A Weekly Bulletin of News and Analysis from the Thomas B. Fordham Institute
October 25, 2006, Volume 1, Number 22
Contents
Investigative Analysis
Editorial
From the Front Lines
Reviews
Editorial
Charter Schools Not to Blame for DPS?s Financial Woes
There is much to be said that's critical of charter schools that's also true. But the allegation that charter schools are to blame for Dayton Public Schools' looming fiscal crisis (see here, here, and here) is false--and confuses symptoms with disease.
Charters did not and do not siphon district resources. Rather, parents and students have fled the district and into charters because of DPS's dismal academic record. For years, DPS languished in Academic Emergency--the state's lowest rating, akin to an "F" grade. Finally--just this year--the district jumped to Continuous Improvement, the equivalent of a "C" grade from the state, as a praiseworthy result of hard work by DPS teachers, staff, and district leadership (as well as the stiff competition provided by charter schools). Yet, despite these recent gains, the district's overall academic performance still places it near the bottom of regional and state rankings.
The district indeed faces financial challenges (as does every single charter school in town, all of them grievously underfunded!). But charters aren't the cause. In fact, they've buffered DPS against even worse fiscal grief.
How can that be?
Imagine that each child entering a DPS school arrives with a backpack of cash. That cash equals some $12,732 (using 2005 figures) and represents the full amount of taxpayer dollars for this child's education. Yet the money really consists of three stacks. One represents federal dollars (about $2,207); the second consists of state dollars ($5,766); and the third stack is local tax dollars from Daytonians ($5,061).
When a child leaves a DPS school for a local charter school, his backpack grows considerably lighter. That's because it only contains two of the three stacks: the state and federal dollars, totaling about $8000. (Conflicting state laws make for some commingling of state and local monies, resulting in some local dollars accompanying children into charter schools. In Dayton and other urban districts, however, such sums are minimal.) The majority of local tax dollars paid by Dayton residents and property owners (more than $5000) stay behind with DPS even though that child no longer attends a district school.
Charter schools thus find themselves trying to educate needy kids for about 30 percent less than district schools receive. Some charters do a remarkably good job despite the added challenge; others flub the assignment. Nobody denies that they're a mixed bag educationally (though charters' average reading and math test scores surpassed DPS in 2005-6). But let's be clear: when children leave DPS for charter schools, they leave lots of money in district coffers. This blunt fact helps to explain why per-pupil spending in DPS rose from $9,854 in 2002 to $12,732 in 2005: the system found itself educating fewer children with more money per student.
At least two critical factors actually contribute to the district's current financial crisis. One is dramatically rising healthcare costs. (This won't come as a surprise to private sector firms such as G.M. and Delphi, whose strong unions and generous benefits packages have forced drastic cuts and shuttered factories.) DPS, like many Ohio districts, provides extremely generous benefits to its teachers and staff, including heavily subsidized healthcare (individual plans cost around $50 a month, and family plans about $110). Bound as it is by union contracts, the district has been forced to absorb recent spikes in healthcare costs, which have risen an average of 17 percent in each of the past two years.
Second, like investors who heedlessly bought technology stocks in the 1990s, DPS assumed that short-term windfalls were the norm, not the exception. Consider the district's $45 million reserve that officials are now bemoaning even as they spend it. Most of that money came from one-time payments such as a delinquent tax collection payment and a desegregation settlement. Once spent, such funds do not get replenished.
The contention that charter schools are somehow responsible for DPS's money troubles is a distraction and a canard--meant to generate sympathy from taxpayers who, it seems, will soon face another levy to keep the district afloat. We hope it passes. But taxpayers shouldn't be misled. The real issue is not whether DPS needs money because charter schools have drained its resources--but whether taxpayers want to support the district because they believe that district schools are improving and have earned the additional support.
A similar version of this editorial appeared in the October 19 issue of TheDayton Daily News.
by Terry Ryan, Quentin Suffren
Investigative Analysis
Beware the Phantom (Revenue)
If you think Halloween is spooky, consider what Ohioans will face on November 7th--a slew of new school levy and tax issues at the polls.
The Ohio Secretary of State's office has certified 145 levy issues statewide (see here) this coming election day. School districts deem their passage essential to maintaining current operating expenditures, including those for academic and extracurricular programs. Yet voters are skeptical of recurring pleas for more money. Just this past August, 22 of 31 school funding referendums (71 percent) failed to pass muster with voters.
Who can blame their skepticism? On average, districts request a new levy every four years. But few truly understand where the dollars go, as Ohio's education funding system is a patchwork of complex formulas and weighting calculations that only Dr. Frankenstein could love. There's one thing all voters should know, however: school levy votes, though at times a necessity, are too often an exercise in diminishing returns--except where state coffers are concerned.
In simplified terms, school district funds can be arranged into three stacks: federal dollars, state per-pupil allotments, and local tax dollars. When Ohioans pass a school levy, most believe that the increased funding will be dollars added to the local stack--above and beyond the more-or-less fixed values of the state and federal stacks.
In fact, voters are often replenishing a shrinking stack of state funds. That's because Ohio law prevents property tax revenues generated by voted levies from increasing with inflation-so even though property values in a district may go up, the amount districts can collect does not. At the same time, the state determines its funding allotments to districts according to the value of a district's tax base (i.e., property values). Thus a double standard emerges. School districts cannot take advantage of rising property values to earn more revenue; yet the state uses the same rising values to determine how much less it should provide school districts.
Enter phantom revenue. It's the difference between what the state funding formula calculates as a district's local revenue and what the district actually generates in local tax dollars. While phantom revenue exists only on paper, it directly reduces the amount of state per-pupil funding districts receive. As local property values increase, the state contributes less to district budgets, and local taxpayers' dollars must make up the difference--mitigating over time the effect of any new levies.
Fast-growing districts, mostly suburban, are hit hardest by phantom revenue. Centerville City Schools, a school district outside Dayton, saw its state funding per-pupil (after state calculations) decline from $1,540 in 2003-04 to $1,485 in 2005-06--despite the fact that the overall base amount of state per-pupil funding rose from $4,949 to $5,283 over the three year period. (Ohio's major urban areas--where most charter school operate--such as Dayton, Cincinnati and Cleveland have experienced far less growth in property values and thus are less susceptible to the phenomenon.)
Phantom revenue also makes it harder to hold districts accountable for their finances--by making it appear that well-managed districts are poorly run while providing those lacking sound financial practices an excuse to seek more taxpayer dollars on a circadian like regularity.
Eliminating phantom revenue is no simple matter. House Bill 920, which prohibited tax revenue increases associated with home values, has been in place since 1975--and its provisions became part of the Ohio Constitution in 1990. Few legislators will find support from their constituents to make it easier for school districts to raise their property taxes without their approval via the ballot box.
This leaves voters in a quandary. Should they vote for school levy issues to bolster district finances (which may or may not be well-managed) knowing that future levies will be needed to offset phantom revenue? Or do they deny school districts additional funding and wait for widespread fiscal crisis to jump-start sensible education funding reform--though perhaps at the expense of district students?
Sadly, neither gubernatorial candidate has offered a practicable solution to Ohio's botched education funding system, phantom revenue included. This election season, Ohioans will have to go it alone. But beware the phantom. This one is real and has its eye on your wallet.
by Quentin Suffren
From the Front Lines
Columbus Sets Its Sights on KIPP
It's no secret that Ohio needs more high-quality schools, especially for its poorest children. So why not shoot for the best--the Knowledge Is Power Program (KIPP)?
A coalition of business, philanthropic and district leaders in Columbus is asking that very question and working diligently to recruit this top-notch network of schools to Ohio's capital (see here). In September, the Thomas B. Fordham Foundation submitted a formal proposal to KIPP on behalf of the coalition, which includes, in addition to Fordham, KidsOhio.org, Columbus Public Schools, the Columbus Partnership and School Choice Ohio. As a result, KIPP is considering opening a "cluster" of KIPP schools (two elementary, two middle, and one high school that would serve upwards of 1,500 students total) in Columbus over several years, beginning in 2008.
Coalition members are now in the final round of deliberations with KIPP, and a decision will be announced in November whether negotiations were successful. If the two sides can reach an agreement, Columbus will be one of two communities selected by KIPP for cluster schools. (KIPP plans to open these schools in two cities each year.)
As a nationally acclaimed "network" of 52 independently runs schools, KIPP has made significant academic gains with low-income students in some of the nation's toughest neighborhoods. Many consider KIPP to be among of the best programs for low-income students in the nation. While one in five low-income students in public schools make it to college, KIPP's college matriculation rate stands at 80 percent. Simply put, educating a child in a KIPP school fundamentally improves the chance he or she will enter college after high school.
Much of the program's success can be attributed to a lot of hard work by parents and students, and to KIPP's laser-like focus on its core beliefs--dubbed The Five Pillars:
In addition to its high standards, KIPP--like many other high performing school models--attributes much of its success to operating in a charter environment. The basic charter concept hinges on giving schools sufficient freedom to run the type of program it wants in exchange for accountability. The charter concept also allows them to provide school leaders with the "Power to Lead" and focus on improving student performance.
Based on 2005-06 test results, Columbus Public Schools (CPS) needs the high performance that KIPP brings. CPS is rated in Academic Watch, and just 68 percent of its students graduate from high school.
Meanwhile, the city's charter schools, as well as many others in Ohio's urban areas (see here), have not met the demand for creditable alternatives to troubled district schools. Just 11 of the city's 33 charter schools rated earned a rating of Continuous Improvement or higher. Only six made AYP in 2005-06.
Bottom line, KIPP could provide a high quality education to students currently in troubled schools, and be a role model for other schools-both district and charter. That is something Columbians--and all Ohioans--can cheer about.
by Kristina Phillips-Schwartz
Reviews
Educational Entrepreneurship: Realities, Challenges, Possibilities
For years, common wisdom held that aside from textbooks, the business sector had little to offer the world of education. But scores of educational entrepreneurs are now proving this belief false.
How big is educational entrepreneurship? Adam Newman of Eduventures estimates that companies would sell $23.5 billion in goods and services to K-12 schools in 2005-06, a 4.6 percent increase from 2004-05. The largest market is the $9 billion textbook sector; the "smallest" (a "paltry" $3 billion ) but most dynamic market is that of "educational services," including teacher training, tutoring, and managing charters.
Robert Maranto and April Gresham Maranto catalog the entrepreneurs running charter schools, from cooperatives like EdVisions or the Sedona Charter School, and education management organizations such as Edison, to "clans" such as North Star Academy and the Knowledge Is Power Program (KIPP). Clans like KIPP have achieved some of the greatest success, much of it due to their careful selection and extensive training of prospective teachers and principals.
Yet state policies can be serious hurdles to expanding quality schools and services, argues John E. Chubb of Edison Schools. Just three states allow education management organizations (EMOs) to hold school charters, and only a handful (Ohio included) allow non-profit charter sponsors to contract with EMOs for services. Other states prohibit single operators from creating school "clusters" (see above), where one group could operate a group of schools under one governing authority. Removing such restrictions could allow EMOs to provide better services at a lower cost.
Educational entrepreneurship has enormous potential to improve K-12 education in the Buckeye State. Hess's volume is an excellent source for Ohioans yearning to know how.
Get your own copy here.
by Martin Wooster