KY Policy Blog

Charter School Legislation Passes, But Questions and Concerns Remain About Funding

By Pam Thomas
March 17, 2017

The Kentucky General Assembly gave final approval to charter schools in the waning days of the 2017 legislative session after heated and lengthy debate in both chambers. The approval came in two parts, with the operating provisions included in House Bill 520 and the funding provisions in House Bill 471. The funding provisions in HB 471 raise new questions about how the funding for charter schools would actually work and many of the concerns we previously expressed continue as charter schools will inevitably divert funding away from our state’s existing public schools.

Implications of Inclusion of Funding in the Budget Bill

HB 471 amends the Support Education Excellence in Kentucky (SEEK) portion of the 2016-2018 state budget for fiscal year 2018. Because language included in the budget expires at the close of the second year of the biennium, the charter school funding language in HB 471 will expire on June 30, 2018. The inclusion of this language in the budget — rather than in the permanent statutes — is significant for two reasons. First, the General Assembly will have to address charter school funding again before July 1, 2018. Second, the fact the funding scheme is temporary in nature should cause concern for any entity considering the possibility of establishing a charter school in Kentucky since upon reconsideration, the entire scheme could change. The lack of certainty around funding will make it very difficult for potential applicants to plan for and project future funding, which is required as part of the initial application.

Funding Provisions Unclear and Concerning

When considered together, the funding provisions in HB 471 appear to be a mix of new language requiring a different approach for the allocation of funds to charter schools, combined with language that remains from the original version of HB 520 — but that doesn’t work well with the new approach. Without further explanation about how the various funding components are intended to work together, it is not possible to determine exactly what funding a local charter school will receive, or what resources a local district would be required to give up. In addition, given the limited time these provisions will be in effect, it is unlikely that any charter school would actually receive funding under these provisions. It takes time for charter applications to be developed, prepared, submitted and reviewed and for a school to actually become operational.

Although similar to the funding language included in HB 520 as introduced, the language in HB 471 does include some significant differences. We were concerned about the language in HB 520 because it required a local school district to transfer a proportionate share of “gross state and local revenues” to the charter school, which we interpreted as meaning all revenues that were not specifically excluded.  HB 471 establishes a different starting point for funds to be transferred to a charter school:

  • A basic explanation of the primary funding mechanism for charter schools in HB 471 is as follows: All charter schools, regardless of authorizer, are required to receive a proportionate share of “funding calculated pursuant to KRS 157.360” to be allocated to the charter school in the “same manner as the school allocation model used by the local school district.”
  • KRS 157.360 establishes the base funding level for the SEEK formula, which is an amount established by the General Assembly in the budget bill, divided by the prior year’s statewide average daily attendance. This number is often referred to as the guaranteed base per pupil funding amount. In addition to the guaranteed base funding, the SEEK formula also includes additional amounts for at-risk children, exceptional children, and transportation costs. SEEK funding is provided through a combination of state and local funds, with property poor districts receiving more state funds than property rich districts.
  • The specific reference to KRS 157.360 would seem to limit the funding that flows to a charter school to the guaranteed base per pupil funding plus the additional amounts, since those are the only funding streams specifically addressed in KRS 157.360. However, other language included in the bill indicates that this is not what the General Assembly intended. Limiting the funds transferred to charters to just those addressed in KRS 157.360 would result in far less money being transferred than would be the case under the broader directive that local districts are to use the same allocation method as is used for other schools to determine the amount of funds to send to the charter school. This is true because school districts receive funds from many other sources in addition to the SEEK funding that are allocated and distributed to schools within the district.

Adding to the confusion, HB 471 excludes some funds received by local school districts from amounts that must be transferred to charter schools, including funding generated to support capital items and capital construction, local Tier II funds levied by school districts, transportation funds (in some cases, see additional discussion below) and a three percent authorizer fee. These exclusions made sense under the original language of HB 520, where districts were required to transfer a proportionate share of “gross state and local revenues” to a charter school. However, they don’t make sense under the revised requirement in HB 421 that districts allocate funds to charter schools in the same manner as any other school in the district. As noted previously, districts generally do not allocate funds to schools based on specific funding streams. How this would all actually work in practice is unclear and therefore it will be difficult for school districts to understand what is expected.

To confuse things even further, HB 471 includes a requirement that “public charter schools shall receive any education funds derived from occupational license fees on a proportionate per-pupil basis.” It is unclear whether this transfer must occur in addition to, or as part of the general allocation from the local district to charter schools. School districts may levy occupational license taxes as one of the options to generate the revenues that make up the required local effort to participate in the SEEK program. It is unclear why  this specific tax was identified as a separate revenue source for charter schools, since it is already included as part of the local funding for base per pupil revenue — leading to “double counting” of this revenue source. Further, only nine districts have elected to impose this levy, so if it is an additional transfer of dollars it would only provide additional funding for charter schools in those nine districts, raising the question of equity.

HB 471 also has language requiring that: “A public charter school shall receive a proportionate share of moneys generated under federal and state categorical aid programs for students that are eligible for the aid and attending the public school.” It isn’t clear whether this directive represents a required component of the allocation formula developed by the district to distribute funds individual schools, or if it is a directive that funding be provided in addition to that provided under the allocation formula.

With regard to transportation funding, if the local school district provides transportation to charter school students, the district retains transportation funding. If the local district does not provide transportation, it must transfer a proportionate share of its transportation funding to the charter school based on the number of charter school students that need transportation. The transportation component of the SEEK formula is only partially funded by the state, and it isn’t clear whether the district must transfer just the state portion, or the entire amount determined under the formula for each transported student. There are some variations included in HB 471 for collaborative and regional achievement zone charter schools.

Broader Funding Concerns Remain

Since there is no new funding is included in HB 471, the broader concerns that we expressed previously about the redirection of resources from our already underfunded public schools and further reductions in already deficient transportation funds remain. In addition, under HB 471, locally generated resources will be transferred to charter schools operated by independent boards that are not elected by the people of the district, depriving local citizens of the ability to hold those expending local funds at the charter school accountable.  It is also still concerning that HB 520 retains provisions allowing the mayors of Lexington and Louisville to authorize charter schools, and that HB 471 requires that funds for a charter school authorized by one of the mayors be transferred to the mayor for distribution to the charter school.  This transfer of education funds outside of the education system to an authorizer that has never been involved with or directly responsible for public education raises troubling questions.

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