John Locke Update / Research Newsletter

Another Charter School Funding Victory

posted on in Education (PreK-12)
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On Friday, the N.C. Supreme Court affirmed an N.C. Appeals Court decision in the case of Thomas Jefferson Classical Academy Charter School, Piedmont Community Charter School, and Lincoln Charter School v. Cleveland County Board of Education.  The appellate courts agreed that the Cleveland County Schools underfunded these public charter schools by over $54,000 in 2010.

Under current law, school districts are required to provide charter schools a share of funds deposited in their local “current expense” fund.  The local current expense fund includes local, state, and federal dollars that are to be used for the benefit of the general school population.  On the other hand, districts are not required to share “restricted” funds and may deposit them in a “special revenue fund” or “Fund 8.”

Attorneys for the charter schools argued that the district incorrectly placed certain sources of revenue in Fund 8, thereby making funds that would be legally owed to charter schools out of their reach.  School district counsel contended that charter schools were not entitled to certain Fund 8 dollars because they were designated to serve a specific student population or earmarked for personnel, programming, or infrastructure needs in the district.

To resolve this disagreement, the courts had to consider the definition of “restricted” funding and determine whether the Cleveland County School officials had dollars in their Fund 8 that did not meet that definition.

For the courts, “restricted” funding is not simply sources of revenue labeled “restricted.”  If that were the case, the term would have little meaning.  The courts defined restricted funds as “those funds which have been designated by the donor for some specific program or purpose, rather than for the general K-12 population of the local school system.”  It is a reasonable definition that necessarily takes the origin, purpose, and use of the funds, not just an arbitrary label, into account.

The courts considered nine types of funding – tuition/fees; indirect costs; Medicaid reimbursement; E-Rate; Juvenile Crime Prevention Council; Dropout Prevention Grant; ROTC; WorkForce Investment Act; and Gear Up Grant. A majority of the three-judge Appeals Court panel concluded charter schools were entitled to a share of each. Judges John Tyson and J. Douglas McCullough found that none of the nine types met the definition of restricted funding.

In a separate opinion, Judge Wanda Bryant agreed that seven of the nine sources were not restricted but indirect costs and E-Rate were.  She reasoned that the general student population did not benefit from funding received to cover the costs incurred in the administration of a grant.  Judges Tyson and McCullough observed that indirect costs and other dollars used to cover “general overhead” expenses were not restricted or designated for a specific purpose.

According to Judge Bryant, E-Rate funds, a federal reimbursement for telecommunications and Internet access, were restricted because “funds originated from the federal government for very specific technological purposes and that the funds were used for those specific purposes.”  The majority wrote that telecommunications and Internet services are used by the students and employees of the district generally, so they were not restricted.

Admittedly, the typical North Carolinian likely has little interest in how school districts designate public school funding or how the courts rule in such matters.  But they do care about fairness.  For districts to withhold thousands of dollars owed to charter schools is unfair to schools that, on average, make due with less than their district school counterparts.

According to NC Department of Public Instruction data, the statewide average total expenditure for charter schools during the 2014-15 school year was $8,080 per student.  The average district school spent $8,784 per student to cover operating expenses and an estimated $451 per student for capital expenses last year.   Unlike school districts, charter schools do not receive state or local capital funding or county-funded debt service payments on their behalf.

But it is not just a matter of how much public schools spend.  It is how they spend it.

In this way, school districts and public charter schools are no different than the typical business or household. Each must make the most productive use of limited resources.  As a state, we must rethink how taxpayer dollars are distributed to public schools, whether they be district or charter schools.  After all, funding institutions is not the same as investing in children.  If we shifted our focus from the former to the latter, our education system would look much different and arguably work much better than it does today.

Terry Stoops is the Vice President of Research and Director of Education Studies at the John Locke Foundation. Before joining the Locke Foundation, he worked as the program assistant for the Child Welfare Education Programs at the University of Pittsburgh. ...

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