Bruce Baker is a professor of education at the Graduate School of Education at Rutgers; his area of specialization is school finance and the economics of education.

This new paper is a major analysis of the effects of charter schools on their host districts. Until now, there has been little attention paid to the ways that the expansion of charter schools affects the budget and policies of the district in which the charters open. Over the past twenty years, the United States has been developing a dual school system of public schools, open to all and responsible for all students who enroll, and charter schools, which are free of most state regulations and free to remove students they don’t want.

Baker is interested primarily in the fiscal impact of charters but he does consider the disciplinary policies of charters and also their segregating effects.

Here is his summary of his findings. I urge you to read the paper in its entirety to understand how charters are depleting the resources of public schools without necessarily providing a better quality of education.

Effects of charter expansion

District schools are surviving but under increased stress

In some urban districts, charter schools are serving 20 percent or more of the city or districtwide student population. These host districts have experienced the following effects in common:

*While total enrollment in district schools (the noncharter, traditional public schools) has dropped, districts have largely been able to achieve and maintain reasonable minimum school sizes, with only modest increases in the shares of children served in inefficiently small schools.
*While resources (total available revenues to district schools) have declined, districts have reduced overhead expenditures enough to avoid consuming disproportionate shares of operating spending and increasing pupil/teacher ratios.
*Despite expenditure cutting measures, districts simultaneously facing rapid student population decline and/or operating in states with particularly inequitable, under-resourced school finance systems have faced substantial annual deficits.
Charter expansion is not driven by well-known, high-profile operators

Most charter expansion in these cities has occurred among independently operated charter schools.
*High profile, frequently researched nonprofit charter school operators including the Knowledge is Power Program (KIPP) have relatively small shares of the charter school market in all cities except Newark.
*In many of these cities, some of the leading charter operators (those with the most market share) have been the subject of federal and state investigations and judicial orders regarding conflicts of interest (self-dealing) and financial malfeasance. These operators include Imagine Schools, Inc., White Hat Management, National Heritage Academies, and Concept Schools.
*The varied and often opaque financial practices across charter school management companies, while fitting with a competitive portfolio conception, leads to increased disparities across students, irregularities in the accumulation of additional public (publicly obligated) debt, and inequities and irregularities in the ownership and distribution of what were once commonly considered public assets—from buildings and vehicles right down to desks, chairs, and computers.

Charter schools are expanding in predominantly low-income, predominantly minority urban settings

Few are paying attention to the breaches of legal rights of students, parents, taxpayers, and employees under the increasingly opaque private governance and management structures associated with charter expansion.
Expansion of charter schooling is exacerbating inequities across schools and children because children are being increasingly segregated by economic status, race, language, and disabilities and further, because charter schools are raising and spending vastly different amounts, without regard for differences in student needs. Often, the charter schools serving the least needy populations also have the greatest resource advantages.
With the expansion of charter schooling, public districts are being left with legacy debts associated with capital plants and employee retirement systems in district schools while also accumulating higher risk and more costly debt in the form of charter school revenue bonds to support new capital development.
In many cases, the districts under investigation herein are large enough to be cut in half or thirds while still being financially viable, at least in terms of achieving economies of scale. In effect, charter expansion has already halved the size of many urban districts. Similar charter expansion in smaller districts, however, may lead the districts to enroll fewer than 2,000 pupils in district schools and suffer elevated costs. Given the literature on costs, productivity, and economies of scale, it makes little sense in population-dense areas to promote policies that cause district enrollments to fall below efficient-scale thresholds (around 2,000 pupils) or that introduce additional independent operators running below efficient-scale thresholds. It makes even less sense to introduce chartering to rural areas where schools and districts already operate below efficient scale.

Beyond issues of economies of scale, charter expansion can create inefficiencies and redundancies within district boundaries, from the organization and delivery of educational programs to student transportation, increasing the likelihood of budgetary stress on the system as a whole, and the host government in particular. In addition to increasing per pupil transportation expense, ill-planned (or unplanned) geographic dispersion may put more vehicles on already congested urban streets, contributing to traffic and air quality concerns, and significantly reduces the likelihood that children use active transportation (walking or biking) to school (Baker 2014b; Davison, Werder, and Lawson 2008; Evenson et al. 2012; Merom et al. 2006; Rosenberg et al. 2006; Wilson, Wilson, and Krizek 2007).

Here are a few excerpts that I found edifying:

While charter schooling was conceived as a way to spur innovation—try new things, evaluate them, and inform the larger system—studies of the structure and practices of charter schooling find the sector as a whole not to be particularly “innovative” (Preston et al. 2012). Analyses by charter advocates at the American Enterprise Institute find that the dominant form of specialized charter school is the “no excuses” model, a model that combines traditional curriculum and direct instruction with strict disciplinary policies and school uniforms, in some cases providing extended school days and years (McShane and Hatfield 2015). Further, charter schools raising substantial additional revenue through private giving tend to use that funding to a) provide smaller classes, and b) pay teachers higher salaries for working longer days and years (Baker, Libby, and Wiley 2012). For those spending less, total costs are held down, when necessary, through employing relatively inexperienced, low-wage staff and maintaining high staff turnover rates (Epple, Romano, and Zimmer 2015; Toma and Zimmer 2012). In other words, the most common innovations are not especially innovative or informative for systemic reform….

As early as the mid-1990s, authors including Paul Hill, James Guthrie, and Lawrence Pierce (1997) advocated that entire school districts should be reorganized into collections of privately managed contract schools (Hill, Pierce, and Guthrie 2009). This contract school proposal emerged despite the abject failure of Education Alternatives, Inc., in Baltimore and Hartford. This proposal provided a framework for renewed attempts at large-scale private management including the contracting of management for several Philadelphia public schools in the early 2000s. Philadelphia’s experiment in private contracting yielded mixed results, at best (Mac Iver and Mac Iver 2006).2 Notably, Hill and colleagues’ contract school model depended on a centralized authority to manage the contracts and maintain accountability, a precursor to what is now commonly referred to as a “portfolio” model. In the portfolio model, a centralized authority oversees a system of publicly financed schools, both traditional district-operated and independent, charter-operated, wherein either type of school might be privately managed (Hill 2006).3 The goal as phrased by former New York City schools’ chancellor Joel Klein is to replace school systems with systems of great schools (Patrino 2015).

A very different reality of charter school governance, however, has emerged under state charter school laws—one that presents at least equal likelihood that charters established within districts operate primarily in competition, not cooperation with their host, to serve a finite set of students and draw from a finite pool of resources. One might characterize this as a parasitic rather than portfolio model—one in which the condition of the host is of little concern to any single charter operator. Such a model emerges because under most state charter laws, locally elected officials—boards of education—have limited control over charter school expansion within their boundaries, or over the resources that must be dedicated to charter schools. Thus, there is no single, centralized authority managing the portfolio—the distributions of enrollments and/or resources—or protecting against irreparable damage to any one part of the system (be it the parasites or the host)….

Increased attention is being paid to the fiscal and enrollment effects of charter schooling on host districts. These concerns come at a time when municipal fiscal stress and the potential for large-scale municipal and school district bankruptcies are in the media spotlight (Governing 2015). Many high profile cases of municipal fiscal stress are in cities where the charter sector is thriving, for example Chester Upland, Pa., Detroit, and Philadelphia (Layton 2015; Graham 2015; Pierog 2015). Some charter advocates have gone so far as to assert that school district bankruptcy presents a “huge opportunity” to absolve the taxpaying public of existing debts and financial obligations and start fresh under new management, reallocating those funds to classrooms (Persson 2015). Of course, this strategy ignores the complexities of municipal bankruptcy proceedings, and the contractual, social, and moral obligations for the stewardship of publicly owned capital (and other) assets and responsibility to current and retired employees.

Advocates for charter expansion typically assert that charter expansion causes no financial harm to host districts. The logic goes, if charter schools serve typical students drawn from the host district’s population, and receive the same or less in public subsidy per pupil to educate those children, then the per pupil amount of resources left behind for children served in district schools either remains the same or increases. Thus, charter expansion causes no harm (and in fact yields benefits) to children remaining in district schools. The premise that charter schools are uniformly undersubsidized is grossly oversimplified and inaccurate in many charter operating contexts (Baker 2014c). In addition, numerous studies find that charter schools serve fewer students with costly special needs, leaving proportionately more of these children in district schools. Perhaps most important, the assumption that revenue reductions and enrollment shifts cause districts no measurable harm for host ignores the structure of operating costs and dynamics of cost and expenditure reduction.

Moody’s Investors Service opined in 2013 that “charter schools pose greatest credit challenge to school districts in economically weak urban areas.” Specifically, Moody’s identified the following four areas posing potential concerns for host urban districts with growing independent charter sectors:

Weak demographics and district financial stress, which detract from the ability to deliver competitive services and can prompt students to move to charter schools
Weak capacity to adjust operations in response to charter growth, which reduces management’s ability to redirect spending and institute program changes to better compete with charter schools
State policy frameworks that support charter school growth through relatively liberal approval processes for new charters, generous funding of charters, and few limits on charter growth
Lack of integration with a healthier local government that can insulate a school system from credit stress (D’Arcy and Richman 2013)
Moody’s reiterated these concerns in a follow-up report (Moody’s Investors Service 2015)…

Rarely if ever considered in policy discourse over charter school expansion is whether children and families should be required to trade constitutional or statutory rights for the promise of the possibility of a measurable test score gain. In fact, the public, including parents and children, is rarely if ever informed of these tradeoffs and does not become aware until an issue arises. Charter operators have shown time and time again that they are willing to push boundaries regarding student rights and discipline policies. An evaluation of New York City charter school disciplinary policies by Advocates for Children of New York (2015) found, among other things, that “107 of the 164 NYC charter school discipline policies we reviewed permit suspension or expulsion as a penalty for any of the infractions listed in the discipline policy, no matter how minor the infraction.”14 Further, these policies included numerous violations of rights to due process when disciplinary actions are taken. While the report asserts that these policies violate state and federal laws it remains unclear whether charter operators might successfully shield themselves by their “private” status. That is, in many state contexts, charter schools may simply not have to follow the same rules in the establishment and implementation of their rules for children, parents, and the public at large.

The loss of rights or the requirement to trade rights for the promise of marginal test score gains—is concerning from an equity perspective because chartering, in particular no-excuses15 charter models are not evenly distributed across communities and children. Table 2 shows that nearly 12 percent of large city student populations are in charter schools, where those populations are 57 percent low income and nearly 70 percent black or Hispanic on average. Suburbs of large cities, which have much lower minority and low-income shares, have charter market penetration less than one-third the rate of large urban centers.

I hope that municipal finance analysts across the nation read this report with care. Moody’s warned Massachusetts that if it expanded the number of charters, several urban districts would be financially distressed. Until now, the reformers have not paid attention to how charters affect the finances of the host district or have not listened to these concerns. Perhaps they thought that a fiscal crisis in the host district would lead to a collapse of the governing authority and thus to more charter schools. But “gimme” is not sound public policy. Sound public policy would be concerned about supplying  good schools to all children, not just to some children.