Section 6


Finances

Updated 2018

How are charter schools funded?

Beginning to understand those differences in charter school financing requires a basic grasp of public school financing more generally.

Charter schools, like traditional public schools, are funded by taxpayers with public money. But charter schools are funded differently by each of the 44 states—plus the District of Columbia, Puerto Rico and Guam—where they are permitted.1 Beginning to understand those differences in charter school financing requires a basic grasp of public school financing more generally.

Public schools receive two types of funding from states. The first type is called “base funding” or sometimes “foundation funding.” Base funding is the amount of money that is supposed to cover the basic educational needs of one student—although some advocates argue that those amounts are not actually sufficient to cover what each student really needs and are not equitable across municipalities.2 The second type of funding is called “categorical funding.” Categorical funding finances programs such as special education, summer school or efforts to reduce class size. Some states have many programs financed through categorical funding, others have only a few.3

The precise formulas for determining base funding vary from state to state and from municipality to municipality, depending on dynamics such as local property taxes, state policy decisions and state and local budgets. The formulas for determining base funding can also change from year to year, as can the number and size of programs financed through categorical funding.4 The nonpartisan Education Commission of the States has a useful primer on how base funding and categorical funding differ.5 In addition, FundEd maintains a database that illustrates how school funding varies from state to state.6 FundEd is a project of EdBuild, a nonprofit organization that describes itself as “focused on bringing common sense and fairness to the way states fund public schools.”

The Education Commission of the States also maintains a database with information about each state’s charter school funding formulas.7 The database shows that states determine the per-pupil base funding for charter schools in many different ways. In some states, such as Florida and Indiana, charter schools receive the same per-pupil base funding that traditional public schools in the district receive. Some states’ per-pupil base funding for charter schools is calculated from either the statewide average or the districtwide average of per-pupil base funding.8 In other states, it is based on the per-pupil revenue of the charter school’s authorizer.9

Funding can further differ between states and even within states depending on many other variables. For example, in some states, funding can differ depending on whether the charter school was started from scratch or was converted from a former traditional public school. In others, it depends on which entity authorizes the school. In some states, such as Kansas, charter school funding is largely at the discretion of the school district.

Furthermore, some states provide charter schools with funding for all of the categorical programs for which traditional public schools receive funding.

The nonpartisan National Conference of State Legislatures has a helpful primer that lays out the implications and trade-offs of states’ different approaches to charter school funding, including the potential to create per-pupil disparities in the amount of public money that charter schools and traditional public schools receive.10

Are charter schools receiving less funding per pupil than traditional public schools? And does it matter?

There are disagreements over the relevance of per-pupil funding disparities.

“In most states charter schools receive considerably less per-pupil revenue than traditional public schools,” according to peer-reviewed research by scholars David Arsen and Yongmei Ni.11 But because of states’ very different approaches to school funding, the size of these per-pupil funding disparities varies considerably across states. Moreover, as discussed below, there are disagreements over the relevance of per-pupil funding disparities given the different costs that the two types of schools face. There is also evidence that charter schools actually have negative financial impacts on traditional public schools—although not necessarily in all states that permit charter schools.

The Walton Family Foundation, whose education programs include support for what they describe as “the high-quality choice movement,” has funded a series of non-peer-reviewed reports on funding disparities between charter schools and traditional public schools.12 The 2014 report analyzed data from 30 states and the District of Columbia for the 2010–11 school year. That report found that, except in Tennessee, charter schools were receiving less revenue per pupil on average than traditional public schools. Specifically, they found that in 2010–11, traditional public schools received $3,509 more revenue per pupil on average than charter schools, an average funding disparity of 28.4 percent.13 That average excludes Louisiana. The researchers specified that they counted all sources of funding, including public funding as well as philanthropic donations and other sources of revenue.

They found that the funding disparity was most acute in Louisiana, at 58.4 percent less revenue per pupil, followed by Washington, D.C., at 44.1 percent less, and Wisconsin, at 41.1 percent less. In Tennessee, they found that charter schools were receiving 0.1 percent more revenue per pupil on average than traditional public schools. Among the remaining states included in their study, all had funding disparities. The disparity was least acute in both New Mexico and Texas, where charter schools received 3.4 percent less revenue per pupil, followed by Illinois, where they found a 15.3 percent revenue disparity.14

The charts below are supplied for illustrative purposes only. Because the researchers themselves expressed concern about a lack of consistent, easy-to-access, transparent data for making these financial comparisons, readers should not draw firm conclusions from these charts alone. Furthermore, these findings have been criticized for reasons discussed below.



The size of the per-pupil funding disparities vary considerably between states.

Other researchers have reached conclusions similar to those in the “Charter School Funding: Inequity Expands” report about per-pupil funding disparities. In 2010, Gary Miron, a professor at Western Michigan University, and Jessica Urschel, at that time a graduate student at Western Michigan, published a policy brief on charter schools’ revenues and expenditures.15 The brief was made possible in part by funding from the Great Lakes Center for Education Research & Practice, a think tank that receives funding from the National Education Association and other teachers’ unions.16 Using 2006–07 data from traditional public schools nationwide and from charter schools in 21 states and Washington, D.C., Miron and Urschel estimated that on average, charter schools receive only 77 percent of the revenue from state, federal and local sources that traditional public schools receive, or $2,980 less revenue on average per pupil. Miron and Urschel found that the size of the per-pupil funding disparities vary considerably between states. They also noted the extreme difficulty of accurately compiling and comparing charter schools’ and traditional public schools’ revenue streams.

Miron and Urschel found that funding disparities differed depending on whether the school was freestanding or operated by an organization with multiple schools.


For more information about nonprofit and for-profit management organizations, see the Charter School Operators section.

Several teams of academic researchers have tried to figure out why funding is not equitable between charters and traditional public schools.18 Several legal cases have attempted to secure equitable funding for charter schools relative to traditional public schools, with mixed results. As one lawyer argued in a peer-reviewed overview of these cases, charter schools are public schools and should therefore be provided with the same per-pupil funding as traditional public schools.19

But the more controversial question is whether these per-pupil revenue disparities matter given the costs that the two types of schools face.

But the more controversial question is whether these per-pupil revenue disparities matter given the costs that the two types of schools face. Some researchers argue that comparisons of revenue do not give a complete picture of charter and traditional public school finances. A review published by the National Education Policy Center at the University of Colorado–Boulder—funded in part by the Great Lakes Center for Education Research & Practice—argued that the 2014 “Charter School Funding: Inequity Expands” report did not account for the fact that school districts often must spend a portion of their revenue on services for charter school students.20 For example, in some states, districts must cover transportation costs for charter school students or must pay for supplies, special education evaluations and other services for charter school students. However, the authors of “Charter School Funding: Inequity Expands” dispute that objection to their findings.21

Several other researchers, including Miron and Urschel, point out that traditional public schools typically deliver more services than charter schools. Therefore, they argue, traditional public schools actually need more funding than charter schools do. These services include transportation and meals.22 A peer-reviewed study by researchers at the RAND Corporation, using survey data from 2002, found that charter school administrators in California did not necessarily know whether they were eligible for funds for these types of programs and did not necessarily apply for them.23

Other researchers note that charter schools receive funding from private philanthropy that is not accounted for in tallies of per-pupil revenue from federal, state and local sources.24 According to research by the nonprofit Local Initiatives Support Corporation, charter schools in some states have limited access to public funding and financing for facilities but can access some capital and credit through foundations and nonprofits.25 In subsequent research, however, the authors of “Charter School Funding: Inequity Expands” contend that although philanthropic donations make up a greater proportion of charter school revenue than that of traditional public school revenue, those donations do not offset disparities in public funding.26 Furthermore, they find that philanthropic donations are distributed unevenly across the charter sector, with about one-third of charter schools in their sample receiving no such donations at all.27

Charter schools are eligible for state and federal grants, including federal grants for planning, designing and implementing new charter schools and for disseminating information about best practices.28 These grants do not necessarily offset the lower per-pupil revenue from state and local sources. Overall, while the existence of per-pupil revenue disparities between charter schools and traditional public schools is recognized by many researchers, there is ongoing debate over the significance of those funding disparities. Given that the number of charter schools and the number of students they serve have been steadily increasing, questions and conflicts about funding may prove to be an increasingly common feature of charter school advocacy, critique, research and policymaking.

Do charter schools have negative financial effects on traditional public schools?

In addition to evidence of per-pupil funding disparities, there is evidence that charter schools have negative financial effects on traditional public schools, although the size of those effects varies because of the variation in states’ formulas for funding schools. Generally speaking, when a student enrolls in a charter school, the traditional public school that he or she would have attended or that he or she transferred from no longer receives the per-pupil state revenue earmarked for educating that student. Instead, the charter school receives that per-pupil revenue. The traditional public school no longer bears the costs of educating that student. But the traditional public school still bears many fixed costs, such as those for staff, building maintenance, retiree benefits and other expenses.29

Furthermore, some charter schools create additional costs for traditional public school districts in places where charter schools use district school buildings or rely on districts for special education assessments, health services, transportation or other programs. The sizes of these additional costs vary depending on whether charter schools pay districts for buildings and other services and how much they pay.30

Overseeing charter schools can also require additional personnel time for district staff—particularly if the district is also a charter school authorizer that must approve new charter schools and monitor existing ones. However, in some states, districts are themselves authorizers and may receive funding for the work of authorization from the charter schools that they oversee.31 For more about charter school authorizers, see the Governance and Regulation section.

Because of the additional costs, charter schools in some states have been found to have negative financial impacts on school districts. In Michigan, for example, charter schools may have particularly adverse effects on traditional public school finances because per-pupil funding follows students as soon as they enter a new school and because school districts in that state have only limited abilities to raise additional funds. Academic researchers David Arsen and Yongmei Ni published a peer-reviewed analysis of statewide financial data in Michigan from 1994 to 2006 that showed that districts in which students enrolled in charter schools had lower overall financial balances.32 In subsequent peer-reviewed research using data from 1995 to 2012, Arsen, Ni, Thomas DeLuca and Michael Bates again found that in Michigan, the loss of students to charter schools had a strong negative impact on districts’ financial balances. They found that those financial impacts were more severe in districts that lost more students to charter schools.33

Academic researchers Helen Ladd and John Singleton examined the 2015–16 finances of one urban and five non-urban districts in North Carolina, where significant numbers of new charter schools were created after 2011, when the state removed its cap on the number of charters it permits. In a peer-reviewed paper, they found that charter schools had negative financial impacts on all six traditional public school districts in their sample, although the scale of those impacts varied. In urban Durham, for example, they calculated that charter schools had a negative financial impact of more than $500 per pupil, meaning that charter schools require the city to reduce services for each traditional public school student by more than $500 or to find other revenue. Calculated another way, the authors found that each student who enrolls in a charter school costs the district more than $3,500.34

Another peer-reviewed paper, using data in Ohio from 1982 through the 2012–13 school year, showed that traditional public school districts there responded to competition from charter schools by shifting resources away from instruction and toward other types of spending, such as new construction. The author, Jason Cook, showed that declines in traditional public school district spending on instruction were due to a decrease in the number of teachers whom districts employed. He also showed that the presence of charter schools led to lower local housing values, which in turn led traditional public school districts to lose revenue from property taxes and decrease their spending overall.35

Because of these negative financial impacts, some states, such as Massachusetts, provide temporary financial compensation to traditional public schools that lose students to charter schools.36 A non-peer-reviewed working paper found that after Massachusetts raised the cap on its number of charter schools in 2011, increased charter attendance was actually associated with an increase in the amount of money traditional public schools spent per pupil. In addition, the authors of the working paper found that traditional public schools in Massachusetts shifted their spending toward instruction and away from administration and services such as student counseling and teacher training.37

New York State also provides some districts with aid meant to reduce the fiscal impacts of students enrolling in charter schools.38 However, peer-reviewed research showed that losing students to charter schools negatively impacted the finances of public school districts in Albany and Buffalo in the 2009–10 school year. The researchers estimated that as a result of charter schools, the City School District of Albany lost between $24.9 million and $26.1 million in 2009–10—or between 11.9 and 12.5 percent of total revenues. They estimated that Buffalo Public Schools lost between $67 million and $76.8 million in 2009–10—or between 8.6 and 9.9 percent of total revenues.39

Do charter schools spend money differently from traditional public schools?

The research that has been conducted suggests that charter schools spend less on instruction and more on administration compared with traditional public schools.

Comparing spending at charter schools with spending at traditional public schools is difficult because revenues vary considerably across states and municipalities and because transparent financial data are difficult to obtain reliably. However, the research that has been conducted suggests that charter schools spend less on instruction and more on administration compared with traditional public schools. For example, a peer-reviewed study using data from California showed that charter schools spent less on instruction and student support services than traditional public schools, which the researchers attributed to higher spending on operations and consultants and a higher rate of savings.40 It is possible that charter schools spend less on instruction because they often have younger, less experienced teachers who earn less money than their older, more experienced teacher peers at traditional public schools—although those differences between teaching staffs may eventually become less pronounced as charter schools age. For more information about the teaching staff at charter schools, see the Teachers and Teaching section.

New Orleans is a unique setting to study charter schools because most of the city’s traditional public schools were converted to charters in 2005—although some of those conversions are being reversed in 2018. A non-peer-reviewed report from a nonpartisan research center at Tulane University showed that the conversion to charter schools led to decreased spending on instruction and increased spending on administration and transportation. They hypothesized that the increase in administrative and other spending may occur because the organizations that operate charter schools tend to be smaller than traditional public school districts and therefore cannot benefit from districts’ economies of scale.41

Arsen and Ni’s peer-reviewed comparison of charter school and traditional public school spending in Michigan used data from 2007–08. They noted that Michigan’s funding for charter schools is fairly high compared with that in other states. And they noted that owing to the specifics of Michigan’s education funding policies, funding for operations is roughly equal at charter schools and traditional public schools.42 When they analyzed spending, Arsen and Ni found that Michigan’s traditional public school districts devoted 61 percent of their spending to instruction, 10 percent to administration and the remainder to other functions. By contrast, they found that Michigan’s charter schools devoted 47 percent of their spending to instruction, 23 percent to administration and the remainder to other functions. They noted that special education was an area in which Michigan traditional public schools spent significantly more than its charter schools.43

Using 2006–07 data from traditional public schools nationwide and from charter schools in 21 states and the District of Columbia, Miron and Urschel claimed in a non-peer-reviewed report that spending at charters was only somewhat different from spending at traditional public schools. However, they found that different types of charter schools had different spending patterns, with charter schools operated by for-profit management organizations spending more on administration and less on instruction than either charter schools operated by nonprofit management organizations or freestanding charter schools.44


A peer-reviewed study using national data similarly found that nonprofit charter school operators spend less on instructional salaries than for-profit charter school operators.45 That study also found that charter schools in general spend less per pupil on teachers’ and instructional aides’ salaries compared with traditional public school districts. A peer-reviewed analysis of five years of data from Texas ending in 2009 compared traditional public school districts with charter schools operated by institutions of higher education, governmental entities or nonprofit management organizations. It found that those types of charter schools spent about the same amounts of money as traditional public school districts in Texas. But they found that the pattern of spending was different. Charter schools in Texas spent significantly more than traditional public school districts on rent and supplies and spent significantly less than traditional public school districts on personnel.46 For more information about nonprofit and for-profit charter school operators, see the Charter School Operators section.

These differences in spending raise a number of questions: Is it necessarily a problem if charter schools spend less on instruction than traditional public schools? Or are measures of academic outcomes more important than measures of spending on academics? Will charter schools’ spending on instruction increase as their teachers age, accrue more seniority and therefore presumably earn higher salaries? For more information about academic outcomes at charter schools and how they compare with outcomes at traditional public schools, see the Student Achievement section. For more information about the teacher workforce at charter schools, see the Teachers and Teaching section.



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