Charter schools pose financial risk to municipalities

In December of last year, the Connecticut Department of Education issued a request for proposals for new charter schools – the first time in nearly three years.  As the state grapples with a budget disaster and Gov. Dannel Malloy continues to propose changes that would dramatically change the way Connecticut pays for education, the state should refrain from opening any new charter schools and freeze the funding of existing ones.

Moody’s credit rating service has warned of the fiscal risks to municipalities posed by charter schools.  In its 2013 report, Charter Schools Pose Growing Risk for Urban Public Schools, Moody’s concluded that a rise in charter school enrollment, “is likely to create negative credit pressure on school districts in economically weak urban areas.”

According to Michael D’Arcy, one of two authors of the report, “A small but growing number of traditional public districts face financial stress due to the movement of students to charters.”

As urban areas such as Hartford teeter on the brink of bankruptcy, lowered bond ratings could have a devastating effect on already dire budgetary circumstances.  Gov. Malloy is proposing a new municipal accountability system for cities and towns facing severe fiscal difficulties.  The proposal includes a multi-tiered ranking system for communities that could lead to greater state oversight of local budgets and limit annual property tax increases for the cities and towns deemed most at risk.

Under the proposal, a municipality could be assigned to one of the first three tiers if it has a poor fund balance or credit rating.  Bridgeport and Stamford have resisted the state’s efforts to open charter schools in their cities.  In 2015, the State Board of Education unanimously approved the application of the Stamford Charter School for Excellence despite the fact that the Stamford Board of Education voted 7-1 to urge the state to deny the application.  The state of Connecticut may very well force cities to accept a charter school that may adversely affect its credit rating in the future.

Moody’s recently reiterated its belief about the adverse effects of charter schools this past November when Massachusetts voters overwhelmingly rejected legislation that would have increased the state’s cap on charter schools.  Moody’s warned Boston and three other Massachusetts cities that passage of a ballot measure to expand charter schools could weaken their financial standing and ultimately threaten their bond ratings.

Nicholas Lehman, an assistant vice president at Moody’s, warned that passage of the referendum would be a “credit negative” for the cities.  Moody’s responded to Massachusetts voters’ rejection of the plan with a “credit positive” and reiterated that the history of charter schools shows they drain money from city education budgets.

Connecticut currently provides funding in excess of $100 million per year to operate 24 charter schools, 10 of which are managed by six management companies.  These companies charge a management fee of approximately 10 percent of the amount they receive from the state.

“If we saw fees of 10 percent or less, that would be reasonable,” says Robert Kelly, who oversees charter schools at the education department.  In part, these fees are used to duplicate administrative services such as payroll and human resources, which are already provided by the districts in which charter schools operate.  It seems particularly wasteful at a time when the state is looking to regionalize municipal services.

While cities and towns have seen their education funding slashed, Connecticut’s charter management companies have seen their coffers overflow. Last year, the State Board of Education increased charter school enrollment by 4 percent for the current school year. While the enrollment increase cost the state an additional $4.1 million, funding for traditional public schools was cut by $51.7 million and regional magnet schools, opened to help desegregate city schools, had budget cuts totaling $15.4 million

The diversion of millions of dollars from traditional public schools is one reason the New England Conference of the NAACP and the Massachusetts Lawyer’s Committee filed a motion against the effort to lift the cap on the number of charter schools in Massachusetts.  It was the belief of Juan Cofield, president of the New England Conference of the NAACP, that “setting up a separate system is destructive to the notion of providing the best education for all students.”

Connecticut should not continue to pursue charter schools as a means to meet the educational needs of its children.  The financial risk to our cities and towns is just too great.

James Mulholland is a public school teacher from Glastonbury.