Report shows consequences of charter school expansion

Effects of charter expansion

District schools are surviving but under increased stress

In some urban districts, charter schools are serving 20 percent or more of the city or districtwide student population. These host districts have experienced the following effects in common:

• While total enrollment in district schools (the noncharter, traditional public schools) has dropped, districts have largely been able to achieve and maintain reasonable minimum school sizes, with only modest increases in the shares of children served in inefficiently small schools.
• While resources (total available revenues to district schools) have declined, districts have reduced overhead expenditures enough to avoid consuming disproportionate shares of operating spending and increasing pupil/teacher ratios.
• Despite expenditure cutting measures, districts simultaneously facing rapid student population decline and/or operating in states with particularly inequitable, under-resourced school finance systems have faced substantial annual deficits.

Charter expansion is not driven by well-known, high-profile operators

• Most charter expansion in these cities has occurred among independently operated charter schools.
• High profile, frequently researched nonprofit charter school operators including the Knowledge is Power Program (KIPP) have relatively small shares of the charter school market in all cities except Newark.
• In many of these cities, some of the leading charter operators (those with the most market share) have been the subject of federal and state investigations and judicial orders regarding conflicts of interest (self-dealing) and financial malfeasance. These operators include Imagine Schools, Inc., White Hat Management, National Heritage Academies, and Concept Schools.

The varied and often opaque financial practices across charter school management companies, while fitting with a competitive portfolio conception, leads to increased disparities across students, irregularities in the accumulation of additional public (publicly obligated) debt, and inequities and irregularities in the ownership and distribution of what were once commonly considered public assets—from buildings and vehicles right down to desks, chairs, and computers.

Charter schools are expanding in predominantly low-income, predominantly minority urban settings

• Few are paying attention to the breaches of legal rights of students, parents, taxpayers, and employees under the increasingly opaque private governance and management structures associated with charter expansion.
• Expansion of charter schooling is exacerbating inequities across schools and children because children are being increasingly segregated by economic status, race, language, and disabilities and further, because charter schools are raising and spending vastly different amounts, without regard for differences in student needs. Often, the charter schools serving the least needy populations also have the greatest resource advantages.
• With the expansion of charter schooling, public districts are being left with legacy debts associated with capital plants and employee retirement systems in district schools while also accumulating higher risk and more costly debt in the form of charter school revenue bonds to support new capital development.

In many cases, the districts under investigation herein are large enough to be cut in half or thirds while still being financially viable, at least in terms of achieving economies of scale. In effect, charter expansion has already halved the size of many urban districts. Similar charter expansion in smaller districts, however, may lead the districts to enroll fewer than 2,000 pupils in district schools and suffer elevated costs. Given the literature on costs, productivity, and economies of scale, it makes little sense in population-dense areas to promote policies that cause district enrollments to fall below efficient-scale thresholds (around 2,000 pupils) or that introduce additional independent operators running below efficient-scale thresholds. It makes even less sense to introduce chartering to rural areas where schools and districts already operate below efficient scale.

Beyond issues of economies of scale, charter expansion can create inefficiencies and redundancies within district boundaries, from the organization and delivery of educational programs to student transportation, increasing the likelihood of budgetary stress on the system as a whole, and the host government in particular. In addition to increasing per pupil transportation expense, ill-planned (or unplanned) geographic dispersion may put more vehicles on already congested urban streets, contributing to traffic and air quality concerns, and significantly reduces the likelihood that children use active transportation (walking or biking) to school (Baker 2014b; Davison, Werder, and Lawson 2008; Evenson et al. 2012; Merom et al. 2006; Rosenberg et al. 2006; Wilson, Wilson, and Krizek 2007).

Policy recommendations

I conclude with policy recommendations for moving toward more equitable systems of excellent schooling. First, state policymakers must rethink charter laws that deregulate both the operators and regulators (authorizers) of charter schools, applying the following two key principles:

• Authorizers must work in collaboration with districts to ensure that the mix of providers in any context provides the best possible array of opportunities
• Authorizers and providers must be sufficiently publicly accountable and transparent

Current systems involving multiple, competing government and nongovernment authorizers are unlikely to ever achieve these goals, especially when the objective of both school operators (management companies) and those who authorize and oversee them is to maximize revenue by maximizing market share.

Looking beyond waiting lists and proficiency rates

When cities and school districts are debating whether to expand charter schools in the jurisdiction, decision-makers must look beyond facile claims of miraculous proficiency rates in cherry-picked charter schools (serving cherry-picked or culled populations) and reports of long waiting lists. Policymakers should consider a much longer checklist, to include but not be limited to the following preliminary set of items:

• How is the whole system, not just a subset of the system, meeting performance measures, such as assessment scores and gains, and is the performance both adequate and equitable?
• What are the cost and equity implications of sorting students into different schools based on needs, and how are resources, programs, and services going to be reallocated to ensure equitable access to adequate educational opportunities for all children?
• Will management structures and service delivery be efficient or lead to inefficient duplication?
• Are seemingly mundane operations management issues such as logically, spatially distributing enrollments; optimally using facilities space; and optimizing transportation services/networks getting the proper attention?
• How will new systems affect quality of life factors such as transportation time, school/neighborhood walkability, and numbers of schooling disruptions faced by children and families?
• Can we evaluate entrants to the market (based on their prior behavior and practices) and regulate both their practices and those of providers already operating in the space to ensure that the rights of students, taxpayers, and employees are protected equitably?

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, given the resources available. That is, resources should be used most efficiently and equitably to achieve the best possible system of schools for all children. Chartering, school choice, or market competition are not policy objectives in-and-of-themselves. They are policy alternatives—courses of policy action—toward achieving these broader goals and must be evaluated in this light. This checklist will help reveal whether charter expansion or any policy alternative increases inequity, introduces inefficiencies and redundancies, compromises financial stability, or introduces other objectionable distortions to the system, so that those costs can be weighed against expected benefits.

Moving toward efficient and effective unified education systems

If the broad, long-term policy objective is to move toward the provision of a “system of great schools” in each of America’s communities, then those systems must be responsibly, centrally managed to achieve an equitable distribution of excellent (or at the very least adequate) educational opportunities for all children, while protecting the interests and legal rights of children, parents, taxpayers, and employees. Achieving this lofty goal requires determining which functions of the system must be centrally and publicly regulated and governed. Systemwide public responsibilities include but are not limited to:

• The equitable management of enrollments and schooling access
• The equitable distribution of financial and other resources across the system, including allocation of resources to centralized functions that serve all schools
• The centralized management and equitable use/allocation, maintenance, and operations of the public’s capital stock of schools and related land and facilities
• The centralized management of systemwide debt obligations and long-term liabilities including employee retirement and health benefits

Numerous analyses have found chartering to lead to an imbalanced distribution of students by race, income, language proficiency, and disability status. So too does magnet schooling, or concentration of any specialized services across buildings within districts. The point is not that all such variations must necessarily be erased, or even could be, but that these variations must be acknowledged, and managed for the good of the system as a whole. To the extent that student needs continue to vary across school settings, resources must be targeted to accommodate those needs. This is a central function, and includes budget allocations, space allocations, and personnel allocations that draw on a substantial body of research on costs associated with providing equal educational opportunities (Duncombe and Yinger 2008).

Capital stock—publicly owned land and buildings—should not be sold off to private entities for lease to charter operators, but rather, centrally managed both to ensure flexibility (options to change course) and to protect the public’s assets (taxpayer interests). Increasingly, districts such as those discussed herein, have sold land and buildings to charter operators and related business entities, and now lack sufficient space to serve all children should the charter sector, or any significant portion of it, fail. Districts and state policymakers should not put themselves in a position where the costs of repurchasing land and buildings to serve all eligible children far exceed fiscal capacity and debt limits.

Finally, pension and health care costs are systemwide concerns that cannot be ignored by shifting students, and thus teachers and public dollars, across sectors.

Introduction

This report highlights patterns of charter school expansion across several large and mid-size U.S. cities over the past decade. The public’s interests lie in providing the highest quality educational opportunities for all children at an expense the public is willing and able to support. If we consider a specific geographic space, such as 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 (in that space and under the policy umbrellas governing that space), given the resources available. That is, resources should be used most efficiently and equitably to achieve best possible system of schools for all children. 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.

In this report, the focus is on the host district, the loss of enrollments to charter schools, the loss of revenues to charter schools, and the response of districts as seen through patterns of overhead expenditures. I begin by identifying those cities and local public school districts (hosts) that have experienced the largest shifts of students from district-operated to charter schools. I also explore the average size of schools as the charter sector grows. Next, I evaluate equity concerns related to the sorting of students by their population characteristics, and variations in classroom resources across schools and children. Finally, I discuss frequently overlooked concerns such as substantive changes to the rights of children, parents, and employees under privately governed and managed systems, and emerging concerns over accumulating high risk debt incurred by charter operators through municipal bond markets.

An opportunity for scalable innovation

Since its origins in the early 1990s, the charter school sector has grown to over 6,500 schools serving more than 2.25 million children in 2013.1 In some states, the share of children now attending charter schools exceeds 10 percent (for example, Arizona and Colorado), and in select major cities that share exceeds one-third (for example the District of Columbia, Detroit, and New Orleans)(Weber and Baker 2015a). Modern day charter schools were conceived by union leader Albert Shanker in the 1980s as a way to provide opportunities for creative, independent educators to collaborate and test new ideas with lessened policy constraints (Shanker 1988). To the extent these innovations were successful they could inform practices in traditional district schools, Shanker posited. Over the next few decades, states adopted statutes providing opportunities for individuals and organizations, including traditional districts, to create these newly chartered schools. In some cases, statutes allowed for the creation of charters governed and financed by existing districts, and in other cases, for the creation of charters independent of district governance, while operating within the boundaries of and in competition with local public districts.

While charter schooling was conceived as a way to spur innovation—try new things, evaluate them, and inform the larger system—studies of the structure and practices of charter schooling find the sector as a whole not to be particularly “innovative” (Preston et al. 2012). Analyses by charter advocates at the American Enterprise Institute find that the dominant form of specialized charter school is the “no excuses” model, a model that combines traditional curriculum and direct instruction with strict disciplinary policies and school uniforms, in some cases providing extended school days and years (McShane and Hatfield 2015). Further, charter schools raising substantial additional revenue through private giving tend to use that funding to a) provide smaller classes, and b) pay teachers higher salaries for working longer days and years (Baker, Libby, and Wiley 2012). For those spending less, total costs are held down, when necessary, through employing relatively inexperienced, low-wage staff and maintaining high staff turnover rates (Epple, Romano, and Zimmer 2015; Toma and Zimmer 2012). In other words, the most common innovations are not especially innovative or informative for systemic reform.

Emergence of private managers

The early charter movement coincided with the emergence of private management firms interested in public schooling. Two private for-profit companies tried their hand at providing school management services for public districts in the 1990s: Edison Schools, Inc., and Education Alternatives, Inc. (EAI) (Richards 1996). Education Alternatives, Inc., a publicly traded for-profit company, failed financially while holding an operating contract for nine (then 11) schools within Baltimore City Public Schools and soon after signing a contract with Hartford Connecticut Public Schools. The company failed prior to taking full responsibility for schools in Hartford. Edison Schools expanded cautiously in the wake of EAI’s failure, operating a school in Wichita, Kansas, in 1995 and 25 schools nationally by the end of 1996 (Steinberg 1997). Edison also faced financial troubles as a publicly traded stock, eventually buying back its company stock in 2003 and reverting to privately held status (Las Vegas Sun 2003).

As charter schools expanded, including online and hybrid schooling options, Edison Schools and other upstart for-profit companies shifted their growth strategy to the charter sector, where they could control employment contracts, increasing financial flexibility and profit potential. Coinciding with these developments, many now high-profile nonprofit charter management firms got their start as founders of single charter schools, including the Knowledge is Power Program (KIPP), which actually had two schools, a middle school in Houston and another in New York City; Uncommon Schools, founded from North Star Academy in Newark, New Jersey; and Achievement First, founded from Amistad Academy in New Haven, Connecticut. Now the charter school landscape consists of a mix of schools operated by major nonprofit charter management organizations, schools operated by for-profit managers, schools operated by other education management organizations described by Miron and colleagues as nonprofit in formal status but engaging in contractual arrangements more similar to for-profit organizations, and schools that remain independently operated, i.e., “mom-and-pop” (Miron and Gulosino 2013).

From portfolios to parasites?

As early as the mid-1990s, authors including Paul Hill, James Guthrie, and Lawrence Pierce (1997) advocated that entire school districts should be reorganized into collections of privately managed contract schools (Hill, Pierce, and Guthrie 2009). This contract school proposal emerged despite the abject failure of Education Alternatives, Inc., in Baltimore and Hartford. This proposal provided a framework for renewed attempts at large-scale private management including the contracting of management for several Philadelphia public schools in the early 2000s. Philadelphia’s experiment in private contracting yielded mixed results, at best (Mac Iver and Mac Iver 2006).2 Notably, Hill and colleagues’ contract school model depended on a centralized authority to manage the contracts and maintain accountability, a precursor to what is now commonly referred to as a “portfolio” model. In the portfolio model, a centralized authority oversees a system of publicly financed schools, both traditional district-operated and independent, charter-operated, wherein either type of school might be privately managed (Hill 2006).3 The goal as phrased by former New York City schools’ chancellor Joel Klein is to replace school systems with systems of great schools (Patrino 2015).

A very different reality of charter school governance, however, has emerged under state charter school laws—one that presents at least equal likelihood that charters established within districts operate primarily in competition, not cooperation with their host, to serve a finite set of students and draw from a finite pool of resources. One might characterize this as a parasitic rather than portfolio model—one in which the condition of the host is of little concern to any single charter operator. Such a model emerges because under most state charter laws, locally elected officials—boards of education—have limited control over charter school expansion within their boundaries, or over the resources that must be dedicated to charter schools. Thus, there is no single, centralized authority managing the portfolio—the distributions of enrollments and/or resources—or protecting against irreparable damage to any one part of the system (be it the parasites or the host).

Figure 1 displays a system in which a set of district operated schools (DOS), district-charter schools (DCS), and independent charter schools (ICS) serve a geographic space previously governed and operated entirely by local elected officials. In many states, independent charter schools may be only authorized by a government or government-appointed entity—a single authorizer. Nonetheless, these schools are not required to be responsive to local elected governance (unless required under state charter law) and have little or no incentive to be concerned with the financial condition of their host. In other states, additional entities may authorize charter schools to compete for students and resources in the same geographic space. This approach further disperses authority for schools serving any geographic area. Among other issues, dispersed authorization provides the opportunity for potential charter operators, including those with previously failing track records, to “shop” for authorizers who will more readily permit their expansion and more likely turn a blind eye to academic failure and/or financial mismanagement (Journal-Gazette 2015).

Exploring the consequences of charter school expansion in U.S. cities