Time to address some misconceptions associated with the charter school legal victory


This past Monday, the GA Supreme Court issued a unanimous opinion (here) that upheld the lower court’s ruling that the Atlanta Public Schools could not deduct a portion of the unfunded pension liability from the local revenues due to the charter schools. As I reviewed the reporting and the legal briefs on the matter, there appear to be a number of misconceptions that have entered the public domain.

The following is an attempt to address each one that I have found so far.

Issue 1 – Starting at the top is the statement by Superintendent Davis, who consistently claims that the difference in the funding per student between charter schools and traditional schools is in favor of the charter schools. In an AJC article, Davis is quoted as saying,

“We are disappointed in the decision because it perpetuates a funding inequity to the detriment of traditional school students,” said Superintendent Erroll Davis. “Atlanta Public Schools will continue to pursue other options to resolve this growing disparity in funding for our school district.”

This is the same argument he made in August when he recommended to the BoE that no additional charters be granted until the pension liability issue was resolved as the payments had a disproportionate impact on traditional school student funding. At the time Davis made the recommendation, I was simply dumbfounded since the contention was simply not supported by the facts. However, after reading the legal briefs submitted to the GA Supreme Court by APS, I now understand why Davis said what he did – even though it requires a substantial leap of logic to get there.

Let’s go to the data first and follow the numbers on per student spending (PSS). The following chart is based on the FY14 budget that was adopted and student enrollment are based on the QBE reports submitted to the State this past April. Click chart to enlarge.

Per Student Spending 092513 v1

As shown in the chart, the PSS on the traditional school student is $12,974 versus the $10,013 spent per charter student, or a difference of $2,961 in favor of the traditional school student. It is important to note that the numbers used are before the current $1,071 PSS for the unfunded pension liability payment. In addition, the comparison is made prior to the addition of the PSS for Transportation and Nutrition as the charter schools are able to apply separately for these funds as well. In addition, I have not included the spending for building construction from the SPLOST fund which is not shared with the charter schools.

Please also note that the analysis comes out in favor of the traditional school students even if the Special Revenue Fund spending is taken out the mix.

Now given the numbers, as I noted above, Davis and the attorneys representing APS in the case before the Supreme Court are asking us to make the following logical leap.

First, we must assume the disparity in the PSS funding that is already in favor of the traditional school student by $2,961 represents the status quo and we should not consider this point any further in the analysis. Now that you have performed that leap of “magical thinking”, then without any context whatsoever, we must view the PSS of $1,071 spent on the unfunded pension liability as a reduction on what could otherwise be spent on traditional schools students.

If the administration had presented their argument in a fully transparent manner, it would have been along the lines of:

Netting out the pension liability payment of $1,071, we currently spend $12,974 per traditional school student versus $10,013 per charter school student. And at the highest projected pension liability payment, the $12,974 would be reduced by an additional $561 to $12,413, resulting in a disparity in favor of the traditional student of only $2,400.

It just doesn’t sound so good that way, and that is why the information presented in court and the statements made by Davis were completely out of context and misleading as the facts did not support their contentions.

Do I need to say it once more? OK – the PSS disparity is in favor of the traditional schools students – and not in favor of the charter schools students.

Issue 2 – The following line in the GA Supreme Court opinion has received some attention, which states,

“…it is clear from a reading of the statute as a whole that the intention of the General Assembly was to fund local schools unequally with regard to local revenue.” [Emphasis in original]

In addition, the GA statutes state,

“…local revenue shall be allocated to a local charter school on the same basis as for any local school in the local school system.”

The GA Supreme Court viewed the second statement as an indication of the general intent of the of General Assembly, but also noted that the General Assembly included the express provisions in the statutes that provide a methodology for calculating and then allocating funds to start-up charter schools. These provisions, by definition, will result in an unequal allocation of local revenue.

Why?

The statute requires the inclusion of certain local revenues in the calculation and excludes other local revenues (interest, bond sinking fund, E-rate, rental receipts, etc.) that might be received by a school district. In other words, the statute does not require a school district to take the total local revenues received, divide the amount by total enrollment (as weighted by a number of other factors) and then allocate the proportionate share to the charter schools. It is very specific in regards to what is included in the formula – and therefore, by definition, the amounts allocated will be unequal on a per student spending basis.

There is no discrimination or other sinister stuff here – it is simply math at work.

Issue 3While the next issue has not been brought up in the media, the APS brief filed with the GA Supreme Court presents some interesting information. While we knew that the pension liability has been around for decades, the brief establishes the point in time when the serious underfunding became apparent.

In 1982, most of the teachers and many other employees transferred to the Teachers Retirement System (TRS). TRS required that the benefits for the employees transferred to TRS be “fully funded”. As a result, a substantial portion of the assets held by City of Atlanta General Employees’ Pension Plan (Pension Plan) were transferred to TRS and the assets remaining in the Pension Plan were substantially below the level needed to pay for the benefits due to the remaining employees. Subsequent to 1982, the legal brief states that most employees were enrolled in TRS.

While I do not believe that it was the intent of APS’s attorneys to confirm that the charter schools have never received any benefit from the payment of the “unfunded pension liability”, their arguments confirm that this is the case. In testimony given by APS CFO Burbridge in the original hearing, he differentiates the amounts paid for current employees (primarily composed of janitors) and is referred to as “normal cost” (estimated at $2-3 million annually) and the balance which is the underfunded amount due to the employees who remained part of the Pension Plan in 1982.

Notwithstanding CFO Burbridge’s argument that payment of the unfunded pension liability benefits the “fiscal health” of the system as a whole, I am still trying to understand how any charter school student has benefited in any way from the employees who were part of the City Pension Plan prior to 1982 or from the current janitors that are still part of that Pension Plan and work for APS.

This argument may be important in the future as during the initial hearing in December, APS threatened to assess an “expense” against the charters in an equal amount in the event that they lost the case – which they did.

Issue 4 – Consistently I see in print that the charter school enrollment represents approximately 10% of the total APS enrollment. Based on an analysis of the QBE records filed with the State, the total charter school enrollment in FY14 it is estimated to be approximately 8.25%. In addition, due to the difference in the composition of the students enrolled in charter schools (charters have a lower proportion of Special Education and Early Intervention Program participants), the charter schools share of funding in FY14 is approximately 7.6%. 

Also, keep the chart above handy – there is a lot of additional very interesting information there that I will report on in the near future.

[Follow me on Twitter @Financial_Decon]

3 Responses to Time to address some misconceptions associated with the charter school legal victory

  1. Tom says:

    Excellent analysis! Thanks for taking the time to dig through this.

  2. Jarod Apperson says:

    Bob, do you think it would be helpful to do a post explaining the impact of the following items on the amounts discussed above:

    1. Deficit spending by the district
    2. Differences in QBE funding attributable to different T&E multiples
    3. Financial impact of different student characteristics

    I worry that without understanding the role of these issues readers may misinterpret the results of your analysis. I know that it isn’t possible to quantify the impact of each of these, particularly the T&E because data is unavailable, but you may want to at least offer a qualitative explanation to your readers.

    I also would comment on “Issue 3” that it is unclear to me how current students in traditional APS schools benefit from the failure to fund the pension before they were born. If anyone benefitted, it would be the students attending school at the time as money which should have gone to funding the pension was instead used to fund programs at that time. It seems traditional students are in the same boat as the charter students in this regard.

  3. Tamara Jones says:

    Bob,
    I see your comment here: “In addition, due to the difference in the composition of the students enrolled in charter schools (charters have a lower proportion of Special Education and Early Intervention Program participants), the charter schools share of funding in FY14 is approximately 7.6%. ”
    There is a funding gap between government revenues received for these services and what it actually costs to deliver what is required by law. Have you looked at revenues received by the district from Individuals with Disabilities Education Act vs. district budgets and expenditures on those services? I wonder if that wouldn’t show a net loss for the traditional schools, who have a greater proportion of special needs students, particularly those with more severe disabilities.
    Also, few APS charter schools have English Language Learners (ELL), another costly program where schools that don’t qualify for Title III enter a Ga consortium for funding for that.
    Would love to get your analysis on this, because if those programs are not fully paid for by dedicated funding, then the money is coming out of what’s intended for the general student population. If so, I would have to disagree with your method of subtracting that funding from the charter school calculation for purposes of comparison.

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