January 24, 2000

Alice Rivlin
Financial Responsibility and
Management Assistance Authority
One Thomas Circle, Ste. 900
Washington, DC 20005

Dear Ms. Rivlin:

As you know, the funding process for public charter schools this year went seriously awry. Until late December, public charter schools that expanded (almost all of them) received the same amount as in the fall of last year. For the many schools that expanded by a grade level or more, this was far less than the amount due to them by law on October 15^th. The new public charter schools – the ones most in need -- operated for half the year on approximately 25% of their budgets. Even now, many schools remain seriously underfunded and none know for sure what their “fall” payment ultimately will be.

We appreciate that the Uniform Funding Formula Act is new and difficult to implement. We appreciate also that the CFO made emergency disbursements to schools in imminent danger of missing payroll. But we are writing to make sure you understand the extent of the damage the cashflow crisis has done. This damage affects not just fledgling public charter schools but, ultimately, the credibility of the District government.

To create and build a new charter school under any circumstances is an extraordinary task. Take the labor of founding a new small business, add dozens of regulations from chartering authorities and other agencies, and then try to educate children, often disproportionately from hard-to-serve populations. ^[1] That so many public charter schools are flourishing is a testament to the dedication of the schools' founders and to the pent up desire for reform in this city.

Funding uncertainty simply raises the bar too high. The difficulties are most intense in the following areas:

• Instructional quality.
  
  The cashflow crisis directly affects children. In November and December, many schools were forced to cut back on day-to-day spending, leaving some classes without textbooks and supplies. Major purchases were delayed, especially computer and electronic equipment. One primary school, to take a modest example, built its assessment plans around an innovative use of video tape. It's now January and the executive director still has not received enough funds to purchase the camera. Even if sufficient funds now flow to this school, the idea of having a fall baseline to which to compare improvement has been lost.
  
  Even more disturbing has been the effect on personnel. One high school that doubled from 100 to 200 students was unable to hire another security guard, compromising the safety of its students. The same school also delayed hiring two support staffers and has been forced to resort to "contract" teachers -- temps with no benefits or long-term investment in the school. None of this would have happened if the payment received in October had been anywhere close to the level required by statute.

If the Control Board penalizes schools based on the residency audit, worse instructional disruption will follow. At one school with eighty students, for instance, the loss of funding for five students will mean the firing of an assistant teacher. One classroom will be left with a teacher ratio of 20:1, not the 10:1 ratio envisioned in the school's charter and necessary to implement its program for disadvantaged students. To impose sanctions so late in the year, after so much of each school's budget has already been committed, would be worse than unfair. ^[2] It would amount to outright disregard for the well-being of children.

• Management strain.
  
  In the current environment, careful planning must be replaced by guesswork and anxiety. Charter leaders have had to manage by the seat of their pants, a condition that increases the likelihood of professional burnout, indirectly detracts from the quality of instruction, and threatens the long-term viability of schools.
  
  At one typical school, the director spent all of December searching for a bridge loan and putting off creditors. She worried constantly about the danger of missing payroll or firing teachers, despite the comfortable waiting list developed during the school's successful first year. She chose to keep these anxieties to herself, rather than to disrupt the morale of a staff that through intensive summer training had developed into a cohesive team. But this had personal costs: not one to exaggerate, she describes December as “absolutely miserable.”
  
  There is one easily correctable problem that creates a great deal of difficulty. Schools receive funds with no documentation. Per pupil payments, Title 1 payments, facilities allotment payments, adjustments to prior payments -- all come over the wires looking the same. Since different agencies have been using different enrollment counts, schools are often hard pressed to derive the source. One school, for instance, can only guess why it recently received a check for $27,000 . The confusion not only increases stress and erodes the ability to plan. It also prevents school leaders from discovering mistakes and underpayments (not infrequent) soon enough to contest them.
• Credit relationships.
  
  When the cashflow crisis hit, only one bank was willing to extend bridge loans to its charter school depositors. This bank averted disaster for other schools as well, but only on the condition that they transfer their accounts from other banks. These banks had been building important relationships with the charter school community. One school on the verge of obtaining facilities financing could not, and now may lose its building to other bidders. Other schools missed long-term loan payments. All this has made financial institutions, slow in any event to trust unfamiliar entities, less likely to pursue projects with charter schools. Opportunities to bring capital to public education have been lost.
  
  Relationships with vendors were strained as well. At one of the District's most fiscally disciplined charter schools, for instance, several companies continued providing services only because they knew the director and trusted his word. The school nonetheless saw “slow to pay” marked on its credit history.
  
  A school may get by on the reputation of its director or sponsoring institution for a year or two. But for public charter schools to remain viable, the charter law's promise of predictable funding must be fulfilled.

In the near term, we ask that:

• (1) all future disbursements be accompanied with a clear explanation;
• (2) no charter school be penalized on account of the residency audit, since to do so would be both extra-legal and, given events, grossly unfair; and
• (3) charter schools not be held responsible in upcoming audits for disarray caused by these extraordinary circumstances.

For next year, we ask that the Uniform Funding Formula Act be amended as needed to eliminate confusion and implemented in a way that respects the principles of per pupil funding, which requires that students be funded according to the real costs of education, not the exigencies of the budget process. The working group convened by Councilmember Chavous is generating good ideas towards this goal.

Continued failure to implement properly will replicate the conditions that ruined the District's public education system in the past. The victims will be not just the charter schools and the students in them, but the reputation of the District's government in the financial community and among the public at large.

Thank you for your attention.

Sincerely,

Malcolm E. Peabody
Chairman

Cc:

Mayor Anthony Williams
Councilmember Kevin Chavous
Mrs. Constance Newman
Representative Ernest Istook

Footnotes

^[1] For a full account of the challenges of creating a charter school, see the U.S Department of Education's The State of Charter Schools: Third Year Report and the Hudson Institute's respected study, Charter Schools in Action.

^[2] Many economically disadvantaged or recently immigrated families simply cannot produce three documentary proofs of residence, as was required this year. Students in foster care and in other unusual circumstances have the same inability. DCPS, which began the verification process earlier in the summer than most charter schools and made it a top priority, was unable to obtain three forms of proof from 18% of its students, compared to 16% for charter schools. Changing the standard of proof to two documents in midstream, as apparently is being done this year, fails to deal with the real issue: that many legitimate DC residents cannot produce even one document. A new system agreed to by all stakeholders needs to be developed that will be flexible enough to guarantee that no DC child is prevented from getting a free public education in the District of Columbia.