Finances

Charter Schools In Perspective

Finances

Section Index
How are charter schools funded? Are charter schools receiving less public money per pupil than traditional public schools? And does it matter? Do charter schools have negative financial effects on traditional public schools? Do charter schools spend money differently from traditional public schools?

How are charter schools funded?

Understanding 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 43 states plus the District of Columbia and Puerto Rico that permit them.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 and how education funding varies from state to state and from municipality to municipality.5

The Education Commission of the States maintains a database with information about each state’s charter school funding formulas.6 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 district-wide average of per-pupil base funding.7 In other states, it is based on the per-pupil revenue of the charter school’s authorizer.8

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. Other states, such as California, provide charter schools with funding for most but not all categorical programs.

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.9

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

In the context of states’ very diverse approaches to funding charter schools, controversy has emerged over per-pupil funding disparities between charters and traditional public schools. According to David Arsen and Yongmei Ni’s peer-reviewed research on charter and traditional public school spending, “Available research indicates that in most states charter schools receive considerably less per-pupil revenue than traditional public schools.”10 But there is disagreement over the relevance of per-pupil disparities. Furthermore, as we discuss below, there is also evidence that charter schools actually have negative financial impacts on traditional public schools.

One study found charter schools received an average of 19% less public money per pupil than traditional public schools received.

The Walton Family Foundation, whose education programs include support for “the creation of public charters,” funded a non-peer-reviewed report by a team of researchers from Ball State University and from several research and consulting firms.11 That team analyzed data from 24 states and Washington, D.C., representing more than 90 percent of charter school students, for the 2006–07 school year. They found that in every one of those states, charter schools were receiving less public money per pupil on average than traditional public schools were. The researchers excluded Louisiana from their national average and did not rank the size of its funding disparity because they felt its funding situation in 2006-07 was highly unusual in the aftermath of Hurricane Katrina. Charter schools across all the states they examined, except Louisiana, received an average of 19 percent less public money per pupil than traditional public schools received, or about $2,247 less per pupil.12

They found that the funding disparity was most acute Washington, D.C., at 41.2 percent less public money per pupil, followed by New Jersey, at 37.3 percent less. They found that the funding disparity was least acute in Indiana, at 5.1 percent less public money per pupil.13

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.


Charter schools receive less public funding per student than traditional public schools do

The sizes of per-pupil funding disparities vary between states.

Other researchers have reached similar conclusions 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.14 The brief was made possible in part by funding from the Great Lakes Center for Education Research and Practice, a think tank that receives funding from the National Education Association and other teachers’ unions.15 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 reported revenue from state, federal and local sources comprising only 77 percent of the amount that traditional public schools reported, 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 charter school was freestanding or operated by an organization with multiple charter schools.

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


Public funding differs by type of charter school

Many researchers recognize the existence of per-pupil disparities in public funding between charter schools and traditional public schools. But there is ongoing debate over whether these per-pupil funding disparities matter.

Several teams of academic researchers have tried to figure out why funding is not equitable between charters and traditional public schools.17 But the more controversial question is whether these per-pupil revenue disparities matter. 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.18

However, others argue that comparisons of per-pupil revenue from public sources do not give a complete picture of charter and traditional public school finances. Several 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.19 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.20

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.21 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.22 Moreover, 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.23 These grants do not necessarily offset per-pupil operational expenses but can be another source of revenue for charter schools.

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. 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 bears the costs of educating that student. But traditional public schools still bear many fixed costs for staff, building maintenance, retiree benefits and other expenses.24

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.25

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.26 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. 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. In Michigan, 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, under Michigan state law, school districts have only limited abilities to raise additional funds.27

Because of these negative financial impacts, some states, such as Massachusetts, financially compensate traditional public schools that lose students to charter schools.28 New York State also provides some districts with aid meant to reduce the fiscal impacts of students enrolling in charter schools.29 Nonetheless, peer-reviewed research showed that losing students to charter schools negatively impacted the finances of public school districts in Albany and Buffalo, New York, in the 2009–10 school year. The researchers estimated that as a result of charter schools, the Albany City School District lost between $24.9 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 $67.0 and $76.8 million in 2009-10—or between 8.6 and 9.9 percent of total revenues.30

Do charter schools spend money differently from 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 thus far suggests that charter schools spend less on instruction and more on administration compared with traditional public schools.

Arsen and Ni’s peer-reviewed comparison of charter school and traditional public school spending in Michigan used data from 2007–08. Arsen and Ni noted that Michigan’s funding for charter schools is fairly high compared to 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.31


Different types of charter schools have different spending patterns

Research suggests that charter schools spend less on instruction and more on administration compared with traditional public schools.

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.32

Using 2006–07 data from traditional public schools nationwide and from charter schools in 21 states and the District of Columbia, Miron and Urschel 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.33

A peer-reviewed analysis using five years of Texas data 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 amount 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 school districts on rent and supplies, and spent significantly less than traditional districts on personnel.34

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? For more information about academic outcomes at charter schools and how they compare to outcomes at traditional public schools, see the Student Achievement section.