Ohio Charter Schools Ruin District Finances: Steal State and Local Taxes, Leave Behind Stranded Costs

When we evaluate charter schools, I wonder why we rarely consider their fiscal impact on the public schools among which they are nested? I have never heard anybody in Ohio consider the overall impact of charter school expansion on access to education for the entire population of students across a particular community or across the state. Today in Ohio, people are talking about the value of charter schools because charter operators and sponsors—claiming the schools are broke—are asking for an extra $2,000 per pupil.

Usually arguments about the quality of public investment in charters are about whether charters do a good job as measured by test scores.  Proponents of charter schools typically want the public to evaluate charter schools and traditional public schools by comparing their test scores—despite considerable research over the years demonstrating that the results are, at best, relatively comparable.  Steve Dyer uses the test score yardstick in a recent blog post: “Not only have Ohio charter schools not gotten appreciably better on the report card since… 2015, but since the 2012-2013 school year, charter schools overall have received more Fs than all other grades combined on state report cards.” Dyer doesn’t think these schools are performing well enough to deserve additional tax support.

Then there are the arguments about about whether charters mismanage the tax dollars they receive.  In a recent article about Ohio charter schools, three prominent professors of education policy and law examine self-dealing by charter management companies which lease buildings owned by the very same companies back to the Ohio charter schools they are hired to manage—at exorbitant, above-market rents.  The authors of this critique report that, “just a few weeks ago, the National Alliance for Charter Schools was back in Ohio asking the state to increase funding for charter school facilities.”

Here is an example—this time from Sunday’s Cleveland Plain Dealer—of how reporting on charter school accountability and funding often goes.   As he describes the request for more money from the legislature, reporter Patrick O’Donnell considers the academic record of Ohio charter schools and whether state regulation has improved enough.  O’Donnell begins: “Charter schools in Ohio have long wanted more money from the state, but a history of well-publicized scandals, mismanagement and poor report card grades have made it hard to justify giving them any more tax dollars.  Have they cleaned up their act enough now?”

Charter schools in Ohio actually want a lot more money per-pupil in the next state budget. O’Donnell reports: “Some charter officials are pressing the state for another $2,000 per student a year for most charter schools in the upcoming state budget. Leading the charge are the Breakthrough Schools, the Cleveland based chain that has the strongest results out of all charters in Ohio. Joining them are the growing Accel Schools chain, which has grown to 40 schools in the state over the last three years.”  Accel Schools is the charter network run by former K-12 Inc., CEO Ron Packard, who expanded his Accel network by buying up Cleveland’s I Can charters along with many of the schools formerly operated by David Brennan, who died last autumn.

How should Ohio’s policy makers evaluate whether spending tax dollars on charter schools is a good investment?  And particularly in these times when charter schools are asking for a huge bump of $2,000 extra per-pupil? Measured by test scores, and evaluated by their record of conflicts of interest, fraud. and outlandish financial mismanagement, Ohio should not increase public funding for its charter school sector.  But I believe there is a more important—and usually ignored—reason for denying more funding to the privatized charter school sector in our state. Policy makers must begin examining charter schools’ enormous, persistent drain on local school district budgets.

In Ohio, California, and many other states, charter schools get their funding through a “school district deduction.” Here is how the Ohio Department of Education describes the process of funding (When you read the following language, remember that charter schools in Ohio are formally called “community schools” instead of charter schools.): “Payments to community schools take the form of deductions from the state foundation funding of the school districts in which the community school students are entitled to attend school. Community schools students are counted as part of the enrollment base of the resident school district to generate funding.” The amount taken from the school district budget by every Ohio student who leaves for a charter school is $6,020.  This is known as a “district deduction” system of funding.

In a paywalled, September 14, 2018, On The Money report, a legislative update from the Hannah News Service, the Ohio Education Policy Institute school finance expert, Howard Fleeter explains a huge problem with the “district deduction” system of funding school privatization: “The deduction system means that the… student is counted in the district of residence’s Formula ADM (Average Daily Membership) and then the (deduction) is paid for… from the district’s state aid. This can often result in a district seeing a deduction… greater than the state aid that was received for that student….”  School districts across Ohio must raise local dollars by voting to pass  property tax levies.  In any school district whose state formula aid is less than $6,020, a student leaving for a charter school carries away that student’s state per-pupil amount plus money (to make up $6,020) from the locally voted levy—often very hard to pass— from the public school district.

Imagine the impact on Ohio’s local school district budgets if the state were to increase the charter school allocation to meet charter operators’ request for another $2,000—from $6,020 to $8,020—for each student who were to choose a charter school.  Would the state also add $2,000 to its public school foundation per-pupil allocation? What about the districts that already add local dollars to raise a much lower state formula per-pupil allocation up to the required the $6,020 district deduction? It is likely that an increase in charter school funding by the Legislature would increase the flow of local levy dollars down the charter school drain.

Even beyond the persistent economic drain posed by Ohio’s “district deduction system,” charter schools pose further challenges for the public school districts in which they are located.  This happens merely because of the way school choice works. A public school district must maintain expensive services that cannot be shed when students leave for charter schools.  In a report published in May 2018, the political economist Gordon Lafer examines the stranded costs that cannot be managed by public school districts when students leave for charter schools:  “To the casual observer, it may not be obvious why charter schools should create any net costs at all for their home districts. To grasp why they do, it is necessary to understand the structural differences between the challenge of operating a single school—or even a local chain of schools—and that of a district-wide system operating tens or hundreds of schools and charged with the legal responsibility to serve all students in the community.  When a new charter school opens, it typically fills its classrooms by drawing students away from existing schools in the district…  If, for instance, a given school loses five percent of its student body—and that loss is spread across multiple grade levels, the school may be unable to lay off even a single teacher… Plus, the costs of maintaining school buildings cannot be reduced…. Unless the enrollment falloff is so steep as to force school closures, the expense of heating and cooling schools, running cafeterias, maintaining digital and wireless technologies, and paving parking lots—all of this is unchanged by modest declines in enrollment. In addition, both individual schools and school districts bear significant administrative responsibilities that cannot be cut in response to falling enrollment. These include planning bus routes and operating transportation systems; developing and auditing budgets; managing teacher training and employee benefits; applying for grants and certifying compliance with federal and state regulations; and the everyday work of principals, librarians and guidance counselors.” “If a school district anywhere in the country—in the absence of charter schools—announced that it wanted to create a second system-within-a-system, with a new set of schools whose number, size, specialization, budget, and geographic locations would not be coordinated with the existing school system, we would regard this as the poster child of government inefficiency and a waste of tax dollars. But this is indeed how the charter school system functions.”

In his new book, Educational Inequality and School Finance, Rutgers University school finance expert, Bruce Baker explains that inequity is also baked into a system embodying privatized school choice. The hybrid—combining traditional public and charter schools—now involves competition and entrepreneurship: “The incentive for school operators is to pursue whatever means necessary to be the preferred school of choice (for the preferred students)—not to spend only what is needed to provide equal opportunity to achieve common outcomes… Much of the expansion of charter schooling occurred during the recession.  States added schools while reducing overall funding, making inequitable choices on top of already unequal and inadequate systems.  Expanded charter schooling was a centerpiece of the Duncan/Obama education reform platform that coincided with the recession and new normal era. Cursory descriptive analyses, as well as more complex longitudinal models, suggests that states which most expanded their charter sectors are also the states which most reduced their overall effort toward financing public education. This is a disturbing finding in part because charter schools also rely on public funding.” (Educational Inequality and School Finance, pp. 157-158)

In a 2016 report for the Economic Policy Institute, Baker describes a kind of policy blindness that has been the foundation of marketplace school choice:  “If we consider a specific geographic space, like a major urban center, operating under the reality of finite available resources (local, state, and federal revenues), the goal is to provide the best possible system for all children citywide…  Chartering, school choice, or market competition are not policy objectives in-and-of-themselves. They are merely policy alternatives—courses of policy action—toward achieving these broader goals and must be evaluated in this light. To the extent that charter expansion or any policy alternative increases inequity, introduces inefficiencies and redundancies, compromises financial stability, or introduces other objectionable distortions to the system, those costs must be weighed against expected benefits.”

McMaster University professor Henry Giroux warns that school privatization threatens an essential public good: “Public schools are at the center of the manufactured breakdown of the fabric of everyday life. They are under attack not because they are failing, but because they are public… Moreover, they symbolize the centrality of education as a right and public good…”

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