Category Archives: School Funding

9 Considerations for Charter School Mergers in an Era of Limited Budgets

Since March, school funding experts have sought to understand how the economic turmoil coming out of the COVID-19 pandemic would affect school revenue. Most analysts agree that the impact will be significant and will be felt most by those who are the furthest from opportunity. Unfortunately, charter schools — which nationally enroll a student population that is 52 percent low-income, 25 percent Black, and 34 percent Hispanic — are particularly vulnerable to variations in state funding. 

Charter schools struggling with financial sustainability may consider whether the school’s mission might be better served by merging with another charter school. However, while charter school mergers can work, they are far from a simple solution and must be approached carefully.

As our colleagues Lina Bankert and Lauren Schwartze have previously written, a “merger” can take many shapes but, fundamentally, it involves joining together two or more organizations as one entity — through a formal legal agreement — in pursuit of a common goal. In the current financial climate, financial sustainability may be what prompts schools to explore a merger, but any merger conversation should start by defining all of the reasons why it could be a strategic move for each partner in the merger.

These nine considerations will help school leaders determine whether a merger might make sense for their school:

While a merger can support better financial efficiency in the long-term, financial efficiency is neither immediate nor guaranteed. If school leaders are pursuing a merger first and foremost because they believe it promises immediate financial benefits, they should stop and reconsider. A successful merger between two or more charter schools requires a short-term infusion of funding to support the merger process. To conduct due diligence, support internal decision making, plan implementation, and ensure a smooth transition period, school leaders will need financial resources for necessary staff time and legal expertise. Any long-term financial efficiencies will only occur after an initial up-front investment that can sometimes total hundreds of thousands of dollars.  

While a merger can increase financial strength by achieving a larger or more stable revenue base (via combined student enrollment) and by enabling some economies of scale, in practice the additional revenue is often used to support a high-quality school model, via investments to support rigorous and consistent instruction for the merged institution. As a result, a merger should not be thought of as a strategy for “saving money” per se, but instead as a way to combine resources to provide a high-quality education to more students, with the stronger financial footing that comes with that.   

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To Keep Cuts Away from Kids, Districts Must Use These Two Financial Levers

On top of immense public health and learning challenges, school districts are grappling with  critical questions about their financial future. What are the magnitude of state and local revenue shortfalls? What is the cost to fund new public health measures, social-emotional and mental health supports, and necessary academic interventions? Will there be additional federal stimulus funds to support education?

Even amid uncertainty, districts need to carry out proactive planning processes that ensure their spending remains aligned to their long-term (three to five year) strategic priorities, especially the initiatives and services that support students with the highest needs.

From our work supporting schools through earlier crises, we observed that that “urgent” budget cuts sometimes resulted in focusing too much on finding smaller short-term savings within district budgets. For example, if a district has a long-term goal around improving early elementary literacy outcomes, making cuts to literacy coach staffing may save needed dollars in the immediate term, but will put long-term outcomes at risk. By considering budget cuts in the context of strategic priorities, leaders can minimize the adverse impacts of funding shortfalls on students while maintaining momentum towards their desired future state.

Yesterday, my colleague Jenn answered common questions about whether and how changes in state revenue will impact school funding. If those changes in state revenue do have negative impacts, districts will likely need to make cuts to their operating budgets. Today we propose that districts need to both consider reductions to ongoing spending and adjustments to strategic investments. Leaders can combine the set of options outlined below to mitigate financial loss in a way that minimizes adverse impact on students, especially those with the greatest needs.

1. Reductions to Ongoing Spending

Districts will need to consider spending reductions that minimize the negative impact of COVID-19 on their strategic direction. Continue reading

The Looming Financial Crisis? Resources for the Education Sector

Efforts to lift economy could tip off a financial crisis.” School districts brace for cuts.” Will the Banks Collapse?

With headlines like these making the rounds, there’s no way to avoid questions about how the COVID-19 pandemic has and will impact the economy — and in turn, America’s schools. The uncertainty is very real, and the consequences could be as well, but how can education leaders make sense of often contradictory and evolving prognostications? And if the impact won’t be catastrophic, what is the more complicated outlook?

At Bellwether Education, we’ve worked with schools, CMOs, districts, states, and nonprofits to understand this moment, and have begun to build an understanding — unpredictable as this moment is — of where our sector is headed fiscally, how organizations and policymakers should respond, and the key variables to keep an eye on. We understand how school funding works, from the federal budget process to state legislatures to local levies, and we’ve coached hundreds of clients on planning for and through financial uncertainty. 

In this new series, The Looming Financial Crisis?, we bring our policy chops together with our practical experience with districts, schools, and networks forward to share perspectives on how a financial crisis might play out and where impacts will be felt. Some questions we’ll explore:

  • Where does school revenue come from, what do we know about how the economic downturn might affect lower income communities? 
  • How can districts and schools carry out short-term and long-term planning amidst uncertainty, while prioritizing students furthest from opportunity?
  • What are the potential impacts on private school operations, especially those private schools dedicated to serving high-need students?
  • Will an economic downturn lead to increased interest in charter school mergers, and how should school leaders approach these potential partnerships and their impact on students and school communities? 

We’re here to cut through the noise so the education sector can navigate the uncertain future as effectively and efficiently as possible. Follow along as we roll out insights targeting school districts, state education agencies, individual schools, charter networks, and more.

Everything You Always Wanted to Ask About School Finance But Were Afraid to Ask

How do individual schools get their funds from districts, how do districts get funding from states, and how do states generate revenue for education?

These are little-understood mechanisms, and what’s more, the way we finance schools looks different in almost every community because of statutory structures and local context.

There’s a lot of prognosticating going around about how school budgets will look next calendar and school year due to COVID-19, but the economic shock flowing through the education sector needs to be tempered with some fact checking and clarity. In my previous life, I advised the Texas legislature on public education budgeting and school finance, so I’m here to simplify the complex so education leaders can get a clear and accurate understanding of how funding actually trickles down.

After you read these FAQs, check out the rest of The Looming Financial Crisis? series for key takeaways for school districts, state education agencies, individual schools, charter networks, and more:

  1. Where does most school funding come from?
  2. Where do state dollars for education come from?
  3. What about local dollars? Where do those come from?
  4. Why can’t we predict next year’s school budgets? Shouldn’t school funding already have decreased since many people are out of work and probably not paying income taxes?
  5. What are a few different scenarios you could imagine for schools?
  6. What are the first things to go when a school leader has reduced funds to work with?
  7. Don’t governments have reserves they can lean on during tough times?
  8. If a state or district leader wants to prepare for different possible economic impacts, what should they be doing?
  9. What if I want to get wonky and learn more about this?

Where does most school funding come from?

The first common misunderstanding is about where the bulk of school-level education funding actually comes from: your local community, your state, or the federal government.

The answer is it’s all three, but not the breakdown you might assume. As the chart below shows, funding for education, on average is mostly from state and local governments, about a 50-50 split, with only 8-10% coming from the federal government. It is worth noting that while these proportions of state and local funds are true on average, tremendous variability in how much funding comes from state versus local sources exists between and even within states, depending largely on the structure of state school funding formulas.

The two largest sources of federal funds from the U.S. Department of Education are Title I, which targets funding to schools serving low-income students, and the Individuals with Disabilities Education Act (or IDEA), which supports students with disabilities. In addition to these large programs, the federal government also runs grant programs to support other initiatives including teacher quality, early childhood education, and charter schools. And the federal government heavily subsidizes school meals, which is the largest source of federal funding flowing into schools, through the free and reduced-price breakfast and lunch programs administered by the U.S. Department of Agriculture.

But the bulk of funding that supports educator salaries and benefits, instructional materials for students, construction and maintenance of school facilities, school transportation systems, and all the other core ingredients for school operations are funded from state and local funds.

Where do state dollars for education come from?

Most states get most of their revenue from income and sales taxes. Different states tax different purchases differently (e.g., some states exempt select purchases considered to be basic needs, like food and medicine), and some don’t charge any income or sales tax at all. There are nine states with no personal income tax, but several of those have some other tax source to fill the gap (like Alaska and Texas, which generate significant revenue from the oil and gas industry). Most states have a mix of other taxes and fees they may levy on businesses, tourism, or other specific activities. But across the country, personal income tax and sales tax provide the lion’s share of state tax revenue.

State tax dollars pay for a range of services, with the largest proportion of state investments in most states going to K-12 public education. Beyond K-12 education, significant state spending goes to public higher education systems, health care (especially Medicaid, which is jointly funded from state and federal sources), criminal justice systems (state law enforcement, court, and prison systems), social services (like child protective services and administration of family supports), economic and workforce development, and regulatory functions (like licensing child care facilities or various professional licenses). Many of these functions are also supported with federal and/or local funds.  Continue reading

FAQs for Future Applicants to the Federal Charter School Program Grant

As applicants anxiously await the results of the FY2020 Charter School Program (CSP) State Entities grant competition, we want to offer some tips for prospective future applicants. As my Bellwether colleagues recently wrote, the CSP is a discretionary grant that provides federal resources to create, replicate, and support high-quality public charter schools. Developing a strong CSP application takes significant time and forethought. Although future funding of the CSP hangs in the balance, charter networks thinking about applying should plan far in advance to develop a strong application. 

Bellwether has partnered with a number of charter management organizations to develop winning federal education grant proposals, including CSP Replication and Expansion grants. The Frequently Asked Questions below explain what differentiates a successful application and provide advice on developing a winning proposal. 

Logistics of applying 

When should I start thinking about applying for a CSP grant? 

Six-to-eight-week turnarounds are fairly common: in 2019, the notice inviting applications appeared on November 26, 2019 and the deadline for transmittal of applications was January 10, 2020. Because the turnaround is pretty quick, occurs at a time of year when many staff may be planning time off, and the applications themselves are often over sixty pages long, preparing in advance is very helpful. 

As you think about applying, consider your network’s readiness to grow and increase impact. Indicators of readiness to grow can cross multiple dimensions, such as quality of programming, strength of student outcomes, clarity of instructional and cultural visions, student and staff retention and satisfaction, and financial health and sustainability. Bellwether offers a “Readiness to Grow” diagnostic tool that can help organizations assess their strengths and areas for focus before or during a growth process (see case study that used this tool here).  Continue reading