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Report Number: 2016-141

Abbreviations

Charter Schools
Some School Districts Improperly Authorized and Inadequately Monitored Out-of-District Charter Schools

Summary

HIGHLIGHTS

Our audit concerning the oversight that authorizing districts provided three out‑of‑district charter schools highlighted the following:

Results in Brief

The Charter Schools Act of 1992 (Charter Schools Act) allows teachers, parents, students, and community members to initiate the establishment of charter schools that operate independently of existing school district (district) structures. To grant charter schools autonomy and allow them to try innovative teaching methods, state law generally exempts charter schools from most requirements governing districts. However, charter schools must comply with select statutes and meet certain conditions for funding. Further, state law holds each charter school accountable to the authorizing entity (authorizer)—which could be a district, a county office of education, or the State Board of Education (State Education Board)—that approves its charter petition (petition). A petition must include a comprehensive description of the proposed charter school’s educational program, measurable student outcomes, governance structure, and manner of conducting annual financial audits, among other things. To demonstrate community support, a petition must also include a minimum number of parent or teacher signatures. Once approved, a petition becomes an agreement—or charter—between the authorizer and the charter school. Later, if the authorizer’s oversight activities indicate that the established charter school has not fulfilled the charter’s agreements, the authorizer then has the authority to revoke or deny the renewal of the school’s charter.

Although state law sets some requirements related to districts’ authorizations of charter schools outside their geographical boundaries, many of these requirements are vague and ineffective. As a result, two of the three districts we visited—Acton‑Agua Dulce Unified School District (Acton‑Agua Dulce Unified) and New Jerusalem Elementary School District (New Jerusalem)—used exceptions within state law to authorize out‑of‑district charter schools that, in effect, expanded the districts’ reach into neighboring communities. However, our review found that Acton‑Agua Dulce Unified and New Jerusalem could not demonstrate that they complied with state law when they authorized Assurance Learning Academy (Assurance Academy) and Acacia Elementary Charter School (Acacia Elementary), respectively. Specifically, state law requires charter schools to be located within the geographical boundaries of the districts that authorize them unless the schools are unable to locate sites or facilities in the area in which the school chooses to locate or unless the site is for temporary use during construction. Nonetheless, neither Acton‑Agua Dulce Unified nor New Jerusalem could demonstrate that they or the out‑of‑district charter schools they authorized had attempted to locate suitable facilities within the districts’ boundaries at the time of authorization.

Furthermore, state law allows districts to expand their reach while limiting their accountability. Specifically, because the residents near the location of an out‑of‑district school cannot vote for an authorizing district’s board members, a district that authorizes an out‑of‑district school is not accountable to the community in which the school is located. In addition, the districts in which the out‑of‑district schools are located (host districts) do not have a means of challenging the schools’ authorizations. In fact, we identified one instance in which Acton‑Agua Dulce Unified authorized an out‑of‑district charter school within a host district even though the host district had previously rejected the same school’s petition. According to the host district, it rejected the petition because it believed that the school had failed to identify how it would attract a diverse population, serve English language learners, and address serious financial concerns.

Through the authorization of out‑of‑district schools, both Acton‑Agua Dulce Unified and New Jerusalem were able to increase their enrollments and revenue significantly. Charter schools receive state funds based on the average daily attendance of their enrolled students, but the way they receive these funds depends upon whether the schools are directly funded or locally funded. A charter school’s organizational structure and degree of autonomy from its authorizer typically determines its funding method, which affects the way its authorizing district receives revenue. For example, Acton‑Agua Dulce Unified historically has charged all its directly funded charter schools—schools that receive their funding directly from county offices of education, which act as pass‑through agencies for distributing state funding to the charter schools—a 2.5 percent administrative services fee and a 1 percent oversight fee, effectively collecting a total of 3.5 percent of each school’s revenue. The district received $1.9 million total in fees from charter schools in fiscal year 2015–16. Nonetheless, some of Acton‑Agua Dulce Unified’s charter schools appear to have made only sporadic use of the services for which the district charged them. In contrast, New Jerusalem has authorized locally funded out‑of‑district charter schools, which are charter schools that usually have the same governing board as their authorizing districts and that depend heavily on those districts for services, such as those for special education and data reporting. These schools typically receive their funding through their authorizers, so New Jerusalem has been able to manage the charter schools’ funding. In fiscal year 2015–16, New Jerusalem’s four locally funded out‑of‑district charter schools generated more than $5 million in revenue, which the district managed. Because the parents of students in an out‑of‑district school cannot vote for the authorizing district’s board members, New Jerusalem was able expand its reach and increase its revenue without being accountable to the residents of the communities in which the charter schools reside.

Moreover, we found that the State is unable to determine how many out‑of‑district charter school locations exist. Because state law does not require charter schools to report all their school locations—including school sites, resource centers, and administrative offices—some charter schools that operate multiple sites report only their in‑district addresses to the California Department of Education (Education). When we analyzed data from multiple sources, we found that 165 of the State’s 1,246 charter schools operated at least one of their school locations outside their respective authorizing districts’ geographic boundaries in fiscal year 2016–17. These 165 charter schools operated in a total of 495 out‑of‑district locations statewide. However, complete data are not available, and additional out‑of‑district charter school locations may exist.

Acton‑Agua Dulce Unified’s and New Jerusalem’s decisions to authorize the out‑of‑district charter schools we reviewed may have resulted partly from weaknesses in the districts’ authorization processes. Specifically, neither of the two districts has an adequate process for ensuring that petitions comply with state law. For example, Acton‑Agua Dulce Unified approved a petition that did not have any parent or teacher signatures attached, and the district’s records for evaluating this petition indicate that it did not review this critical element. Petition signatures indicate that individuals are interested meaningfully in either teaching at or having their children attend the proposed school. A lack of signatures may indicate a lack of community support, which could limit the charter school’s ability to obtain adequate funding or to employ qualified teachers. Similarly, New Jerusalem approved a petition that did not have the required number of signatures attached, and it also authorized two petitions that did not contain information about parental involvement, even though state law requires a petition to describe how parents will be involved in the governance of the school. New Jerusalem’s superintendent stated that parents can participate by attending public board meetings; however, we believe this approach may not be adequate to provide parents with the opportunity for active and effective representation.

Further, the three districts we visited—Acton‑Agua Dulce Unified, Antelope Valley Union High School District (Antelope Valley Union), and New Jerusalem—did not have written procedures for reviewing their charter schools’ financial information. As a result, Antelope Valley Union and New Jerusalem could not show that they responded promptly to early indicators of financial problems at Los Angeles County Online High School (LA Online) and Acacia Elementary, respectively, which eventually led these two charter schools to close. State law requires districts to monitor the financial conditions of the charter schools they authorize, but it does little to address what effective oversight should entail beyond requiring the districts to perform school site visits and to obtain financial reports. Consequently, neither Antelope Valley Union nor New Jerusalem consistently used the financial information available to identify potential problems and to work with the charter schools to develop corrective action plans that addressed those problems. Instead, the districts moved to revoke the two schools’ charters only after the schools reported significant deficits.

Regardless of whether charter schools operated inside or outside their authorizing districts’ jurisdictions, the level of financial oversight conducted by the districts we visited varied significantly. These inconsistencies likely occurred because state law is vague; thus, authorizers may have interpreted their responsibilities differently. Although state law directs authorizers to monitor the financial conditions of charter schools under their authority, it does not specify what procedures authorizers should perform to fulfill this oversight responsibility. We believe that school districts could improve their financial oversight by combining best practices, such as those that California’s Fiscal Crisis Management and Assistance Team (FCMAT) recommends, with their current processes. FCMAT’s best practices include obtaining charter school lease agreements and ensuring that charter schools’ financial projections and assumptions are reasonable. If Antelope Valley Union and New Jerusalem had adopted these best practices, they might have noticed sooner that their charter schools’ financial conditions were deteriorating. In addition, if Acton‑Agua Dulce Unified and Antelope Valley Union had used their authority under state law to place representatives on their charter schools’ governing boards, they would have been better positioned to question their charter schools’ other problematic decisions, including a potentially illegal agreement that LA Online had with a sectarian school as well as Assurance Academy’s plan to contribute reserves to a nonprofit corporation.

The authorizing districts we visited also provided inconsistent levels of academic oversight to charter schools because state law does not identify specific oversight activities that districts must perform. Although state law requires authorizers to conduct annual site visits at their charter schools, it does not clearly define the minimum level of oversight that authorizer’s must provide with any specificity. In addition, state law only requires authorizers to assess a charter school’s academic performance once every five years, when the school seeks to renew its charter. Although each of the districts we visited established requirements for academic oversight that exceed those in state law, the districts did not always perform the academic monitoring identified in their agreements with their charter schools. As a result, none of the districts held their charter schools accountable for measurable student outcomes outside the process of revoking a school’s charter. For example, the three districts we visited could not demonstrate that they consistently monitored the academic performance of the charter schools we reviewed, even though their respective charter schools performed below the average of comparable schools. State law requires districts to consider increases in academic achievement for all groups of students as the most important factor in deciding whether to revoke a charter, so districts that fail to document their ongoing assessments of academic performance may not have sufficient evidence to revoke failing schools’ charters.

Finally, a series of changes in state law has diminished academic accountability for certain charter schools. Specifically, because of recent legislative changes, the only remaining academic performance criterion for renewing a school’s charter is a comparison to other public schools that the charter school’s students would attend if they were not enrolled in the charter school. However, charter schools are exempt from such comparisons if they qualify for an exception within state law. For example, one charter school we reviewed—Assurance Academy—qualified for that exception during our audit period because it serves high‑risk students, such as those who are habitually truant, who are recovered dropouts, or who are parents. As a result, Assurance Academy was allowed to obtain a charter renewal without the district’s assessing the school’s academic performance. The State Education Board recently approved the development of a new program to hold such schools accountable. However, this new program will not be implemented until fall 2018, so gaps within the State’s accountability system will likely exist until that time.


Selected Recommendations

Legislature

To ensure that districts obtain community support for charter schools that they authorize, the Legislature should amend state law to do the following:

To ensure charter school accountability, the Legislature should amend state law to require charter schools to annually report all their school locations—including school sites, resource centers, and administrative offices—to their authorizers and Education.

To remove the financial incentive for districts to authorize out‑of‑district charter schools, the Legislature should amend state law to prohibit districts from charging fees for additional services above the actual cost of services provided.

To ensure that authorizers have adequate tools and guidance for providing effective financial oversight, the Legislature should require the State Education Board and Education to work with representatives from county offices of education, representatives from districts, and subject‑matter experts, such as FCMAT, to either establish a committee or work with an existing committee to report to the Legislature recommendations on the following:

To ensure that districts are aware of significant issues that may impact the out‑of‑district charter schools they authorize, the Legislature should amend state law to require each district to place a district representative as a nonvoting member on each out‑of‑district charter school’s governing board and allow such a representative to attend all meetings of the charter school’s governing board.

To ensure that charter schools improve the educational outcomes of their students, the Legislature should amend state law to require authorizers to assess annually whether their charter schools are meeting the academic goals established in their charters.

Districts

To make certain that they authorize only qualified petitions, Acton‑Agua Dulce Unified and New Jerusalem should revise their charter school authorization policies to require the documentation of their evaluations of charter school petitions. The districts should present this documentation to their governing boards for their consideration.

To better ensure effective oversight of their charter schools’ finances, the districts we visited should do the following:

To better ensure effective oversight of their charter schools’ finances, Antelope Valley Union and New Jerusalem should provide charter schools with written feedback and recommendations for improving their financial operations after completing their financial review and annual oversight visits.

To ensure that charter schools work toward the academic goals established in their charters, the authorizing districts we visited should do the following:


Agency Comments

Acton-Agua Dulce Unified and Antelope Valley Unified generally agreed with our findings and conclusions, and indicated they will take actions to implement our recommendations. Although New Jerusalem disagreed with our findings and conclusions, it stated that it plans to implement some of our recommendations.





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