districts want to give them that relief and accountability. Almost a half billion dollars annually are being paid by taxpayers to operators of charter and cyber schools. With so much scrutiny being paid to school district spending and the demand for them to spend less so they can tax less, PSBA believes the time is now to take a closer look at the state's policy concerning these institutions and how they are funded and how well they are accountable to those who pay the bills.

Act 88 of 2002 provides some funding for school districts to offset the tuition that they pay for resident school students.

Act 88 of 2002 provides that while existing cyber schools can continue to operate under their current charters, they must seek renewal of those charters from the Department of Education. Also under Act 88, a school district may seek access to the charter, the charter application, annual reports and a list of all school district residents enrolled in the cyber charter school.

The PDE deducts charter school payments from districts' subsidy payments upon receipt of documentation from the charter school. (24 P.S. §17-1725-A(a)(5)). Districts are afforded an opportunity for a hearing to challenge the charter school tuition bill only after the deduction from its subsidy has been made, not before. ( Id . at 17-1725-A(a)(6)).