LAUSD lost more than half a billion dollars to charter schools in 2014-15

By far, the most significant financial impact identified in the report is the declining enrollment lost to independent charter  schools. When students leave district schools for charter schools*, the district immediately loses the revenue for that student, but critical educational infrastructure, oversight costs, and a larger portion of higher-needs students stay with the district. The negative impact on LAUSD has serious ramifications for all students in the district, including charter and LAUSD students.

Based on an analysis of LAUSD’s 2014-15 Comprehensive Annual Financial Report, MGT has shown that charter expansion has cost the district more than $508 million in funding. According to MGT, every student who leaves the district for a charter results in a net loss of $4,957 in state funding. One of the ways this harms the district is through the variety of fixed costs which the district cannot adjust immediately in response to the enrollment decline. For example, district facilities are built to meet the needs of the enrolled student population. Utility costs for these facilities will not shrink in response to enrollment decline, so the district must continue to bear these fixed costs.

Unmitigated charter school growth limits educational opportunities for the more than 540,000 students who continue to attend schools run by the district, and as this sum grows, it further imperils the financial stability of LAUSD as an institution. This also means that charter schools will be put at risk since these schools rely on subsidies, facilities, and staff support from LAUSD to continue operating.

Independent charter school oversight costs LAUSD nearly $19.4 million per year

The Charter Schools Act of 1992 established an unfunded mandate at the state level for each chartering authority to conduct ongoing oversight for all charter schools it has authorized. To cover these costs, the act allows chartering authorities to assess a fee equal to one percent of a charter’s revenue, not including private money donated to the charter school. While all independent charters in LAUSD are paying these fees, they do not come close to covering the full costs of charter oversight cost incurred by LAUSD.

At first glance, many of the costs associated with charter oversight may seem relatively small. However, taken together they are indicative of an unsustainable system that allows independent charter school oversight costs to steadily encroach onto the district’s general funds. In addition, MGT’s analysis, while thorough, was subject to scope and time limitations, and thus may not have captured all direct and indirect costs associated with charter oversight.

According to MGT, the district is spending an additional $19.4 million each year on independent charter school oversight costs that are not covered by oversight fees. This means that LAUSD must either redirect $19.4 million that could be spent on educational opportunities for district students; or fail to fulfill its oversight obligation, leaving charter school students vulnerable to financial fraud, waste, and abuse.

$2.9 million in direct oversight cost overrun in 2015-2016

The oversight shortfall begins with the Charter Schools Division (CSD), which is responsible for monitoring the district’s independent charter schools. While LAUSD expects to collect $8.8 million in oversight fees, the total expenses for CSD alone are expected to top $11.7 million in 2015-2016. Compliance with Charter Schools Act oversight mandates will cost the district nearly $3 million over the statutorily allowable revenue in the 2015-2016 school year alone. This means the district will transfer an additional $3 million of other monies into charter school oversight, funds that could have been channeled into expanding educational opportunities at district schools. The CSD also occupies space within the district’s Beaudry office, costing the district an estimated $92,000 per year in utilities and custodial upkeep. This is another annual cost that is not covered by the one percent oversight fee.

$13.8 million in indirect oversight costs spread across other  district divisions

Part of the unfunded mandate to provide oversight to independent charters requires LAUSD to understand each charter school’s unique internal administrative systems and practices. In addition to CSD, other divisions within LAUSD such as the Office of the Inspector General (OIG) and the Special Education Division (SPED), provide services to charter schools that are unaccounted for in CSD’s budget. For example, the OIG recently requested an additional budget allocation of $570,228 for additional staff that would be solely dedicated to support charter school oversight.

Charter oversight is not confined to these three divisions. According to MGT, each charter school requires district staff to support these schools by performing work beyond their core duties. This means that these staff, who ostensibly are devoted to district functions, are less able to respond to the needs of schools directly run by the district. For example, MGT estimates show that significant legal and contract compliance staff time is required to review and comment on each charter school application, renewal or “material revision.” Time and opportunity costs compound as the number of charter schools increase. MGT has calculated the value of this staff time at approximately $13.8 million per year.

$2 million due to uncollected co-location fees from charters operating rent free in district schools in 2015-16

Under Proposition 39, LAUSD is entitled to assess either a 3 percent fee on co-located charter schools that have been granted rent-free space within district schools; or they can charge a one percent fee and collect a minimal amount for the charter’s share of facility expenses. MGT has found that LAUSD has opted to collect a one percent fee from the 56 co-located charter schools, which is the lower of the two amounts. Assessing the higher fee allowed by state law would have generated an additional $2 million  in revenue for LAUSD in the 2015-16 school year.

Although it falls outside the scope of the MGT report, UTLA has found that in addition to undercharging co-located charters for oversight fees, the district has not collected reimbursements to which it is entitled. When a charter school petitions to co-locate, the space allotted to them is based on self-reported predicted enrollment. When this enrollment falls significantly short, resulting in an over-allocation of space, the district has the right to collect a reimbursement for this extra space according to a formula set by the CDE and Proposition 39 regulations.

Data from LAUSD were not obtained in time to arrive at an exact total, but according to interviews with district staff, tens of millions of dollars are likely at stake. This is one of the few financial protections for the district within the Proposition 39 regulations and it is essential that the district take this opportunity to work towards a more sustainable financial relationship with independent charter schools.