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Explainer: Getting the Facts on Funding for NJ’s Charter Schools

Charter advocates often argue their schools are not being fully funded; opponents point out that charters take money away from district schools

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Gov. Chris Christie’s enthusiastic support of charter schools and the continuing growth in charter enrollment has sharpened the debate over how the state parcels out education aid.

Supporters of traditional public schools blame charters for taking away money they badly need, especially in poor urban districts, while charter advocates point out that they typically receive less money per student than traditional schools, cover their own facilities costs, and in some places have seen their funding decline.

Here’s a look at how charters get their funding and the complications caused by changes in the state’s funding formula for education.

What they are: Charters are public schools run by private or nonprofit operators and authorized by the state, without oversight by the local elected school board. The state has 89 charter schools.

Formula funding: Public schools are funded by a combination of local taxes and, for some, state aid. Technically, aid allocations are determined by the formula in the 2008 School Funding Reform Act (SFRA), though that formula was only fully funded in its first year. By law, charters receive 90 percent of the local tax levy and of state equalization aid per student that the traditional public schools in their district receive. The percentage charters do not receive is meant to support districts’ administrative costs related to charter schools.

Adequacy and fair share: Equalization aid, which targets poor, urban districts, is the biggest “bucket” of state funding for charter schools, according to Brian Diamante, a data analyst at the NJ Charter Schools Association.

The state first calculates each district’s adequacy budget -- how much it should cost to educate its students, based on a number of factors. Low-income “at-risk” kids, English-language learners, and special-education students have larger weights in the calculation, contributing to a bigger adequacy budget. Then a fair-share figure, based on property values and income, is calculated to determine how much a district should be contributing from local taxes. Equalization aid is based on the difference between the adequacy budget and local fair share.

Charters, like other public schools, also receive separate categorical state aid for special education and security, proportional to enrollment, as well as extraordinary special-education aid for students who are especially expensive to educate.

Growing enrollment: The main problem is that the formula hasn’t been “run” and fully funded for five years. Instead, the state has kept aid to districts almost flat. Some districts with growing enrollment have struggled to pay the bills and have asked their local taxpayers to contribute more, with mixed success. Charters in particular have seen their enrollments soar in recent years, from 23,257 in 2010 to 40,930 this year, leading to consternation among administrators who had planned for steady growth.

“There are many districts that aren't growing, enrollment-wise, and there are some that are. But on the charter side of things, many charter schools are growing,” Diamante said. “So this essentially froze the charter-school payment amounts at lower levels than the formula would have intended them to be at. It's created this really skewed funding for both districts and charters.”

At the same time, while state aid has not grown to match the greater number of charter students, local tax support still must track enrollment. As charters have expanded, their districts have had to transfer more money to them, leaving less for the traditional schools. As noted by Save Our Schools NJ, an advocacy group that is critical of charters, having students switch to charters “generally does not reduce costs for the district.” For example, when a traditional school loses just a few students, it must still pay the same number of teachers and other staff, despite losing the funding attached to those students.

In some districts with substantial charter enrollment, like Newark, losses have resulted in staff reductions and the closing of traditional schools, but the resulting savings have not fully made up for the reduced funding.

Adjustment aid: While charters receive 90 percent of the local tax levy and equalization aid per student for their districts, in a number of places the total per-pupil funding is actually well below 90 percent of the per-pupil amount in their districts’ traditional schools. A stark example is Jersey City, where the district spends $23,455 per student and most of the charters spend $13,000 to $14,000.

One reason is adjustment aid, also called hold harmless aid. Adjustment aid was created by the SFRA to make sure districts would not see sudden drops in funding under the new formula. It was calculated based on their 2007-2008 aid figures. It was supposed to gradually phase out as affected districts adapted to their lower allotments, but instead it has been maintained ever since.

However, only 10 charters, which predate the law, receive adjustment aid, according to Diamante. In other districts with charters the adjustment aid goes only to the traditional schools, leading to disparities. In addition, getting adjustment aid allows districts to avoid hiking their local school tax levies, which they would have to share with the charters.

“In Jersey City, adjustment aid was supposed to have phased out, and that money obviously wouldn't just have disappeared; it would have been money that Jersey City would have had to then made up in their local tax levy, and the local tax levy is one of the categories that charter schools would qualify for,” Diamante said.

Hold harmless aid for charters: The Department of Education every three years issues reports on the weighting for at-risk, special education, and English language learner students in the funding formula. In 2013, the Legislature rejected a funding report, resulting in changes in weighting that would have cut charter funding by $100 million in one year, Diamante said. To prevent such a massive cut, the administration included hold harmless funding for charters in the subsequent state budget.

The latest report again suggests weighting changes that would reduce charter funding. In response, the Christie administration has proposed a $57 million increase in charter hold harmless aid in the 2016-2017 budget, which would keep total funding for charter schools the same.

Facilities: The unpredictability of aid year to year has exacerbated facilities issues faced by some charters. Charter schools are barred from using their operating funds to build or renovate their campuses, so typically an outside organization does the work and the schools cover the cost through their lease payments, which is permitted. But banks may not want to loan money for projects after they see how much aid can fluctuate, Diamante said.

“The funders are reluctant to count on that dollar amount, and so it's becoming increasingly difficult for charter schools to get facilities funding,” he said.

Direct funding: State aid for charter schools is routed through districts; they receive the funding and transfer it over. This makes it seems like the money is being taken away from the district, even though it was destined for the charters all along, Diamante said. Department of Education officials have discussed sending the aid directly to the charters in future years, with an aim toward easing tension between the charter schools and their districts. But charter advocates say the change would not in itself affect the amount of money either side receives.

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