To Survive, Charters Can’t Ignore the Bottom Line



By Guest Blogger 06/26/2012

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By now, most people in the education world have come to terms with the notion that resources are likely to be highly constrained in the years ahead.

Charters, too, have faced the unsavory consequences of tight budgets, as they’ve seen their state funds squeezed or delayed. Most have focused energy on generating revenue and seeking funding parity via state finance laws, pursuing philanthropic dollars, and developing lower-cost financing models for facilities.

What they haven’t done, though, is attempt to fundamentally redesign their costs. When it comes to the effectiveness of their staffs, the alignment of their activities, their focus, and their culture, charter leaders innovate. When it comes to their finances, however, they don’t. Many charters have failed to rein in escalating labor costs and still rely on the basic staffing model used by non-charters.

Some charter schools have innovated in ways that break the mold financially. Rocketship Education in California, Carpe Diem Schools in Arizona, and KIPP: Empower Academy in Los Angeles have all crafted models that blend traditional instruction and online learning. This has gotten people talking—but mostly about the technology itself, the teaching and learning, the monitoring of student data. Not as often are people calling attention to the important ways these approaches cut costs.

Because of its heavy use of tech labs for students, Rocketship needs only three teachers to teach four classrooms, shrinking the core teaching staff by 25 percent. The network channels the savings to technology and less-expensive tech staff—cost items that will never escalate as fast as the salaries and benefits of teachers do. Carpe Diem’s and KIPP’s new approaches reduce staffing needs, too, and thus costs.

Still, those exemplars, while promising, represent a tiny share of school innovations. As someone who pays attention to the dollar figures, I’ve been bothered for some time over the lack of serious interest among charter leaders in reinventing their cost structure. Two years ago, at the NewSchools Summit, I asked Jonathan Schorr, “What gives?” We had just entered a new era of austerity, and there we were at a summit jam-packed with tools, ideas, and resources for school innovators—but absolutely no agenda items directed at addressing productivity.

Schorr, a partner at NewSchool Venture Fund, pointed out that charters were laser-guided at solving one problem: redesigning schooling to yield improved outcomes for the students they serve. Reducing operational costs just hadn’t been a priority.

But to keep helping students, they’ll have to make it one. The sustainability problem now threatens the growth or even continuation of some models. It turns out that charters face the same fiscal challenges that traditional schools do—and in some cases added ones too. With public revenues forecasted to grow at only about 3 percent annually, rising labor costs will plague most charters in the same way they are likely to hit non-charters:

  • Total salary costs are set to escalate faster than revenues. Traditional districts lock in salary escalators tied to longevity, degree attainment, and COLAs. While some charters are free of these constraints, their staffs will expect salaries that keep pace with their peers in traditional schools. Educators may be asked to forgo raises, which could stymie their dedication—a critical component of a successful charter school.
  • Even in charters where benefits may not be as generous, there is no escaping the fact that health care costs are set to climb faster than revenues.
  • Charters with teachers in the public pension system will likely be asked to make larger payments on their behalf. Pension funds have not seen the returns on investment needed to make good on pension promises, and thus have already been passing along the bill to districts and charters.

It is time for charter leaders to set their creative minds to the task of designing a more sustainable cost structure. They must do so in order to grow and even survive. In the process, they’ll serve as examples for district and state leaders looking to solve their own financial problems.

Charters that want to make a dent in costs will have to rethink the use of labor, and even the fundamental design of their schools. One option worth considering is to use technology to replace some labor. When students spend part of their day in technology labs and online instruction, schools can save on labor costs and increase class sizes.

As well, schools can be designed to have fewer staff working a longer year. Imagine an organization where 100 employees work 35 weeks each, for a total of 3,500 weeks of labor. Now imagine redesigning the work so that 73 employees work 48 weeks, for the same total labor output. Even if salaries for the smaller staff rise proportionately to compensate for their extra work, the school saves money by having fewer employees to provide benefits for.

To make this work, a school could create a year-round schedule, with students attending in shifts. Special education staff could be cut back, with special education being delivered over the summer. Some high schoolers could take classes over the summer, in exchange for a lighter course load over the school year.

Or … you fill in the blank. Are charters up for the challenge?

-Marguerite Roza




Comment on this article
  • Kathleen Wright says:

    In their defense, charters and district schools suffer from a mixture of data limitations and relative marginalization of school business managers. A nudge is in order that must begin with the Feds.

    Charters and district schools would benefit from a new standard for financial statements. The federal filing rules do not include adequate detail in financials to manage productivity, and detail is diminished when going from the district level to the school. In order to achieve prudent and creative fiscal management, schools need financial reports that conform to a business model rather than focusing on regulatory oversight of special government programs.

    Districts vary in their use of discretion over internal reports. However, the entire education system could be nudged in the direction of cogent analyses of their business models if the DOE were to redesign fiscal data requirements around both macro and micro considerations.

    In addition, greater depth of training in business analysis is needed for school leaders, which would be more easily achieved once the aforementioned financials were improved in their transparency and accessibility.

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