Portfolio School Governance Creates Unstable Charter Sector with Too Many School Closures

In an important brief from the National Education Policy Center, William Mathis and Kevin Welner define “portfolio school reform”—a school district governance theory which originated at the Center on Reinventing Public Education: “A key, unifying element is the call for many neighborhood schools to be transformed into privately managed charter schools… The operational theory behind portfolio districts is based on a stock market metaphor—the stock portfolio under the control of a portfolio manager. If a stock is low-performing, the manager sells it.  As a practical matter, this means either closing the school or turning it over to a charter school or other management organization.”

Peter Greene recently suggested one of the inevitable implications of portfolio school reform: “(G)iven the portfolio emphasis on continually closing bottom-ranked schools, you can think of the portfolio model as trying to fire your way to excellence on the institutional scale.” It’s all about closing schools.

Chicago was an early example of portfolio school governance, which now dominates the school districts in a number of big cities. Because of a study last year by the University of Chicago Consortium on School Research and a book by University of Chicago sociologist Eve Ewing, we’ve finally begun paying attention to the resulting closure of too many traditional neighborhood schools.  In Chicago the researchers have described widespread community grieving for public schools that were once central in the lives of generations of families.

School closure is also characteristic of charter schools. A school district committed to shedding its poorest investments—its so-called “failing” schools—will be shutting down the low-performing or poorly managed charter schools as well.  The underlying assumption is that the parent-choosers buying into a market approach will just accept the notion of the closure of “failing” charters because it’s all part of the cycle of school improvement.

Parents of students in charter schools, however, are not calmly accepting the closure of their schools.  Why should they?  Like other parents, charter school parents are looking for stability when they choose a setting for their child’s education. Here are just three examples of churn and disruption as charters are shut down in districts and states dominated by the theory of portfolio governance.

Washington D.C. — At the end of January in the Washington Post, Perry Stein profiled a mother who, two years ago, enrolled a child in the Washington Mathematics Science Technology Public Charter High.  Then last March the District of Columbia’s board that oversees charter schools, “voted to shutter the campus because of mismanaged finances.”  This school year, the mother enrolled her daughter in National Collegiate Preparatory Public Charter High: “Then, it happened again: The D.C. Public Charter School Board voted last week to shut down National Collegiate at the end of the 2019-2020 academic year because of low performance.”

Stein reports a maelstrom of charter school closures in the nation’s capital: “National Collegiate is one of three public charter schools the board in recent weeks voted to close because of poor performance. Democracy Prep Congress Heights and City Arts and Prep are expected to close at the end of this academic year, followed a year later by National Collegiate… One of the District’s oldest and most prominent charter networks—Cesar Chavez Public Charter Schools for Public Policy—announced last week that it would close its middle school campus in Columbia Heights for financial reasons.  Its two high schools will merge on a single campus. The closures—which leave more than 1,500 students scrambling for seats in other schools—highlight the turmoil that befalls children when the lights are permanently turned off in their classrooms. Students are often forced to leave behind friends and teachers they have grown up with.  Parents are often stuck navigating the lottery that is used to place students—and they must do it when their children are in the middle of their academic career, when fewer slots are available.”

Detroit — Last November for ChalkbeatKoby Levin described the sudden closure of a Detroit charter high school.  In late September, only weeks into the 2018-19 school year, parents and students were told the school would shut down: “On Wednesday, Sept. 26, the charter school’s board held a meeting with a single item on the agenda: the closure of Delta Prep.  Parents, students, and teachers piled into the auditorium to demand that their school be spared, but their outpouring of tears and grief was not enough. Two days before the homecoming game, the board voted to shut the school down—effective immediately.”

The idea is that the marketplace will create an ever reinforcing spiral of school improvement.  But in Detroit, Levin depicts another reality: “A review of hundreds of pages of documents, and interviews with key leaders involved in the school since its creation, show that the forces arrayed against every school in Detroit had pushed Delta Prep’s chances of survival to nothing within a year if its opening, if not before…”  Delta Prep had recruited students who were left without a school when two other charters failed: “We guaranteed that if they came to Delta Prep, we’d correct the wrong of their school closing and keep them together,” comments one of the school’s original founders. “But within three years, not a single Delta Prep 11th-grader was deemed proficient in math….  Just 10 percent of 11th-graders posted passing scores in SAT English…. Delta Prep had promised that ‘100% of graduates will be accepted to college.’  But in 2016, the only year the state recorded graduation data for Delta Prep, just over half of the school’s graduates enrolled in college.  Just six students—10 percent of that first graduating class—went on to complete a year’s worth of college credits within a year of graduating.”

ArizonaArizona Republic reporter, Craig Harris describes an entire sector in precarious financial straits: “Following the abrupt closure of at least three Arizona charter schools over the past year, a new report concludes more than 100 of the state’s charters are in danger of closing because of excessive debt and other financial troubles.  It’s a ‘near certainty’ that more than 50 of the state’s 544 charter schools will close in the near future, according to the report by the Grand Canyon Institute… As a whole, Arizona’s 544 charter schools owe more to creditors than they’re worth as businesses contracted with the state to educate kindergarten to 12th-grade students. ‘Like any business, an overleveraged charter is financially vulnerable and could fail if it then suffers an income loss.’ the report states.”

In dry financial terms, the Grand Canyon Institute warns: “From FY 2014 – FY 2018, the long-term, lease-adjusted debt held by Arizona’s charter sector consistently exceeded the current depreciated value of its property and assets.  On the whole, the sector owes more than it is worth.  A business property or homeowner in this position is deemed to be underwater on their debt.  Like any business, an overleveraged charter is financially vulnerable and could fail if it then suffers an income loss. Ten percent of charter sites are in significant financial distress with closure a near certainty due to excessive debt and poor underlying financials. Another 10 percent are at risk of closure…  Increasingly, charter schools appear to be competing amongst themselves for students as the charter industry is consolidating.  From FY 2014 – FY 2017, 60 percent of growth in student enrollment, known as Average Daily Membership (ADM), was captured by 10 charter companies, while 35 percent of charter companies experienced losses in their ADM during the same period.  Government tax-free bonds and federal charter credit enhancements, which were designed to allow charter holders to acquire educational assets have enabled this overleveraging.”

In his news report, Harris interprets Grand Canyon Institute’s warning in plainer language: “The report’s authors examined financial records including loan documents and school audits submitted to the state for all Arizona charter schools between fiscal 2014 to 2017.  The Grand Canyon Institute found:

  • “Charter schools have $2.56 billion in debt, while their property and assets are valued at $1.4 billion.
  • “The state’s charter market holds 33 percent of all public school debt while educating just 16 percent of Arizona’s 1.1 million public school students.
  • “Arizona charter schools primarily borrow for buildings and classrooms using what are deemed as ‘junk bonds’ with high-interest rates guaranteed by projected enrollment growth.  If the growth does not occur, charters have to spend more on mortgage payments and less in the classroom.”

The charter sectors in Washington, D.C., Detroit and the state of Arizona all demonstrate widespread instability. Portfolio school district governance theory imagines quality control through the ongoing shedding of the failing investments in the portfolio. Through so-called “creative disruption,” it’s proponents promise it will stimulate a spiral of school improvement based on the survival of the fittest schools. But by its very definition, portfolio school governance eliminates one of the key features parents look for in a school: stability.

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