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gain access to low-cost financing. Research with Collateral Information on Charter School Financing
Several studies of charter schools that do not primarily focus on finance nevertheless
contain important observations about finance issues. A series of studies by the Hudson
Institute concludes, “most charters do not receive their share of public education funds”
(Finn, Manno and Bierlein, 1996, p. 6). Finance issues are described as often being “the
greatest concern facing charter schools, particularly at the outset.” In addition, the authors
write that “the great majority of charter schools truly must make do with less money than
conventional public schools, while being expected to produce superior results.” They argue
that state finance systems often do not provide funding early enough in the school year for
charter schools, which lack the credit or cash reserves possessed by school districts. They
also point out that school finance structures may not be flexible enough to deal with issues
pertaining to certain idiosyncratic charter schools, e.g., how to determine “attendance” in a
distance learning facility.
Similar to the findings of the Hudson Institute study, the Little Hoover Commission (1996)
in California found that schools faced uncertainty regarding funding. “In many instances,
the complexity of education funding drags charter schools back into the red tape and
bureaucracy that the concept is designed to avoid.” The report also found that charter
schools experience significant cash flow problems.
Some research into the use of management contractors is beginning to emerge. These
companies have become a major part of the charter school movement. A study released by
the Charter School Friends National Network (Hassel and Lin, 1999), aimed at improving
contractual relationships between nonprofit charter school boards and management
contractors, finds evidence that some charter school boards are dissatisfied with some
aspects of the contract and support received from their service providers. A review of 20
contracts with 8 private firms and 2 nonprofit providers revealed that no contractor charged
a simple fixed fee. Some contracts simply allowed management companies to keep the
surplus. Other contractors charged a percentage of revenues or expenditures, usually in the
7 percent to 12 percent range. A few contracts had incentive bonuses of 2.5 percent to 3.5
percent for improving student achievement or meeting other performance standards. The
Charter School Friends study points out that under the surplus method, management
companies earn money by cutting costs. Private grants and contributions may simply go to
the company’s bottom line.
A report by the Massachusetts inspector general (Cerasoli, 1999) examined the business
operations of 24 charter schools opened in 1997-98. Some trustees (including 29 trustees 16 Research on Charter School Finance employed as teachers or administrators) had financial interests that required them to restrict
their actions as trustees in order to comply with state conflict of interest laws. The report
concluded that the lack of uniformity in financial statemen...
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This note was uploaded on 02/11/2013 for the course ECON 101 taught by Professor Smith during the Spring '09 term at Harvard.
- Spring '09