Report 2002-104 Summary - November 2002

California's Charter Schools:

Oversight at All Levels Could Be Stronger to Ensure Charter Schools' Accountability

HIGHLIGHTS

Oversight of charter schools at all levels could be stronger to ensure schools' accountability. Specifically:

  • The four chartering entities we reviewed do not ensure that their charter schools operate in a manner consistent with their charters.

  • These chartering entities' fiscal monitoring of their charter schools is also weak.

  • Some charter schools assess their educational programs against their charters' measurable student outcomes, but others do not.

  • The Department of Education (department) could, but does not target its resources toward identifying and addressing charter schools' potential academic and fiscal deficiencies.

  • Finally, although two new statutes attempt to add accountability, without the chartering entities and department increasing their commitment to monitoring, these new laws may not be as effective as they could be.

RESULTS IN BRIEF

The California Legislature passed the Charter Schools Act of 1992 (Act) to provide opportunities for teachers, parents, students, and community members to establish and operate schools independently of the existing school district structure, including many of the laws that school districts are subject to. The Legislature intended charter schools to increase innovation and learning opportunities while being accountable for achieving measurable student outcomes. Before a charter school can open, a chartering entity must approve a petition from those seeking to establish the school. Under the Act, three types of entities-a school district, a county board of education, and the State Board of Education (state board)-have the authority to approve petitions for charter schools. As of March 2002, there were 360 charter schools serving approximately 131,000 students throughout California. More than 70 percent of the agencies chartering those schools have only 1 charter school.

Chartering entities play a role in overseeing the schools they charter to determine if the schools operate in a manner consistent with their charters and follow all applicable laws. These responsibilities are not explicitly stated; rather, they are implied through the Act and its amendments, which authorize the chartering entities to approve charters, inspect or observe a school at any time, collect fees for oversight costs, and revoke charters under certain conditions. As such, we expected to find that the chartering entities had established policies and procedures for assessing the academic achievements of students in their charter schools, in accordance with the measurable student outcomes required in each charter. We had similar expectations for the chartering entities' assessment of their charter schools' financial operations. Without academic and fiscal monitoring, the charter schools are not held accountable for achieving their measurable student outcomes or for prudent use of the taxpayer funds they receive.

Despite our expectations for academic monitoring, the four entities we reviewed-Fresno Unified School District, Los Angeles Unified School District, Oakland Unified School District, and San Diego City Unified School District-do not monitor to determine if their charter schools are achieving their student outcomes. Although each charter agreement contains standards for gauging the academic performance of the school, chartering entities typically do not have guidelines in place to effectively monitor their charter schools, nor do the chartering entities adequately monitor their charter schools against the agreed-upon student outcomes. Without periodically monitoring their schools for compliance with the charter terms, the chartering entities cannot ensure that their schools are making progress in improving student learning in accordance with their charters, nor are they in a position to identify necessary corrective action or revocation.

Because the chartering entities were not effectively monitoring their charter schools for compliance with the measurable academic outcomes listed in their charters, we visited a sample of schools. Although some schools assess their educational programs against their charter's measurable student outcomes, others do not. By not assessing student performance against the charter terms, the schools are not demonstrating their accountability for meeting their agreed-upon academic goals.

Further, although charter schools are exempt from much of the Education Code that governs public schools, they are still subject to at least three legal requirements as conditions for receiving state funds, including hiring teachers who hold a Commission on Teacher Credentialing permit, offering a minimum number of instructional minutes, and certifying that their students have participated in state testing programs. However, we found that chartering entities are not always ensuring compliance with these legal requirements at each of their charter schools.

Like the chartering entities' academic monitoring, their fiscal monitoring also had weaknesses. Some schools rely on their chartering entity for operational support. Other schools manage their own operations; these schools we consider to be fiscally independent. Because the chartering entities do not control the financial activities of their fiscally independent charter schools, the risk that these schools will develop financial problems is greater. Thus, we targeted the chartering entities' oversight of fiscally independent charter schools. We found that the chartering entities lacked necessary policies and procedures for effective fiscal monitoring and have not adequately monitored their charter schools. Although all four entities outlined the types of financial data they wanted their charter schools to submit and how often this data should be submitted, and all asserted that they have data review procedures to identify and resolve problems, none could provide evidence of these procedures. Further, even though all four chartering entities recently adopted new policies and procedures for charter schools, only two address fiscal monitoring and appear to provide for improved monitoring of their charter schools' fiscal health. Without adequate monitoring, schools that develop fiscal problems and other reported deficiencies might fail to meet the terms of their charter or deteriorate financially to the point of having to close, disrupting their students' education.

Moreover, some charter schools are fiscally unhealthy. Based on fiscal year 2001-02 financial data, 6 of the 11 charter schools showed year-to-date expenditures in excess of revenues, and 4 of the 6 schools did not have prior year-end fund balances sufficient to cover their deficits. If these schools' problems go uncorrected, the schools may have to close and displace their students. In addition, the schools' closures may result in a loss of taxpayer money.

The chartering entities are authorized to charge up to 1 percent of a charter school's revenues for the actual costs of providing supervisorial oversight, or up to 3 percent if they provide the charter school with substantially rent-free facilities. For fiscal years 1999-2000 and 2000-01-the latest years for which data was available during our review-the four chartering entities charged their charter schools more than $2 million in oversight fees. Nevertheless, none of the four chartering entities could document that the fees they charged corresponded to their actual costs, in accordance with statute, because the entities failed to track their actual oversight costs. Rather, the entities automatically charged a percentage of charter schools' revenues, assuming that their oversight costs exceeded the revenues they charged. As a result, the entities may be charging their charter schools more than permitted by law.

Moreover, these chartering entities participated in the State's mandated-costs reimbursement process, which reimburses organizations for the costs of implementing state legislation. The chartering entities claimed more than $1.2 million in costs related to charter schools for the two fiscal years. However, because the chartering entities did not track the actual costs associated with overseeing their charter schools, they risk double-charging the State. Finally, although the statute is clear that the entities' oversight fee is capped at a certain percentage, the statute is unclear regarding which types of revenues are subject to the oversight fee. Consequently, the chartering entities are interpreting the law differently and may be applying their oversight fee to too much or too little of their charter schools' revenue.

The Department of Education (department) plays a role in holding charter schools accountable for their fiscal and academic practices. The department has the authority to recommend that the state board take action, including, but not limited to, charter revocation. Although the chartering entity is the primary monitor of a charter school's financial and academic health, the department has the authority to make reasonable inquiries and requests for information. It currently uses this authority to contact chartering entities if it has received complaints about charter schools. If the department reviewed the information that it receives related to charter schools and raised questions with the chartering entities regarding fiscal or academic practices when appropriate, the department could target its resources toward identifying and addressing charter schools' potential academic and fiscal deficiencies. In this way, the department would provide a safety net for certain types of risks related to charter schools. The concept of the State as a safety net is consistent with the California Constitution, which the courts have construed to place on the State the ultimate responsibility to maintain the public school system and to ensure that students are provided equal educational opportunities.

Although we found that the accountability system at the chartering entity level is weak, our work does not demonstrate the need for the department to play a greatly expanded and possibly duplicative role in overseeing charter schools, or any function beyond that of a safety net. Moreover, when we asked the department to provide any data it had to demonstrate pervasive academic concerns or fiscal malfeasance that may support the need to expand its oversight role beyond that of a safety net, it did not provide any.

To apportion funds to charter schools, the department relies primarily on the certifying signatures of school districts and county offices of education-both of which lack the necessary procedures to ensure that charter schools comply with apportionment requirements. As a result, the department cannot be sure that charter schools have met the apportionment conditions the Legislature has established and that they receive only the public funds to which they are legally entitled. In addition, there appears to be a policy gap regarding a chartering entity's authority following a charter revocation-an authority that statutes do not clearly address, as Fresno Unified School District's recent revocation of Gateway Charter Academy's charter demonstrates. Finally, although two recently enacted laws, Senate Bill 1709 and Assembly Bill 1994 (Chapters 209 and 1058, Statutes of 2002), attempt to add accountability to the existing charter schools environment, without an increased monitoring commitment on the part of chartering entities and the department, these new laws may not be as effective as they could be.

RECOMMENDATIONS

The Legislature should consider amending the statute to make the chartering entities' oversight role and responsibilities explicit so that the chartering entities hold their charter schools accountable through oversight.

To ensure that charter schools are held accountable for the taxpayer funds they receive and demonstrate accountability for the measurable outcomes set forth in their charters, the chartering entities should consider developing and implementing policies and procedures for academic and fiscal monitoring.

To ensure that chartering entities can justify the oversight fee they charge their charter schools and to minimize the risk of double-charging the State for the costs of charter school oversight, they should:

  • Establish a process to analyze their actual costs of charter school oversight.

  • Compare the actual costs of oversight to the fees charged and, if necessary, return any excess fees charged.

  • Use the mandated-costs reimbursement process as appropriate to recover their unreimbursed costs of overseeing charter schools.
The Legislature should consider clarifying the law to define the types of charter school revenue that are subject to the chartering entities' oversight fees.

To fulfill its role as a safety net, the department should review available financial and academic information and identify charter schools that are struggling, then raise questions with the schools' chartering entities as a way of ensuring that the schools' problems do not go uncorrected.

So that it does not improperly fund charter schools, the department should work with the appropriate organizations to ensure that charter schools' reported ADA is verified through an independent audit or other appropriate means and that charter schools have met other statutory conditions of apportionment.

The Legislature may wish to consider establishing a method for disposing of a charter school's assets and liabilities and requiring the department to adopt regulations regarding this process, in this way, ensuring that a charter school's assets and liabilities are disposed of properly when it closes or has its charter revoked.

AGENCY COMMENTS

The four chartering entities: Fresno, Los Angeles, Oakland, and San Diego, strongly disagreed with our conclusions related to chartering entity oversight and stated that we misinterpreted the law and held them to a standard of charter schools oversight that the Act does not contain. They object to being evaluated based on sound oversight criteria unless that criteria is explicitly in statute. Each chartering entity noted repeatedly that the legislation regarding charter school oversight is unclear and several stated that chartering entities have little or no grounds to deny a charter or enforce a charter.

The department also disagreed with our audit as it relates to its oversight role. The department stated that it had strong concerns about our interpretation of the Act and our interpretation that the department has the authority and responsibility to monitor the fiscal and academic performance of charter schools. The department also stated that our recommendations do not account for its limited staffing resources.

Although not rendering a legal opinion on the issue of oversight, our view that the Act places some monitoring responsibilities on chartering entities is informed by our reading of the statutes as well as the constitutional obligations of the State regarding the public school system. We believe that the statutes, although not explicit, do envision a monitoring role for chartering entities and that a monitoring process is absolutely essential to identifying key issues, providing charter schools the opportunity to take corrective action, and determining whether a chartering entity should exercise its authority to revoke a charter. Finally, we carefully analyzed each of the chartering entity's responses and we stand by our interpretation of the law and our audit conclusions.


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