Budget landmines

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UNO Charter - Archer Heights. A feud between UNO Charter and the parent organization could force the sale of some buildings.

Photo by Elizabeth Rodriguez/courtesy of UNO

UNO Charter - Archer Heights. A feud between UNO Charter and the parent organization could force the sale of some buildings.

Despite the cloudy sky, light streams into the imposing, two-story plate-glass windows of the school gym. Seated in several rows of chairs are immigrants, some in jeans and others in their best outfits, clutching papers and balled-up tissues.

Behind them on bleachers are students, middle school and high school-aged, neatly dressed in blue uniforms with white shirts. Their teachers hover nearby.

The occasion is a swearing-in ceremony for new citizens at the Archer Heights charter school run by the United Neighborhood Organization. It’s emblematic of what UNO once was—a grassroots group focused on organizing in the Latino community, leadership training and preparing immigrants to become citizens—and what is has become under Renaissance 2010—one of the city’s largest charter school operators.

But UNO’s story also illustrates the financial landmine that awaits many charters: finding sufficient money to stay afloat.

Underscoring the problem is a recently released Ball State University study, which found that Chicago’s charter schools depend on private funding far more than charters in other cities. (The study included 38 cities, New York and Miami among them.) Next in line was Boston.

When Chicago first began opening charter schools, there was concern about their potential dependence on private money, says Greg Richmond, who led the district’s new schools effort and is now president of the National Association of Charter School Authorizers. Charters can look to foundations and corporations to get them off the ground, Richmond says. But over the long term, they should be self-sustaining.

Katheryn Hayes, spokeswoman for the Renaissance Schools Fund, the private fundraising arm of the Renaissance 2010 initiative, agrees. But she notes that, so far, the business community’s interest in supporting charters as they start up hasn’t waned. 

“Honestly, we have seen support grow for our movement,” she says. “It has now become a national movement.” Fueled by the business community’s desire for better outcomes, however, the Fund is switching tactics: Instead of providing start-up grants to every charter, the group plans to focus on helping the highest-performing networks expand, as well as helping promising emerging operators.

At UNO, the biggest chunk of a nearly $40 million budget is a $28 million contract with CPS to run eight charter schools serving almost 4,000 students. (UNO’s leaders have plans for that number to double in the coming years, and recently secured a state grant to help them build eight additional schools.)

But that hefty contract is not enough to cover costs. According to a Catalyst Chicago analysis of projected budgets filed with the district and financial disclosure forms filed with the IRS and the Illinois Attorney General’s Office, UNO would have had to raise $8 million in private money to end the 2008-2009 school year in the black. Yet the group has never raised nearly that much in the past, and has had substantial deficits for the last few years.

UNO isn’t the only operator walking this financial tightrope. Catalyst’s analysis found that half of charters have run deficits in recent years. Two-thirds of charters could not cover core expenses without private money. A third of charters look to foundations, corporations and rich individuals to fill more than 20 percent of their budgets.

Yet CPS officials and national experts say that to be considered financially sound, charter schools should be able to cover general operating costs solely with public money. If they raise private cash, it should be just for extras.

Both charter advocates and opponents agree that the situation is troublesome and raises questions about the long-term viability of these schools.

Advocates say inequitable funding is the root of the problem. Charter schools are forced to rely on private funding because they receive less public money than traditional schools, says Larry Maloney of Aspire Consulting Company in Washington D.C., one of the authors of the Ball State study.

“The question is, are we intentionally setting up charter schools to fail?” Maloney asks. Chicago’s charters face potential cuts in public money this year because of the district’s budget shortfall.

Others say deficits are to be expected when schools have an extra layer of bureaucracy. In addition to principals and assistant principals, charter schools often have executive directors and financial officers on staff—all of which cost extra money.

“I think the charter school system was always built on a house of cards, and once the economy took a dive, it would crumble,” says Jackson Potter, a staunch opponent and co-chair of CORE (Caucus of Rank and File Educators), a faction of the Chicago Teachers Union whose leader, Karen Lewis, is the new union president.

Charters “have to be held accountable,” Potter says. “Parents need to know if their child’s school is about to implode.”

Robert Runcie, chief administrative officer for CPS, says the district needs to take a “serious look” at the fiscal health of charters. Economies of scale are part of the problem, and Runcie tries to negotiate deals so that charters can purchase services under CPS contracts, although not all charters take advantage of the opportunity. 

CPS is intent on getting a better handle on charter finances because budget problems can endanger the quality of education or force a shutdown, says Jennifer Dai, director of evaluation for the Office of New Schools.

“We just want to make sure they are sustainable,” Dai says.

In the past, the office considered just three factors to measure the fiscal health of charters: compliance with federal mandates, having a balanced budget, and use of sound financial practices. Starting next year, Dai says, the office plans to look at 12 to 15 measures, including cash flow and whether fiscal projections are realistic.

Some charter school operators, however, are not happy about the new criteria, says Andrew Broy, the new president of the Illinois Network of Charter Schools.

“The district wants a one-size-fits-all approach and we think that we need to be more nuanced in how charters are approached,” Broy says. “We want to be judged on outcomes, not process.”

Also in question is whether the district will move to close charters that do not meet these tougher criteria. (CPS has closed just a handful of charters for a mix of academic and fiscal problems.)

State Sen. Iris Martinez, a Northwest Side Democrat, says lawmakers and the public depend on CPS to make good decisions about closing struggling charters, including those with financial problems.

“You would hope that CPS officials would be working in an aggressive fashion and not let charters continue in a deficit, adding salt to a wound,” Martinez says. Operators need to adjust their budgets if they can’t raise enough money, she adds. And while she supports charters, and UNO, Martinez says CPS needs to keep an eye on the group if it is not living within its means.

Some authorizers have moved aggressively against charters with fiscal problems and mismanagement, Broy says. But those cases usually involve independent authorizers. In Chicago, the district is the authorizer and therefore every decision is enmeshed in politics, he adds.

INCS is leading an effort to have an independent authorizer established in Illinois, so that charter schools turned down by the district can appeal the denial. Broy says a bill should be in front of the legislature this year.

In the end, Broy says, funding parity with traditional schools is the solution. To achieve that end, he adds, the charter school community must do a better job of convincing school officials and the public that they can do what traditional public schools cannot, such as provide a longer school day and year.

UNO’s Chief Executive Officer Juan Rangel, who earns almost $250,000 annually, says charter schools should be measured solely on their educational outcomes.

“Ultimately the question is about results,” Rangel says. “Are we getting a big enough bang for the public’s buck? We should be held accountable for whether we are turning over a great product, and that is educating students.”

The proof is in the test scores, Rangel says. In four of the five community areas where UNO elementary schools are located, they are outperforming the nearby traditional schools, according to a Catalyst analysis of 2009 ISAT scores. However, only one of UNO’s eight campuses is performing better than state averages. UNO’s high school did not have a class of juniors in 2009, the most recent year for which Prairie State exam scores are available.

UNO’s charters also relieve some of the district’s overcrowding burden. If these charters go belly-up, CPS would have to scramble to find space for their students. UNO just received $5 million of a $98 million state grant to help with the new school construction.

Rangel says that if it weren’t for the cost of facilities—which can be steep for charters that must pay rent or a mortgage—UNO would be able to live within its means. He says there are few buildings in the Latino community that are built to function as schools, and rehabbing a building is expensive.

“There is nothing available in the Hispanic community,” he says.

Charters’ need to raise big money is evident from a quick glance at a well-known website where non-profits advertise job openings. On any given day, ads abound from charter schools seeking development officers, grant writers and fundraisers. UNO, along with Noble Street and Perspectives, each had fundraising jobs advertised on the site in June.

“We are always looking to try to replace the next big wad of money,” says Rhonda Hopps, an MBA from Stanford University who was hired in April by Perspectives to be its first CEO and quickly found that her major task was to raise money to make ends meet. The projected budget that Perspectives submitted to CPS shows the school needs to fill 10 percent of its budget with outside funds, a goal Hopps says is doable. With higher graduation and college-going rates, Hopps says she is selling something tangible to potential funders.

But other operators question the wisdom of relying heavily on private funds. Leaders of Chicago International Charter Schools, the city’s largest operator, estimate receiving about 3 percent of funding from non-government sources—mostly student fees and charges for after-school programs.

Beth Purvis, the executive director for Chicago International, says her board of directors believes that “public education should occur with public money.”

“Our No. 1 goal is to provide a better education with the same amount of money,” she says. “You can’t say we are getting better outcomes with the same kids and the same money, if in fact, you are not.”

Leaning on outside sources might work in the short term, while charters are still the toast of the philanthropic community. But Purvis is not so sure that strategy will work long- term.
“We don’t want to just be in a community for 15 to 20 years,” she says. “We want to be in a community for 50 to 100 years. It is a philosophical difference.”

In the end, perhaps charter school leaders are bolstering what CPS officials have been saying for years: The city’s schools are grossly under-funded, and it is nearly impossible to provide a decent education on the money provided.

“The sad fact is that the per-pupil amount that we have is not enough to take care of all the needs of our students,” says Runcie. “Even if we had the same amount as Naperville, our children have more needs.”