Privately-run, mostly taxpayer-funded schools financially harm public education.
By Jeff Bryant / People’s Action Blog
Proclaiming May 6-12 National Charter Schools Week, President Trump kicked off a huge public relations campaign by the charter industry to ballyhoo the supposed success of these schools, although that success is a matter of bitter and ongoing dispute.
But one outcome of these privately-run, mostly taxpayer-funded schools certainly produce is they financially harm the public education system.
“The term ‘existential threat’ is way overused, but charters and vouchers really are a threat to the existence of public education,” Brad Miller tells me. Miller is a highly-rated practicing attorney and a former U.S. House of Representative from North Carolina.
While in office, he warned Congress of the risks of the subprime mortgage market in 2004, five years before that market melted and brought about the collapse of the housing loan and banking industry and the Great Recession.
The facts back Miller up.
The Costs of Charters to Public Schools
New studies from California and North Carolina find charter schools extract millions from the public systems.
The California study, written by political economist and University of Oregon professor Gordon Lafer, looks at three large public-school systems in the Golden State and concludes the annual costs to the three districts run upwards of $142 million. The three districts in the study – Oakland Unified, San Diego Unified and East Side Union – struggle with annual deficits that have led to layoffs, class size increases, and program cuts.
The North Carolina study, written by Duke University economics professor Helen Ladd and University of Rochester professor John Singleton, finds evidence that charter schools come with “fiscal externalities,” or additional costs to the budgets of public schools. In their examination of urban and nonurban districts in the Tar Heel State, the researchers calculate an additional financial cost of about $3,500 per charter school enrollee to the Durham school district and “comparable or larger” costs to two non-urban districts.
Both studies note that additional costs imposed by charters are most apt to result in local schools cutting funding they need to maintain reasonable class sizes, well-rounded curriculums, and support staff including nurses, counselors, librarians, and special education.
A Bad Fiscal Idea
Both studies trace the increased cost burdens imposed by charters to the same source.
As Lafer writes, “In every case [where charter schools have expanded], the revenue that school districts have lost is far greater than the expenses saved by students transferring to charter schools.”
Ladd and Singleton explain why: “If 10 percent of a district’s students shift to a charter school … the district cannot simply reduce its costs by 10 percent because some of its costs are fixed, especially in the short run.”
The North Carolina researchers also point to costs that result from having parallel sectors of charter and public schools, which “implies duplication of functions and services (e.g., central office operations).” Also, the tendency of charter schools to open or close, often without warning, makes district budgeting uncertain and inefficient.
The costs school districts incur due to charter expansions are “unavoidable,” Lafer writes. “Because districts cannot turn students away, they must maintain a large enough school system to accommodate both long-term population growth and sudden influxes of unexpected students—as has happened when charter schools suddenly close down. The district’s responsibility for serving all students creates costs.”
An ‘Established Fact’ of Charters
Findings of these recent studies are in line with other studies.
A study on the impact of charters in Nashville estimated the net negative fiscal impact of charter school growth on the district’s public schools resulted in more than $300 million in direct costs to public schools over a five-year period.
Another study from Los Angeles found district public schools lost $591 million due to dropping enrollment rates among students who leave and go to charters.
A research study of school districts in Michigan concluded choice policies significantly contribute to the financial problems of Michigan’s most hard-pressed districts. When the percent of students attending charter schools approaches 20 percent, there are sizable adverse impacts on district finances.
“What was once just rebutted as rhetoric is now increasingly becoming an established fact – charter schools are reducing the amount of funding that is spent on each student who remains in traditional public school,” University of South Carolina law professor Derek Black writes in his overview of the California and North Carolina studies.
What’s worse, Black argues in a different piece, “States are giving charter schools and private schools a better deal than public schools. These better deals have fueled enormous growth in charter schools and voucher programs that is now nearly impossible to unwind.”
The negative impact of this drain on public school coffers is felt most acutely by students and teachers, of course, especially those who live in low-income, nonwhite communities that are already feeling the brunt of depleted resources.
But warnings of the negative fiscal impact imposed by charter schools are also coming from a very different group of people: investors.
Investor Concerns About Charters
Just as the California and North Carolina charter studies were released, a Texas newspaper reported some of the state’s largest public finance firms were pulling business away from charter schools over concerns about these schools undermining the financial standing of public school districts and the continued soundness of investments in the financing of public schools.
“Charter schools increase the cost of public education in Texas by over $600 million per year,” one investment firm warned its investors in its explanation of why the company was pulling business away from the charter sector.
Investor squeamishness over the rapid expansion of the charter sector has been rising for years.
“The dramatic rise in charter school enrollments over the past decade is likely to create negative credit pressure on school districts in economically weak urban areas,” a report from Moody’s Investors Service warned in 2013.
Mindful of the Moody’s report, Brad Miller wrote last year for Verdict that Moody’s reduced Detroit Public Schools’ credit rating from B3 to Caa1, two notches above imminent default, specifically because of the “growing charter school presence.” He notes that despite the expanding charter sector in the district, charters are not responsible for any of district’s debts should the cost burden of these schools result in financial problems for the district.
Miller argues investors who backed loans to the district’s public schools will now see the value of their investments eroding due to the influx of charters. Due to charters, he argues, “Public schools lost funds for fixed costs, including debt service for bonds to pay for school construction, renovation, and equipment to serve the expected enrollment.”
His advice to Investors in public school bonds is to consider legal action against charter-friendly state legislation on the basis that such policies may violate the Contract Clause of the U.S. Constitution.
But Charter Schools Are Public, Right?
Charter school advocates tend to counter any claims that their schools harm public schools by contending “charters are public schools too.”
While it’s true charters are public schools in that they take taxpayer funds, legal defenses of any claims made against these schools tend to play fast and loose with the exact status, public or private, of these schools.
As Houston Public Media reports, recent lawsuits in Texas involving charter schools have surfaced the ever-changing definition of the status of these schools. After examining a series of cases involving charters, the article concludes,
Charter schools and their lawyers have sidestepped lawsuits over employment and contract issues by playing both sides of that fence. In some cases, charter schools can’t be sued because they’re government entities; in others, they’re immune because they’re private.
Similarly, in legal proceedings in California, Illinois, New York, Ohio, and Pennsylvania, charter school supporters have used private legal status to evade federal and state statutory requirements that apply to public entities.
Charters as Parasites
Despite what may have been the original intention of the charter school movement, these schools, as they are currently conceived and operate, now pose a severe financial risk to public education. Rather than operating as partners to public schools, they more so resemble parasites.
To address this growing calamity, Lafer recommends in his California study that each school district produce an annual Economic Impact report assessing the cost of charter expansion in its community, and local and state public officials take findings of these impact assessments into account when deciding whether to authorize additional charters.
Ladd and Singleton in their North Carolina study recommend states provide transitional aid to smooth or mitigate revenue losses charter school expansions impose on school districts. They point to examples of these policies in New York and Massachusetts, although they admit, “In neither case does the magnitude of the aid offset the full negative fiscal impacts of charters.”
Getting fair-minded public officials to consider these or other practical steps should not be hard politically.
“Most Americans do not regard public schools as insidious socialism and teachers as union goons,” says Miller. “This is not an issue on which we should be in retreat.”
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Jeff Bryant is an associate fellow at Campaign for America’s Future and editor of the recently launched Education Opportunity Network, a project of the Institute for America’s Future, in partnership with the Opportunity to Learn Campaign.
patricia borchmann says
As an advocate for public schools in Escondido, CA this important recent study is reassuring, as it reaffirms same findings and observations that were already known by teachers, students, and parents as collective stakeholders in public schools who were left ‘holding the bag’.
While this new study establishes an important new starting point, and requires school districts to conduct new annual economic analyses of impacts, it does not fully offset the irreparable taxpayer harm caused by years of revenue rip-offs by charter schools on public school districts in low income precincts. Thank you for thoughtful consideration.