School Choice & Charters

Charter Boom May Have Negative Fiscal Impact on Districts, Report Says

By Katie Ash — October 16, 2013 2 min read
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A report released on Tuesday by Moody’s Investors Service found that while most public school districts have weathered the rise of charter schools without a negative fiscal impact, certain risk factors are making it harder for districts in economically challenged areas to remain financially viable as charters continue to grow.

The report outlines four major factors that can lead to charters taking a toll on a district’s finances.

1. Declining enrollment in public school districts.

In places where school districts are already facing declining enrollment, and therefore dwindling amounts of per-pupil funding, they may find it necessary to cut back on academic programs and services. That can lead to more students leaving the district in favor of charter schools or private schools that can offer a more robust set of services for students (and a further loss of per-pupil funding dollars.)

2. Districts aren’t able to adjust their operations in response to charter school growth.

Because charter schools pull students from a variety of grade levels across a district, it is challenging for district offficials to make strategic decisions to cut back on expenses, such as consolidating classrooms or schools. And even if enough students leave the district to allow for a consolidation, it is often politically and logistically difficult to gain public support for such a move, the researchers in the study note.

3. State policies can either make it harder or easier for regular districts to operate with charter schools.

Different states have different laws that determine how funding is distributed to charter schools. In some states, districts are required to pass on both local and state funding to charters, while others only require districts to pass on state funding to charters, allowing them to keep local funds even if the student decides to go to a charter school. These policies have a significant impact on the amount of financial stress regular school districts encounter as a result of charter school growth.

4. A lack of integration with the local government.

In places where the local government is more integrated with the school system, it is easier for those school districts to weather fluctuations in funding levels brought about by the growth of charter schools, researchers found.

The study looked at a variety of urban districts with high numbers of charter schools, including the beleaguered Detroit and Philadelphia school systems, to illustrate how these issues play out.

Nina Rees, the president of the National Alliance for Public Charter Schools, issued a statement about the survey, criticizing it for focusing so heavily on those two districts which “were in extreme financial distress long before public charter schools enrolled a significant share of the student population.”

“For Moody’s to ignore the fact that 18 other urban school districts around the country have at least 20 percent of their student populations enrolled in charter schools and are in fine financial health is disconcerting and does a disservice to investors,” Rees said in the statement.

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A version of this news article first appeared in the Charters & Choice blog.