PA School Districts' Credit Ratings Threatened

Thanks to the nature of Pennsylvania’s charter law and underfunding from the state, the expansion of charter schools in recent years has debilitated the finances of Pennsylvania’s school districts.  As a result, by creating more educational options for a small share of students, state policy is undermining the conditions where most students go to school.  And nowhere has been hit harder than the School District of Philadelphia.

A new report from Moody’s raises a red flag about school district credit ratings finds that the charter boom increases districts’ debt and puts their credit rating at risk, and Philadelphia is the prime example.  The report points out that in Philadelphia, charter enrollment has skyrocketed from four in 1997 to 80 in 2012; a development which has had terrible consequences for the District’s financial well being.  The report points to many bleak trends without even mentioning the complete elimination of $266 million in state aid granted to the districts with the highest levels of charter enrollment.  Of course, given high charter enrollment Philadelphia was hit hardest, losing $110 million in charter funding in 2011 and none of it’s been replaced by other state aid.

“Pennsylvania requires school districts to use a portion of their revenues, including their basic aid allocation, to fund charter school tuition on a per-pupil basis.  As the result of this formula, the district’s revenue outflow to charter schools grew from $126 million, or 7.9% of General Fund expenditures, in 2003 to $533 million, or 23.7% of General Fund expenditures, in fiscal 2012.  With charter-related costs rising and state and federal revenues down, financial reserves turned negative.”*

But Philadelphia isn’t the only school district feeling the charter budget crunch.  In the York City School District, “from fiscal 2009 to fiscal 2013, charter school tuition expenses rose by $18 million, while state aid rose less than $6 million.”  This forced the district to layoff 20% of the workforce.

The problem with Pennsylvania’s model is the savings from a student leaving a district is less than what is being paid to the charters.  As Moody’s notes, “Shifts in student enrollment from district schools to charters, while resulting in a transfer of a portion of district revenues to charter schools, do not typically result in a full shift of operating costs away from district public schools.”  That difference is what caused York to layoff one-fifth of their employees.

You would think with a commitment to expanding charter schools, the Governor and legislature would do something to help school districts contend with charter costs.  When the Governor cut nearly a billion dollars from public education, he and the state legislature eliminated charter reimbursement, which refunded districts about a quarter of what they paid to charter schools.  Think of the financial struggles the Philadelphia School District has battled this year.  Now take a quarter of that $533 million they paid out to charter schools and give it back to them.  Suddenly, a good portion of the District’s financial problems are solved.

Now as the legislature is debating charter schools again, but they’re still unwilling to pay for stranded costs school districts must absorb as charters grow.  Senator Smucker has offered SB 1085, which would make charter expansion much easier in Pennsylvania—further putting a burden on our school districts—without offering to pay for it.  A major expansion of charters without a replacement of the charter reimbursement will have a crippling effect on districts statewide.

The truth is that as charter school attendance continues to rise—and it will—and the state continues to refuse to shoulder some of the burden, each year will be worse for school districts where the charter growth is most pronounced. 

*Moody’s, Special Comment: Charter Schools Pose Growing Risks for Urban Public School Districts