oversight

Charter Schools: Issues Affecting Access to Federal Funds

Published by the Government Accountability Office on 1997-09-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                              United States General Accounting Office

GAO                           Testimony
                              Before the Subcommittee on Early Childhood, Youth and
                              Families, Committee on Education and the Workforce,
                              House of Representatives


For Release on Delivery
Expected at 10:00 a.m.
Tuesday, September 16, 1997
                              CHARTER SCHOOLS

                              Issues Affecting Access to
                              Federal Funds
                              Statement of Cornelia M. Blanchette, Associate Director
                              Education and Employment Issues
                              Health, Education, and Human Services Division




GAO/T-HEHS-97-216
Charter Schools: Issues Affecting Access to
Federal Funds

               Mr. Chairman and Members of the Subcommittee:

               We are pleased to be here today to discuss charter schools’ ability to
               access federal funding—specifically, categorical education grant funds.

               Charter schools are a rapidly growing phenomenon, offering a new model
               for public schools. This model is intended to address a variety of concerns
               about our educational system, including unresponsive school district
               bureaucracies, restrictive rules, limited choices among types of public
               schools, and a lack of accountability for student performance. Charter
               schools are generally designed to operate with more autonomy than are
               public schools. In exchange for varying degrees of autonomy from state
               and local rules and regulations, charter schools are held accountable for
               meeting the terms of their charters, which include achieving stipulated
               academic outcomes. Schools that do not meet the terms of their charters
               face having their charters revoked.

               While public schools are primarily financed with state and local revenues,
               the federal government provides several billion dollars annually to assist
               public schools in educating our children. For example, during fiscal year
               1997, the federal government will provide over $7 billion under title I of
               the Elementary and Secondary Education Act to help schools provide
               additional services to disadvantaged children to help close the
               achievement gap that exists between them and their wealthier peers. In
               addition, under the Individuals With Disabilities Education Act (IDEA), the
               federal government helps schools pay for the additional costs incurred in
               providing a free, appropriate public education to disabled children. This
               year, the federal government is making $3.5 billion available for this
               program. While all public schools could be eligible for funds under these
               programs, concerns have been raised at recent congressional hearings
               about whether charter schools, as public academic institutions, are
               receiving an equitable share of these federal funds.

               Today, I would like to discuss (1) how federal title I and IDEA funds are
               distributed to charter schools, and the opinions of charter school
               operators on whether the distribution is equitable, and (2) what factors
               appear to be facilitating and impeding charter schools in accessing these
               funds. My discussion today is based on preliminary results of the ongoing
               study of these issues that we are conducting at your request. We are
               conducting case studies in seven states1 and a telephone survey of a
               representative sample of charter schools located in these states. These

               1
                The states are Arizona, California, Colorado, Massachusetts, Michigan, Minnesota, and Texas.



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Charter Schools: Issues Affecting Access to
Federal Funds




states accounted for 91 percent of the charter schools operating during the
1996-97 school year. To date, we have completed about 30 of 50 planned
telephone surveys of charter schools. Because of the sampling
methodology used, our results cannot be applied to the 9 percent of
charter schools that operate outside our sample states.2

In summary, title I and IDEA funds are allocated to schools that meet
established federal, state, and local demographic criteria. These criteria
relate to the number of enrolled children from low-income families and the
number of enrolled children with disabilities that require special education
services. Although most public schools receive funding under these
programs, some public schools—including some charter schools—do not
meet eligibility criteria and, as a result, do not receive funding. Our
preliminary work suggests that states are allocating federal funds to
charter schools in much the same manner as they allocate funds to
traditional public schools. In general, states either treat charter schools as
individual school districts or as components of existing districts. Although
charter schools treated as school districts avoid having to meet additional
criteria used to distribute funds beyond the district level, our survey
results thus far indicate that these schools were no more likely to have
received title I and IDEA funds for the 1996-97 school year than were
charter schools treated as components of existing school districts. Most
charter school operators we surveyed who expressed an opinion told us
that they believe they received an equitable share of federal title I and IDEA
funds.

While charter schools do not appear to be at a disadvantage in terms of
how federal funds are allocated, our survey has revealed a variety of
barriers that have made it difficult for charter schools to access title I and
IDEA funds. These factors include, for example, a lack of enrollment and
student eligibility data to submit to states before funding allocation
decisions are made and the time required and the costs involved in
applying for such funds, given the amount of funds available. In addition,
some charter schools have failed to meet statutory eligibility requirements
for receiving federal funds. Charter school operators most often cited
training and technical assistance as factors that facilitated their accessing
title I and IDEA funds. On the basis of survey responses, some states appear
to be making a comprehensive effort to inform charter schools of the
availability of federal funds and how to apply for them. For example,
charter school operators in Arizona told us that their state department of


2
 App. I shows the number of schools (1) operating in each of the selected states, (2) included in our
sample, and (3) responding to our survey.



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             education notifies them of funding opportunities and application
             requirements. Charter school operators in other states told us that they
             received technical assistance from local school districts, while other
             charter school operators employed consultants to assist them.


             Charter schools are public schools that operate under a state charter (or
Background   contract) specifying the terms under which the schools may operate. They
             are established under state law, do not charge tuition, and are
             nonsectarian. State charter school laws and policies vary widely with
             respect to the degree of autonomy provided to the schools, the number of
             charter schools that may be established, the qualifications required for
             charter school applicants and teachers, and the accountability criteria that
             charter schools must meet.

             Since 1991, 29 states and the District of Columbia have enacted laws
             authorizing charter schools. In school year 1996-97, over 100,000 students
             were enrolled in nearly 500 charter schools in sixteen states and the
             District of Columbia. Most charter schools are newly created. According to
             the Department of Education, of the charter schools operating as of
             January 1996, about 56 percent were newly created, while about
             33 percent were converted from preexisting public schools and about
             11 percent were converted from preexisting private schools.3 Appendix II
             shows the states that have enacted charter laws, and the number of
             charter schools in operation during the 1996-97 school year, by state.

             Both the Congress and the administration have shown support for charter
             schools. For example, in amending the Elementary and Secondary
             Education Act in 1994, the Congress established a grant program to
             support the design and implementation of charter schools. In addition,
             under the Goals 2000: Educate America Act, states are allowed to use
             federal funds to promote charter schools. The administration proposed
             doubling the roughly $50 million made available under the new charter
             school grant program in fiscal year 1997 to $100 million for fiscal year
             1998. Finally, in his 1997 State of the Union Address, the President called
             for the establishment of 3,000 charter schools nationwide by the next
             century.

             In January 1997, the Congress began holding a series of hearings in
             Washington, D.C., and around the country to explore the effects of various
             education reform efforts. Among other reform efforts, the Congress has

             3
              Not all states allow private schools to convert to charter status.



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                  focused on the recent development of charter schools in various states.
                  Concerns were raised during the hearings by charter school operators and
                  others about whether charter schools were receiving equitable allocations
                  of federal categorical grant funds. Recent research conducted by the
                  Department of Education4 and by the Hudson Institute,5 a private,
                  not-for-profit public policy research organization, raised similar concerns.
                  Although dozens of financial aid programs exist for public elementary and
                  secondary schools, two programs—title I and IDEA—are by far the largest
                  federal programs.


Title I Program   Title I is the largest federal elementary and secondary education aid
                  program. The Department of Education administers title I, which received
                  over $7 billion in federal funding in fiscal year 1997. Under the program,
                  grants are provided to school districts—or local education agencies6 (LEA),
                  as defined in federal statute and regulations—to assist them in educating
                  disadvantaged children—those with low academic achievement attending
                  schools serving relatively low-income areas. The program is designed to
                  provide increasing levels of assistance to schools that have higher
                  numbers of poor children. Nationwide, the Department of Education
                  makes available to LEAs an annual average of about $800 for each child
                  counted in the title I allocation formula.

                  Under title I, the federal government awards grants to LEAs through state
                  education agencies (SEA). SEAs are responsible for administering the grants
                  and distributing the funds to LEAs. About 90 percent of the funds the
                  Congress appropriates is distributed in the form of basic grants, while
                  about 10 percent is distributed as concentration grants, which are awarded
                  to LEAs serving relatively higher numbers of children from low-income
                  families. Roughly 90 percent of LEAs nationwide receive basic grants.

                  Federal statutory and regulatory guidelines require LEAs to meet minimum
                  thresholds in order to be eligible for title I funds. To be eligible for basic
                  grants, LEAs generally must have enrolled at least 10 children who are from
                  low-income families, and these 10 children must constitute more than

                  4
                   U.S. Department of Education, Office of Educational Research and Improvement, “A Study of Charter
                  Schools, First Year Report” (Washington, D.C.: Department of Education, May 1997).
                  5
                   Hudson Institute, “Charter Schools in Action,” final report (Washington, D.C.: Hudson Institute,
                  July 1997).
                  6
                   Under federal law, the term “local educational agency” means a public board of education or other
                  public authority legally constituted within a state that administratively controls, directs, or performs a
                  service function for public elementary or secondary schools in a city, county, township, school district,
                  or other political subdivision of a state, or for a combination of school districts or counties recognized
                  by a state as an administrative agency for its public elementary or secondary schools.


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               2 percent of their school-aged population. To be eligible for concentration
               grants, LEAs generally must have enrolled more than 6,500 children from
               low-income families, or more than 15 percent of their students must be
               from low-income families.7

               An LEA that receives title I funds and has more than one school within its
               district has some discretion in allocating these funds to individual schools.
               The LEA must rank its schools8 according to the proportion of children that
               come from low-income families enrolled in each school. LEAs must use the
               same measure of poverty in ranking all their schools, but LEAs have some
               discretion in choosing a particular measure. LEAs must allocate title I funds
               or provide title I services first to schools that have more than 75 percent of
               their students coming from low-income families. After providing funds or
               services to these schools, LEAs have the option of serving schools that do
               not meet the 75-percent criterion with remaining funds. Although a LEA is
               not required to allocate the same per-child amount to each school in its
               district, it may not allocate a higher amount per child to schools with
               lower poverty rates than to schools with higher poverty rates.


IDEA Program   IDEA, part B, is a federal grant program administered by the Department of
               Education that is designed to assist states in paying the costs of providing
               an education to children aged 3 to 21 with disabilities. The act requires,
               among other things, states to provide a free appropriate public education
               to all children with disabilities and requires that they be served in the least
               restrictive environment possible. The Congress appropriated $3.5 billion
               for the program in fiscal year 1997. These funds were expected to provide,
               on average, about $625 of services for each of 577,000 eligible preschool
               children, and $536 of services for each of 5.8 million eligible elementary
               and secondary school students.

               Federal statutory and regulatory allocation guidelines are less complex
               under the IDEA program than under title I. Annually, the Department of
               Education allocates funds to eligible states on the basis of their reported
               numbers of children receiving special education and related services




               7
                In 1994, the Congress amended title I to provide LEAs a third grant type—“targeted assistance” grants.
               Should the Congress appropriate funds for these grants in the future, funds will be provided to LEAs
               that serve at least 10 eligible children constituting at least 5 percent of the children served by an LEA.
               8
                We use the term “school” to include school attendance areas. School attendance areas may be
               designated by an LEA for the purpose of ranking schools in allocating title I funds.



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                    during the preceding fiscal year,9 the national average per-pupil
                    expenditure, and the amount appropriated by the Congress for the
                    program. The per-disabled-pupil amount that can be allocated for IDEA
                    services is capped at 40 percent of the national average per-pupil
                    expenditure.10,11

                    States use their own formulas to allocate funds. States must provide at
                    least 75 percent of the IDEA funds they receive to eligible LEAs or other
                    public authorities, and they may reserve the rest for statewide programs.
                    Before the 1997 IDEA reauthorization, an LEA entitled to an allotment of less
                    than $7,500 could not receive funding directly, according to federal
                    statutory provisions. Instead, the LEA had to either rely on the state for
                    services or join with other LEAs to collectively meet the $7,500 threshold
                    and receive funds to serve eligible students. In reauthorizing IDEA, the
                    Congress removed the $7,500 threshold. As a result, LEAs, including charter
                    schools that are treated as LEAs, are no longer required to join with other
                    LEAs in order to meet that threshold.


                    Each state has different procedures for allocating special education aid to
                    LEAs. Some states use census information to allocate a fixed amount per
                    eligible student. Other states allocate funds on the basis of reimbursement
                    rates for allowable expenses. Still other states allocate funding to LEAs on
                    the basis of the severity and types of students’ disabilities.


                    States use several arrangements to provide funds to charter schools. In
Charter Schools’    general, states allocate title I funds, and IDEA funds or services, to charter
Federal Funding     schools using one of three approaches. The seven states in our review
Arrangements Vary   used all three.

                    Under the first approach, states treat charter schools as LEAs. That is, SEAs
                    directly allocate title I funds and IDEA funds or services to charter schools.
                    Massachusetts and Minnesota use this approach. California and Colorado,
                    on the other hand, do not consider charter schools to be LEAs. These states
                    treat charter schools as members of an existing school district—that is,
                    charter schools have a “parent” LEA. Under this second approach, states


                    9
                     The reported number of children that received special education services during the previous year
                    may not exceed 12 percent of the total number of all school-aged children in the state during the same
                    period.
                    10
                        This cap has not yet been applied, since the amount appropriated has so far been less than the cap.
                    11
                      The 1997 reauthorization provides that when the Congress appropriates more than $4.9 billion for
                    IDEA, part B, the states will receive their prior fiscal year allocation. Eighty-five percent of the
                    remaining appropriation will be distributed to states on the basis of census counts of school-aged
                    children, and 15 percent will be distributed on the basis of school-aged children in poverty.
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                             allocate title I funds and IDEA funds or services to charter schools’ parent
                             LEAs. Charter schools, along with other public schools in the district, then
                             receive their share of funds or services from their parent LEAs. The third
                             approach for allocating funds to charter schools involves a mixture of the
                             first and second approaches. In general, a charter school in a state using
                             this approach receives federal funds directly from the SEA—and thus is
                             treated as an LEA—if the school was chartered by a state agency, or
                             through a parent LEA, if the school was chartered by a district or substate
                             agency. States using this model include Arizona, Michigan, and Texas.12

                             Regardless of which of the three approaches states use, individual charter
                             schools are generally allocated funds on the basis of whether they are
                             treated as (1) an independent LEA, or school district (independent model),
                             or as (2) a dependent of an LEA—that is, as a public school component of a
                             preexisting school district (dependent model). Throughout my testimony, I
                             refer to these two methods in allocating funds to charter schools as the
                             (1) independent model and the (2) dependent model, respectively.


Charter Schools’ LEA         Under title I and IDEA, the Department of Education is responsible for
Status Dictates Minimum      allocating funds to SEAs, which are required to allocate funds to LEAs. LEAs,
Criteria Used to Determine   in turn, may allocate funds to individual schools in their districts. While
                             charter schools operating under the independent model are considered
Funding Eligibility          LEAs, charter schools operating under the dependent model are not.
                             Because LEAs are allowed some discretion in allocating funds to individual
                             schools within their districts, whether a charter school is treated as an LEA
                             or as a dependent of an LEA is important.

                             Under the title I program, SEAs distribute funds directly to eligible LEAs. To
                             be eligible for funds, LEAs—including charter schools operating under the
                             independent model—must meet the minimum statutory eligibility criteria
                             of having enrolled at least 10 children from low-income families and
                             having their low-income children constitute more than 2 percent of their
                             school-aged population. No further distribution of funds needs to occur
                             when an LEA has only one school, as is the case when an individual charter
                             school is treated as an LEA under the independent model.




                             12
                               In Michigan, the only state-level agencies that grant charters to schools are state universities. Other
                             chartering authorities include local school boards, regional intermediate school districts, and
                             community colleges. In allocating federal funds, the state considers all charter schools to be LEAs.
                             However, charter schools receive funds or services through their chartering authority or other
                             intermediary. We, therefore, consider Michigan as using the third approach.



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                                        LEAs that have more than one school—including charter schools operating
                                        under the dependent model—are responsible for allocating title I funds
                                        among their several schools. The federal statute and regulations lay out a
                                        complex set of criteria and conditions that LEAs use in deciding how to
                                        allocate funds to their schools. The intent of the statute is to shift title I
                                        funds received by LEAs to individual schools with relatively higher
                                        numbers and percentages of students from low-income families. Individual
                                        schools—including charter schools—within a multiple-school LEA,
                                        therefore, must potentially meet higher eligibility thresholds than they
                                        would if they were each considered an independent LEA. As a result, some
                                        charter schools that would have received title I funds under the
                                        independent model may not receive such funds because they are
                                        components of LEAs.

                                        Under the IDEA program, states have greater latitude than under title I to
                                        develop systems of their own to distribute program funds or special
                                        education services to schools and school districts. Given this latitude, the
                                        manner in which charter and other public schools receive these funds
                                        varies by state. For example, Arizona is currently in the process of
                                        allocating IDEA funds to charter schools on a pro-rata (per-eligible-student)
                                        basis. In Minnesota, the state reimburses charter schools for IDEA-eligible
                                        expenses. Yet another state—California—allocates its share of funds to
                                        so-called “special education local plan areas.” Special education local plan
                                        areas are typically composed of adjacent school districts that jointly
                                        coordinate special education programs and finances in that state. Schools
                                        within these areas generally receive special education services, rather than
                                        grant funds.


Charter Schools Report                  Overall, slightly more than two-fifths of the charter schools we surveyed
Mixed Results in Receiving              received title I funds. Survey results indicated that slightly less than
Federal Funds                           one-half of charter schools operating under the independent model, and
                                        one-half of the schools operating under the dependent model, received
                                        title I funds for the 1996-97 school year. Table 1 shows the number of
                                        charter schools surveyed that received title I funds, by funding model.

Table 1: Numbers of Surveyed Charter
Schools That Received and Those That                                                            Independent Dependent                  Total
Did Not Receive Title I Funds for the   Received title I funds                                                8              6           14
1996-97 School Year, by Funding                                       a
                                        Did not receive title I funds                                       12               6           18
Model
                                        a
                                        Eleven of these schools told us they did not apply for title I funds. We could not determine
                                        whether they would have received title I funds had they applied.




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                                       About one-third of the charter schools we surveyed did not apply for title I
                                       funds. Charter school officials who did not apply cited reasons such as
                                       they (1) did not have time to do so, (2) knew they were ineligible for funds
                                       and therefore did not apply, or (3) found that applying for these funds
                                       would cost more than they would receive. Of those that applied for title I
                                       funds, two-thirds, or 14 of 21, reported receiving them. Title I funding for
                                       these schools ranged from $96 to $941 per eligible student; the average
                                       was $499 per eligible student, and the median was $435. The difference in
                                       per-student funding is related to the allocation formulas, which take into
                                       account the number and proportion of low-income children in the school,
                                       district, and county. Title I funds received by these schools represented
                                       between 0.5 percent and 10 percent of their total operating budgets. For all
                                       but three schools, funds received represented 5 percent or less of the
                                       schools’ total operating budgets.13

                                       With regard to the IDEA program, one-half of our survey respondents
                                       received funds or IDEA-funded services. Of all charter schools surveyed,
                                       two-fifths of the schools operating under the independent model received
                                       funds or IDEA-funded services, while two-thirds of those operating under
                                       the dependent model received funds or services. Table 2 shows the
                                       number of charter schools surveyed that received IDEA funds or
                                       IDEA-funded services, by funding model.


Table 2: Numbers of Surveyed Charter
Schools That Received and Those That                                                              Independent Dependent               Total
Did Not Receive IDEA Funds or          Received IDEA funds or funded services                                     8        8            16
IDEA-Funded Services for the 1996-97
                                       Did not receive IDEA funds or funded servicesa                             12       4            16
School Year, by Funding Model
                                       a
                                        Eleven of these schools told us they did not apply for IDEA funds or services. We could not
                                       determine whether they would have received funds or services had they applied.



                                       Overall, about a third of the charter schools we surveyed did not apply for
                                       IDEA funds or services. Charter school officials who did not apply cited
                                       reasons such as they (1) did not have time to do so, (2) were not eligible
                                       for funds, (3) were unaware of the availability of IDEA funds, or (4) found
                                       that applying for these funds would cost more than they would receive.
                                       Four-fifths of the charter school officials who told us that they applied for
                                       IDEA funds or services reported that they received funds or services for the
                                       1996-97 school year. For schools that obtained IDEA funds, as opposed to
                                       services, amounts received ranged from $30 to $1,208 per eligible student;
                                       the average was $443 per eligible student, and the median was $163. IDEA


                                       13
                                           This applies to the 13 schools reporting a 1996-97 operating budget.



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                                         funds received by schools represented between 0.08 percent and
                                         2.5 percent of their total operating budgets.14


Most Charter School                      Regardless of funding model, more than two-thirds of charter school
Operators Surveyed                       operators expressing an opinion believed that they received an equitable
Believed They Received an                share of both title I and IDEA funding. About one-fourth of the charter
                                         school operators we surveyed told us that they had no basis on which to
Equitable Share of Title I               form an opinion or did not answer the question. (See tables 3 and 4). With
and IDEA Funds                           regard to IDEA funding or IDEA-funded services, however, as many survey
                                         respondents under the independent funding model believed that they
                                         received an equitable share as believed that they did not receive an
                                         equitable share. For charter schools under the dependent model, on the
                                         other hand, almost five times as many survey respondents believed that
                                         their schools received an equitable share as believed that they did not
                                         receive an equitable share. (See table 4.)

Table 3: Charter School Operators’
Opinions About Whether They                                                                         Independent Dependent                      Total
Received an Equitable Share of Title I   Received equitable share                                                 9              8               17
Funding, by Funding Model
                                         Did not receive equitable share                                          5              3                8
                                         Had no opiniona                                                          6              1                7
                                         a
                                         “Had no opinion” includes nonrespondents and respondents who said they had no basis on
                                         which to form an opinion.



Table 4: Charter School Operators’
Opinions About Whether They                                                                         Independent Dependent                      Total
Received an Equitable Share of IDEA      Received equitable share                                                 7              9               16
Funding or IDEA-Funded Services, by
                                         Did not receive equitable share                                          7              2                9
Funding Model
                                         Had no opiniona                                                          6              1                7
                                         a
                                         “Had no opinion” includes nonrespondents and respondents who said they had no basis on
                                         which to form an opinion.



                                         In general, charter school officials who told us they viewed title I and IDEA
                                         funding as equitable said that the use of established formulas assured
                                         them that they received a fair share, and that funds were not being
                                         arbitrarily allocated. One official told us that he compared the amount of
                                         funds that his school received with that of similar public schools in the
                                         area and thought his share was equitable. Officials who told us that they
                                         had no basis on which to form an opinion said they had little

                                         14
                                             This applies to the five schools reporting a 1996-97 operating budget and receiving IDEA funds.



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                          understanding of the allocation formulas and did not know if funds were
                          equitably allocated. One official told us that she believed her school did
                          not receive an equitable share of funds because the school’s parent district
                          used its discretion in allocating higher funding levels to another school in
                          the district. Another official told us he believed funding formulas were
                          biased towards larger schools and school districts, which had the effect of
                          reducing the amount of funds available for smaller schools like his. Yet
                          another charter school operator told us that he believed title I funds were
                          not equitably allocated because funds are not distributed on a per-capita,
                          or per-eligible-student, basis.


                          On the basis of our preliminary work, charter schools do not appear to be
Charter School            at a disadvantage in terms of how federal funds are allocated. However,
Officials Cited Several   our survey has identified a variety of barriers that made it difficult for
Barriers to Receiving     charter school operators to apply for and receive title I and IDEA funds. For
                          example, three officials told us that because they had no prior year’s
Title I and IDEA          enrollment or student eligibility data, they were not eligible under state
Funds                     guidelines for federal funds. In its July 1997 report, the Hudson Institute
                          also found that title I funds were typically allotted on the basis of the
                          previous year’s population of title I-eligible children, “leaving start-up
                          charters completely stranded for their first year.” Two of our three
                          respondents for whom lack of prior year’s enrollment data was a problem
                          were newly created schools, while the third was converted from a
                          formerly private institution.

                          Start-up eligibility issues are not always limited to a school’s first year of
                          operations. Some officials noted that their schools are incrementally
                          increasing the number of grades served as the original student body
                          progresses. For example, one school official told us that while the school
                          currently serves grades 9 and 10, the school will eventually serve grades 9
                          through 12.

                          Officials we spoke with at other schools during our survey were
                          implementing a similar growth strategy. In these cases, a 1-year lag in
                          reported enrollment data—reflecting past rather than current
                          enrollment—may significantly affect the amount of federal funding to
                          which a school may be entitled. For example, one charter school official
                          we spoke with told us that next year she will receive title I funds on the
                          basis of this year’s enrollment of about 100 students. She anticipates,
                          however, that enrollment will increase almost 50 percent next year, and
                          that the school will be eligible for additional title I funding for each of



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about 40 newly enrolled students. But because of the time lag in reporting
data, the school will have to wait until the following year for the additional
funds. Over time, as enrollment stabilizes, these issues will pose fewer
problems for school officials. Charter schools that were converted from
traditional public schools generally do not have this problem when current
enrollment is at or near full capacity and title I eligibility has previously
been established.

Moreover, some school officials reported difficulty obtaining the student
eligibility data required to receive title I funds. In some states, school
officials themselves must collect data on students’ family incomes in order
to establish eligibility for federal funds. Some officials told us that because
of privacy concerns, some families are reluctant to return surveys sent
home with students that ask for the income levels of students’ households.
An official told us that he believed parents may not understand that such
data are used to qualify children for free and reduced-price lunches for
schools that operate such programs, as well as for establishing the
schools’ eligibility for federal grant funds.

In other cases, charter school officials must take additional steps to
establish their eligibility for title I funds over and above those faced by
their traditional public school counterparts. For example, in one state,
charter school officials must manually match their student enrollment
records against state and local Aid to Families With Dependent Children
records to verify student eligibility. The business administrator for a
charter school with an enrollment of about 1,000 students told us that it
takes him and another staff person approximately 2 full days to complete
this process. He said that while this procedure is accomplished
electronically for traditional public schools, city officials told him that he
had no such option.

Another charter school official told us that timing issues prevented her
from being able to access federal funds. For example, she said that her
school’s charter was approved after the deadline had passed for the state
allocation of title I funds to public schools. The same school official said
that her lack of awareness of what was required to obtain IDEA funds led
her to underestimate the time required to prepare and submit applications,
and she was thus unable to submit them on time.

In addition, because charter schools are a recent phenomenon, some
officials said that it took time to develop funding allocation policies and
procedures with state, district, or local officials for charter schools to



Page 12                                                       GAO/T-HEHS-97-216
Charter Schools: Issues Affecting Access to
Federal Funds




access these funds. For example, the business administrator at a charter
school we visited told us that it took numerous visits and phone calls to
district officials to understand the allocation processes and procedures, as
well as to negotiate what he thought was an equitable share of federal
funding for his school. District officials we spoke with noted that because
their school district had approved and issued several charters to individual
schools with varying degrees of fiscal autonomy, working out allocation
issues has taken some time. District officials noted that they have limited
time and resources to use in developing new policies and procedures for
charter schools, especially because the number of charter schools and
their student populations constitute a very small portion of their overall
operations.

In some cases, charter school officials noted that they did not receive
funds because they failed to meet federal or district qualifying
requirements. For example, current federal requirements mandate that
LEAs—charter schools operating under the independent model—have at
least 10 children from low-income families enrolled and that such children
constitute more than 2 percent of their school-aged population. Of 32
schools responding to our survey, 9 had fewer than 10 students who were
eligible for title I funds.

Schools operating under the dependent funding model may face more
barriers than do schools operating under the independent funding model
because dependent-model schools must go through an intermediary—or
school district—in accessing federal funds, rather than receiving funds
directly from the state. One charter school operator told us that she
believed that her school’s parent LEA unfairly used its discretion in
allocating funds to schools within its district. She said that other schools
in the district received higher funding levels than did her school. Even
though state officials told her that it was within the LEA’s discretion to
allocate funds the way it did, she believes that district officials were
singling her school out for disparate treatment because it is a charter
school. Another charter school operator told us that uncooperative district
officials were an obstacle in accessing federal funds because they were
unwilling to provide assistance in obtaining funding for her school.

Charter school officials reported encountering barriers in accessing IDEA
funds as well. Until June 1997, federal statutory provisions prohibited
states from allocating IDEA funding to a school district that would be
entitled to less than $7,500. In order to receive funds, such school districts
were required to join consortiums with other districts to surpass the



Page 13                                                      GAO/T-HEHS-97-216
Charter Schools: Issues Affecting Access to
Federal Funds




$7,500 threshold and collectively file a joint application. Given recent
federal IDEA appropriations, a school district, or group of districts, is
required, in effect, to have enrolled approximately 20 to 25 eligible
students to meet the $7,500 threshold. Of the charter schools responding
to our survey, 17 enrolled 20 or fewer IDEA-eligible students. Two survey
respondents told us that the requirement for schools to join consortiums
to access IDEA funds discouraged or prevented them from pursuing these
funds.

Moreover, some charter school officials have philosophical differences
with IDEA requirements and forego IDEA funding because it does not
accommodate their educational methods, according to a charter school
technical assistance provider we visited. She said that IDEA requires
schools to develop written individualized education programs (IEP) for
disabled children, and requires schools to follow specified processes in
developing these IEPs. In order to receive IDEA funds, schools must have
prepared these IEPs for disabled students. In contrast to preparing IEPs for
disabled children only, she said some charter schools approach to
education includes considering that all children have special needs.
Accordingly, they develop a unique education plan for each child, stressing
individualized instruction. The Hudson Institute, in conducting its study,
visited charter schools and spoke with school officials and parents who
said they preferred that their children not be “labeled” and did not want
their educational needs met in “cumbersome, standardized ways.”

The application process was also cited as a barrier. However, survey
results to date have revealed that of those charter school operators
expressing an opinion, more thought that the title I application process
was “not at all difficult” than thought it was “very difficult”—over
three-fifths versus about one-fourth. Regarding the IDEA application
process, somewhat less than half of charter school operators expressing
an opinion believed it was “very difficult,” while slightly more than half
said it was only “somewhat” or “not at all” difficult. Nonetheless, several
officials told us that the costs and the time involved in applying for funds
and complying with monitoring and reporting requirements were not
worth the effort. One charter school official in Arizona told us that he
estimated it would cost him about $85,000 to obtain $35,000 in federal
funds for his charter schools. Another official in Arizona said that his
charter school would only qualify for about $1,000 in federal funding, and
he would not bother pursuing any funds unless the grant would amount to
about $4,000 or $5,000. Another official told us that she had been unaware
that she would be required to file a joint application with other LEAs in



Page 14                                                    GAO/T-HEHS-97-216
                           Charter Schools: Issues Affecting Access to
                           Federal Funds




                           order to receive IDEA funding until the state informed her of the
                           requirement. Another official told us that although she had contacted a
                           local school district that was willing to jointly file an application with her
                           school, a lack of time to prepare the application and the small amount of
                           funds to which her school would be entitled led her to decide not to
                           pursue the funds.

                           In our discussions with them, several charter school officials emphasized
                           that they had very little time and resources available to devote to
                           accessing title I and IDEA funds. These officials often played multiple roles
                           at their schools, including principal, office manager, nurse, and janitor.
                           One operator told us that it would not be stretching the truth much to say
                           that if all he was required to do was to sign on a dotted line, stuff an
                           envelope, and lick a stamp, he would not have time. Another operator told
                           us that if she receives anything in the mail with the words “title I” on it, she
                           throws it away because she has so little time to attend to such matters.
                           This operator also added that she found the costs of accessing federal
                           funds excessive since she would be restricted in terms of how she could
                           use these funds. She said that it was more reasonable for her to determine
                           how such funds should be spent than for federal and state regulations to
                           dictate these decisions.


                           Charter school operators reported that outreach and technical assistance
Charter School             were key factors that facilitated their ability to access federal funds. Other
Officials Report a         factors cited by school officials included the use of consolidated program
Variety of Factors         applications, the use of computerized application forms and processes,
                           and the ability to rely on sponsoring district offices for grants
Facilitate Their Ability   administration.
to Access Federal
Funds
Outreach and Technical     Charter school officials most frequently cited receiving information about
Assistance Most            the availability of federal funds and how much their schools would be
Frequently Cited as        eligible for as facilitating factors in accessing title I and IDEA monies.
                           Officials cited a number of sources from which they had obtained such
Facilitating Factors       information, including their own states’ departments of education and
                           local school district officials. In addition, charter school officials credited
                           training and technical assistance provided by these sources with helping
                           them to access federal funds.




                           Page 15                                                       GAO/T-HEHS-97-216
             Charter Schools: Issues Affecting Access to
             Federal Funds




             On the basis of our conversations with school officials, it appears that
             some states are doing more than others to provide assistance to charter
             schools. In particular, survey respondents in Arizona reported nearly
             unanimous praise for the amount and availability of assistance provided
             by the state department of education. They noted that the state has
             actively informed them of funding opportunities and offered them
             technical assistance on many occasions.

             A respondent in another state cited the use of consolidated applications as
             a facilitating factor in accessing funds. Under the title I program, SEAs may
             allow LEAs to submit one application for several federally funded
             programs.15 Another respondent told us that her SEA’s use of the Internet,
             over which she could obtain and submit her school’s title I application,
             facilitated her access to these funds. Still another respondent told us that
             being able to rely on his charter school’s parent LEA for federal grants
             administration relieved him of the burden of administering the grant and
             thus facilitated his access to federal funds. Finally, some respondents told
             us that their schools employed consultants to assist in applying for federal
             and state funds, which enabled them to focus their time and effort on
             other matters.


             In conclusion, our preliminary work suggests that the barriers that charter
Conclusion   schools face in accessing federal funds appear to be unrelated to whether
             charter schools are treated as school districts or as members of school
             districts. Rather, other barriers, many of which are not related to the path
             federal funds take, have had a more significant effect on charter schools’
             ability to access title I and IDEA funds. These other barriers include state
             systems that base funding allocations on the prior year’s enrollment and
             student eligibility data, the costs of accessing funds relative to the
             amounts that schools would receive, and the significant time constraints
             that prevent charter school operators from pursuing funds. Despite these
             barriers, most charter school operators who expressed an opinion believe
             that title I and IDEA funds are equitably allocated to charter schools.


             This concludes my statement, Mr. Chairman. I would be happy to answer
             any questions you or Members of the Subcommittee may have.



             15
               These other programs include the title II Eisenhower Professional Development Program, title III
             educational technology programs, the title IV Safe and Drug-Free Schools and Communities—state and
             local formula grants—program, and the title VI Innovative Education Strategies program.



             Page 16                                                                     GAO/T-HEHS-97-216
Page 17   GAO/T-HEHS-97-216
Appendix I

Charter Schools Operating in School Year
1996-97 in Selected States, Included in Our
Sample, and Responding to Our Survey

                                                                                        Schools
                                     Cumulative                              Schools         that           Schools
                Charter Percentage percentage Schools in                    surveyed refused to               yet to
States          schools     of total   of totala sample                       to date participate            survey
Arizona              164              34              34             13b              9              1                2
                                                                        c
California           109              22              57             15             10               1                3
Colorado               32               7             64              3               1              0                2
Massachusetts          22               5             68              7               2              0                5
Michigan               76             16              84              5               4              0                1
Minnesota              19               4             88              6               5              0                1
Texas                  16               3             91              1               1              0                0
           d                                                            e              e               e              e
All others             42               9           100
Total                480             100                             50             32               2               14
                a
                Cumulative percentages of total may not add due to rounding of percentages.
                b
                 Although included in our universe of charter schools, one school had its charter revoked prior to
                the 1996-97 school year.
                c
                 Although included in our universe of charter schools, one school was not yet in operation during
                the 1996-97 school year.
                d
                 Charter schools are also located in Alaska, Delaware, the District of Columbia, Florida, Georgia,
                Hawaii, Illinois, Louisiana, New Mexico, and Wisconsin.
                e
                Not applicable.

                Sources: Center for Education Reform, Washington, D.C., and GAO analysis.




                Page 18                                                                        GAO/T-HEHS-97-216
Appendix II

Charter School States and Number of
Schools Operating in School Year 1996-97



                                                                                           19
                                                                                                     9                                  22
                                                                                                               76
                                      1


                                                                                                       1                            2
                                                                       32
                                                                                                                                    1
                                          109
                                                       164            5
                              3                                                                                     10
                                                                                     16          3

                                                                                                                         6
                                                                 2

           States with charter legislation but no charter schools.
           States included in our survey with number of schools operating in each.
           States and the District of Columbia not included in our survey.


                                                       Source: Center for Education Reform, Washington, D.C.




(104903)                                               Page 19                                                               GAO/T-HEHS-97-216
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