January 20, 2004

Assessing California's Charter Schools

The 2003 statewide evaluation of charter schools, conducted by RAND, concluded that charter schools were cost-effective—achieving academic results similar to those of traditional public schools even though they obtain less state and federal categorical funding. This report summarizes the findings of this evaluation and offers recommendations for improving charter schools in California. Most importantly, we recommend the Legislature restructure the charter school categorical block grant and strengthen charter school oversight and accountability.

I. Overview of Charter Schools  

• The "Basics" of Charter Schools in California 
• Major Charter School Legislation 
• Charter School Growth Over Last Decade 

II. Synopsis of RAND's 2003 Charter School Evaluation  

III. LAO Recommendations  

• Reexamining the Need for an Annual Growth Cap 
• Reforming the Charter School Categorical Block Grant 
• Enhancing Charter School Oversight and Accountability
• Clarifying and Capping Oversight Fees 

Executive Summary

Since they first opened their doors in fall 1993, charter schools in California have grown in number and steadily increased enrollment. Over the last decade, the state has funded two comprehensive charter school evaluations—the findings of which were released in 1997 and 2003. Both evaluations concluded that charter schools are a viable reform strategy—expanding families' choices, encouraging parental involvement, increasing teacher satisfaction, enhancing principals' control over school-site decision making, and broadening the curriculum without sacrificing time spent on core subjects. The most recent evaluation deemed charter schools cost-effective—finding that charter schools achieve academic results similar to those of traditional public schools even though they obtain significantly less state and federal categorical funding. The evaluation also found, however, that the state continues to face challenges in the areas of charter school finance and accountability.

After summarizing the findings of the 2003 evaluation, this report offers recommendations for improving charter school finance and accountability. Most importantly, we recommend the Legislature:

• Restructure the Charter School Categorical Block Grant. We recommend shifting 14 currently excluded programs into the general block grant, shifting 10 other currently excluded programs into the disadvantaged-student component of the block grant, and rebenching the underlying per pupil funding rates in a cost-neutral manner.
• Strengthen Charter School Oversight. We recommend that school districts be permitted to opt out of charter authorizing, charter schools be allowed to choose among multiple authorizers, and specific safeguards be created to promote stronger accountability.
• Modify Charter School Facility and Oversight Fees. We recommend delineating more clearly between facility fees and oversight fees, capping these fees (at 2 percent and 1 percent, respectively, of total charter school revenues), and eliminating the mandate-claims process for oversight costs.

Taken together, these reforms would address many of the weaknesses the 2003 charter school evaluation identified and be a significant step forward in improving charter school funding and oversight in California.

Introduction

In 1992, California became the second state in the country to enact legislation allowing for the creation of charter schools. The first charter schools in California opened their doors for the 1993-94 school year and, during the past ten years, charter schools have grown in number and steadily increased enrollment. To assess how these schools are using their resources in educating students, the state recently funded a two-year evaluation—the results of which were released on June 30, 2003. The evaluation deemed charter schools cost-effective—achieving academic results similar to those of traditional public schools despite receiving less state funding.

Chapter 34, Statutes of 1998 (AB 544, Lempert), required the Legislative Analyst's Office (LAO) to contract for the statewide evaluation. The LAO contracted with RAND, and the state provided a total of $666,000 for the evaluation. (In addition to this evaluation, the state has funded three other independent charter school studies. For a summary of these other reports, please see the box on page 5.) Chapter 34 also required the LAO to report to the Legislature on the general effectiveness of charter schools and, specifically, to recommend whether to expand or reduce the state cap on the number of allowable charter schools.

This report responds to this legislative directive. In this report, we:

• Discuss some general similarities and differences among charter schools and track the growth of charter schools nationwide and in California over the last decade.
• Summarize the findings of RAND's charter school evaluation.
• Offer recommendations for: (1) adjusting the state cap on the number of allowable charter schools, (2) improving the charter school funding model, (3) strengthening charter school oversight, and (4) modifying policies relating to oversight fees.

Overview of Charter Schools

Charter schools are publicly funded K-12 schools. These schools are subject to state testing and accountability requirements, but they are exempt from many laws relating to specific education programs. Because of these exemptions, charter schools have greater fiscal and programmatic flexibility than traditional public schools. This expanded flexibility was intended to promote innovation in local education practices. Charter schools also were intended to expand students' educational options, thereby generating competition and enhancing incentives for traditional public schools to make educational improvements.

In this section, we:

• Provide some background information on charter schools in California—including information on chartering authorities, types of charter schools, differences among charter schools' general modes of instruction, and charter school finance.
• Summarize eight especially significant charter school laws.
• Track the growth of charter schools nationwide and in California.

The "Basics" of Charter Schools in California

In this section, we provide some basic background information about charter schools in California.

School District Board Most Common Charter Authorizer. Since the inception of charter schools, 258 government agencies have authorized (or officially granted) charters in California. These charter-granting authorizers consist of the SBE, 23 county school boards, and 234 school district boards. School district boards have authorized the vast majority of charter schools (87 percent). Most charter authorizers (69 percent) have approved only one charter. Less than 10 percent have authorized more than three charters.

Approximately One of Every Ten Charter Petitions Denied. To operate in California, a charter school must submit a petition to a charter authorizer. A petition must include specific information that is delineated in statute, such as a description of the education program of the charter school and the student outcomes the school will use to measure its performance. Charter authorizers report denying approximately 10 percent of all submitted petitions. (Given RAND's survey was distributed only to charter authorizers that were currently overseeing charter schools, this percentage is likely to understate the actual denial rate because it does not include data from charter authorizers that have denied all submitted petitions. Additionally, it does not account for informal actions on behalf of charter authorizers that might have discouraged groups even from submitting a petition.) Although the original 1992 charter school law did not require charter authorizers to provide reasons for denying a charter petition, later amendments require that charter authorizers now prepare written documentation justifying their denials. The most common reasons charter authorizers report for denying charter petitions are "an unsound educational program" and a concern that the proposed school is "demonstrably unlikely to succeed."

Since 1993, the State Department of Education (SDE) Has Tracked Almost 575 Charter Schools. When a petition is approved or pending, SDE assigns the charter school a unique tracking number. Since the inception of charter schools, SDE has assigned tracking numbers to 573 schools. Of these 573 charter schools,
403 schools (70 percent) are currently operating, 84 schools (15 percent) have petitions pending with a charter authorizer, 20 charters (3 percent) have been revoked, and 66 charter schools (12 percent) have been closed. (In addition to these schools, SDE has issued
31 "inoperative" numbers associated with schools that had approved charters but either never opened or later withdrew their charter.)

"Start-Up" Charter Schools More Common Than Conversion Charter Schools. In California, charter schools may be newly created as a start-up charter school or else a traditional public school may close and reopen as a "conversion" charter school. Figure 1 shows the number of start-up and conversion charter schools that are (1) currently operating, (2) pending, (3) have closed, or (4) have had their charter revoked. As the figure shows, about four out of every five currently operating charter schools are start-up schools whereas one out of every five is a conversion school.

Conversion Charter Schools Serve More Students Than Start-Up Charter Schools. Although start-up charter schools are more common than conversion charter schools, conversion charter schools actually enroll a greater number of students. Of all charter school students in the elementary grades, 72 percent are enrolled in a conversion charter school whereas 28 percent are enrolled in a start-up school. Of all charter school students in the secondary grades, 46 percent are enrolled in a conversion charter school whereas 54 percent are enrolled in a start-up school. (In 2002-03, charter school enrollment was split about evenly between the elementary and secondary grades.)

Charter Schools Offer Two General Modes of Instruction—Classroom-Based and Nonclassroom-Based. Charter schools provide instruction either primarily in a traditional classroom setting or in a nonclassroom setting. The SDE classifies a charter school as a classroom-based school if at least 80 percent of its instructional time is offered on the school site, with the school site being a facility used principally for classroom instruction. A nonclassroom-based school, in contrast, is one in which more than 20 percent of instructional time is offered in a location different from the primary school site. Nonclassroom-based charter schools tend to rely on individualized, self-paced student learning plans. Nonclass-room-based instruction includes independent study, home study, distance study, computer-based study, and work-study. Some of these types of instruction (for example, independent study) are common in traditional public schools as well as charter schools whereas others (for example, home study) are unique to charter schools.

Approximately One-Third of All Charter Schools Are Nonclassroom-Based. In 2001-02, SBE classified 118 charter schools, or approximately one-third of all charter schools, as nonclassroom-based. Start-up charter schools are much more likely to be nonclassroom-based than conversion charter schools (57 percent and 11 percent, respectively). State law prohibits nonclassroom-based schools from hiring teachers without state credentials. Additionally, state law requires SBE to establish general rules for determining the appropriate funding level for nonclassroom-based charter schools. The board's regulations specify that funding determinations are to be based on: (1) the percentage of total expenditures associated with teacher salaries and benefits, (2) the percentage of total expenditures associated with instruction, and
(3) the student-teacher ratio. Nonclassroom-based charter schools that devote a greater share of their budget to teacher salaries and instruction and have lower student-teacher ratios are eligible for higher levels of funding.

Charter School Funding Model Intended to Result in Funding Comparable to Traditional Public Schools. In 1999, the Legislature adopted the current charter school funding model. Prior to this time, charter schools received funding on a program-by-program basis through negotiation with their charter authorizer. Under the current model, charter schools receive funds through the following three funding streams.

• Revenue Limit Funding. Charter schools receive revenue limit funding equal to the average revenue limit of all traditional public schools in the state. A different revenue limit rate is calculated for each of four grade spans—K-3, 4-6, 7-8, and 9-12. As with other public schools, revenue limit funding is continuously appropriated general purpose funding that charter schools may expend at their discretion.
• Categorical Block Grant. In lieu of applying separately for certain categorical programs, charter schools receive categorical block grant funding, which is specified as a line item in the annual budget act. The block grant allocation to each charter school includes: (1) general block grant funding and (2) disadvantaged student funding. Similar to the revenue limit calculation, the general block grant rate provides per pupil funding equal to the average amount of funding traditional public schools receive in total for certain categorical programs. This rate also is calculated separately for each of the four grade spans. The disadvantaged student component is a single rate equivalent to the statewide average per pupil funding rate provided to traditional public schools for Economic Impact Aid. Unlike other public schools (which may not participate in the categorical block grant), charter schools may expend categorical block grant funding at their discretion and are not bound by the specific programmatic requirements of each categorical program included within the block grant.
• Other Categorical Programs. Charter schools also may apply separately for categorical programs not included in the categorical block grant. Charter schools that apply for these categorical programs, such as the Governor's Mathematics and Reading Professional Development program or the Principal Training program, are required to abide by all associated programmatic requirements.

Major Charter School Legislation

This section highlights eight pieces of state legislation that have had an especially strong impact on charter school operations and facilities.

Charter School Operations

Chapter 781, Statutes of 1992 (SB 1448, Hart)—Authorized the Creation of Charter Schools in California. The Charter Schools Act of 1992 was the original law authorizing the creation of publicly funded schools that could operate independently from school districts and be exempt from existing education laws. The law established a statewide cap of 100 charter schools and a districtwide cap of ten charter schools. The law established petition requirements, designed a two-stage appeals process, and specified certain conditions under which charters could be revoked. It required the qualifications of personnel to be specified in a school's charter, but it did not require staff to hold state credentials. The law also stated that the Superintendent of Public Instruction (SPI) was to make annual apportionments to each charter school, but in practice, charter schools initially negotiated funding with the school district rather than receiving it directly from the state. The original law did not address charter school facility issues.

Chapter 34—Instituted Significant Charter School Reforms. This law increased the statewide cap to 250 charter schools for the 1998-99 school year, with an additional 100 charter schools allowed to open annually thereafter, and eliminated the districtwide cap. It slightly eased (1) petition requirements, (2) the petition submittal process, (3) the appeals process, and (4) the revocation process. Unlike the 1992 law, it also required all core-subject teachers to hold a state credential. Additionally, it clarified that charter schools could receive funding directly from the state. It also required school districts to offer charter schools any unused district facilities at no charge, and it capped the oversight charges school districts could assess charter schools.

Chapter 162, Statutes of 1999 (SB 434, Johnston)—Applied Independent Study Laws to Charter Schools. This law required charter schools that offered independent study to comply with all laws and regulations governing independent study generally. This law also required charter schools to offer a minimum number of instructional minutes equal to that of other public schools, maintain written records of pupil attendance, and release these records for audit and inspection. Additionally, it required charter schools to certify that their students participated annually in the state's testing programs.

Chapter 78, Statutes of 1999 (AB 1115, Strom-Martin)—Created Charter School Funding Model. This law clarified the language regarding funding by expressing legislative intent to provide charter schools with operational funding equal to the total operational funding available to similar public schools serving similar student populations. It also established a funding model that allowed charter schools to receive funds either locally through the school district or directly from the state. The model consisted of three basic components: (1) revenue limit funding, (2) categorical block grant funding, and (3) separate categorical program funding—all of which were designed to yield charter school funding rates that were comparable to those of similar public schools.

Chapter 892—Reduced Funding for Nonclassroom-Based Charter Schools. This law required SBE to: (1) adopt regulations governing nonclassroom-based instruction, (2) develop criteria for determining the amount of funding to be provided for it, and (3) make specific funding determinations for individual charter schools. This law included certain guidelines regarding funding levels. Specifically, funding for non-classroom-based charter schools was to be reduced by no more than 10 percent in
2001-02, no less than 20 percent in 2002-03, and no less than 30 percent in 2003-04. The board, however, retained the discretion, on a case-by-case basis, to adjust funding by different percentages. The board was to make funding determinations on a five-year cycle if a charter school did not make material changes to its charter and was deemed to be in good standing.

Chapter 1058, Statutes of 2002 (AB 1994, Reyes)—Established Geographic Restrictions and Enhanced County Oversight. This law required, with few specified exceptions, that a charter school consist of a single school site located within the geographic jurisdiction of its chartering school district. If adequate justification was provided, the law, however, allowed for two exceptions. Specifically, a group could receive a countywide charter (to operate at multiple sites throughout that county) or a statewide charter (to operate at multiple sites throughout the state). In either case, a charter school group had to justify the educational benefit of operating programs at multiple sites spanning multiple local jurisdictions. Additionally, the law granted County Offices of Education (COEs) general authority to conduct both fiscal and programmatic oversight of charter schools. The law, for example, allowed COEs to conduct an investigation of a charter school based on parental complaints or fiscal irregularities.

Charter School Facilities

Proposition 39 (November 2000)—Required School Districts to Provide "Reasonably Equivalent" Charter School Facilities. This law, approved by the voters at a statewide election, allowed school districts to pass local school facility bonds with a 55 percent vote instead of a two-thirds vote. In addition, the law required school districts to provide charter schools with reasonably equivalent facilities that were sufficient to accommodate all their classroom-based students. This requirement must be met even if unused facilities are not available and the district would incur costs to provide the facilities. The school district, however, is not required to spend its general discretionary revenues to provide charter school facilities. Instead, the district could use other revenue sources, including state and local bonds. The law also: (1) required that charter facilities be reasonably equivalent to other district facilities, (2) allowed school districts that funded charter school facilities with discretionary revenues to charge the associated charter schools a facility fee, and (3) exempted a school district from providing facilities to charter schools that served fewer than 80 students.

Chapter 935, Statutes of 2002, (AB 14, Goldberg) and Proposition 47 (November 2002)—Created Charter Schools Facilities Program and Approved Sizeable Bond Funding. Chapter 935 established a pilot program—the Charter Schools Facilities Program—to determine the optimum method for funding charter school facilities. The law specified that the State Allocation Board (SAB) was to approve a set of projects that was "fairly representative" of: (1) the various geographic regions of the state; (2) urban, suburban, and rural regions;
(3) large, medium, and small schools; (4) and the various grade levels. While ensuring this fair representation was achieved, SAB also was required to give preference to charter schools in overcrowded school districts and low-income areas as well as to charter schools operated by not-for-profit organizations. This facilities program was linked with voter approval of Proposition 47, which provided up to $100 million (of a total of $3.5 billion) for the construction of new charter schools. On July 2, 2003, SAB provided preliminary facility apportionments to six charter schools—committing a total of $97 million in Proposition 47 bond monies.

Charter Schools Have Experienced Notable Growth Over Last Decade

In this section, we track the recent growth of charter schools nationwide and in California.

Charter Schools Spread Across Country in 1990s. During the 1990s, legislation allowing for the creation of charter schools was adopted by most state governments. Figure 2 tracks this growth. Today, 40 states as well as the District of Columbia (DC) have charter school laws.

Almost 2,700 Charter Schools Serving More Than 684,000 Students Nationwide. Currently charter schools are operating in 36 states and DC. In 2002-03, almost 2,700 charter schools served more than 684,000 students nationwide. Of these schools, almost 400 were new charter schools that opened in fall 2002. Figure 3 (see next page) shows the number of charter schools for each state and indicates the percentage of all public K-12 students in each state who attend charter schools. The data are provided for 2001-02—the most recent nationwide data compiled by the National Center for Education Statistics. As the figure shows, Arizona is the state with the greatest number of charter schools, followed closely by California. The DC serves the greatest proportion of all public K-12 students in charter schools (almost 10 percent). California serves approximately 2.5 percent of all public K-12 students in charter schools. Numerically, California serves more charter school students than any other state.

Steady Charter School Growth in California Over Past Ten Years. In California, the number of charter schools and the number of students attending charter schools has increased steadily over the past ten years. Figures 4 and 5 show the total number of charter schools and the total number of charter school students, respectively, in California each school year from 1993-94 through 2002-03. In 1993-94, 86 charter schools located in 23 of California's 58 counties served approximately 48,000 students. Of these students, 73 percent were in grades K-6, 12 percent were in grades 7-8, and 14 percent were in grades 9-12. By comparison, in 2002-03, 409 charter schools located in 45 counties served almost 157,000 students. Thus, over this ten-year period, California experienced average annual growth in charter school enrollment of 14 percent. As Figure 5 shows, during this period, the grade-level composition of charter school students also has changed—with charter schools now serving proportionally fewer K-6 students, slightly more seventh and eighth grade students, and considerably more high school students.

RAND's Evaluation Deems Charter Schools Cost-Effective

As mentioned earlier, RAND recently released the results of a two-year evaluation of charter schools in California. The evaluation assessed charter schools' effectiveness in using their resources to educate students. To conduct the evaluation, RAND used both primary and secondary data sources. To collect original data, RAND conducted a survey in spring 2002 of all California charter school principals, the principals of similar traditional public schools, and all California charter authorizers. In selecting traditional public schools to survey, RAND matched charter schools with a set of traditional public schools that served students with similar ethnic and socioeconomic characteristics. Thus, RAND attempted to compare charter schools to like schools serving like students. During fall 2002, RAND also visited nine charter schools and all but one of their charter authorizers and interviewed administrators and teachers at each site. Additionally, RAND collected student achievement data from six school districts with a large number of charter schools. These data were longitudinally linked, which permitted RAND to track students' test scores over time, thereby better isolating the independent effect of attending a charter school. To supplement these primary data sources, RAND also tapped traditional secondary data sources—including SDE's data on student demographics and test scores, teacher qualifications, and schools' academic performance.

This section highlights the most important differences and similarities that RAND found between charter schools and traditional public schools serving similar students and between start-up charter schools and conversion charter schools. Specifically, this section reviews RAND's findings regarding:

• The academic achievement of charter schools compared with other public schools.
• The academic achievement of classroom-based charter schools compared with nonclassroom-based charter schools.
• The general policies and practices of charter schools.

Charter Schools Show Year-to-Year Achievement Gains Comparable to That of Other Public Schools. As one method for assessing academic performance, RAND compared the average growth rate in charter schools' Academic Performance Index (API) score with that of other public schools. RAND found that, statewide, both charter schools and other public schools improved academic performance between 1999-00 and 2001-02. RAND also found that the average growth in charter schools' API score was not significantly different from that of other public schools. Changing the comparison group and restricting the analysis only to school districts that have at least one charter school, RAND similarly found that the average growth rate in charter schools' API score was not significantly different from neighboring public schools.

Classroom-Based Charter Schools Attain Higher Test Scores Than Nonclassroom-Based Charter Schools. RAND also compared the academic performance of classroom-based charter schools with both nonclassroom-based charter schools and other public schools. It found that classroom-based charter schools tend to attain higher test scores than either nonclassroom-based charter schools or other public schools. Specifically, it found that students in start-up, classroom-based charter schools scored slightly higher in almost every grade and subject than similar students in other public schools. It also found that students in conversion, classroom-based charter schools scored slightly higher in reading than comparable students in other public schools, but they scored slightly lower in mathematics. In contrast, RAND found that students in nonclassroom-based charter schools—whether start-up schools or conversion schools—scored lower in every grade and subject compared to students in other public schools.

Overall, RAND Deems Charter Schools Cost-Effective. Figure 6 highlights many of RAND's other findings relating to the general policies and practices of charter schools. The figure is divided into the following six subsections: (1) student body, (2) academic environment, (3) special education, (4) staffing, (5) finances and facilities, and (6) governance and oversight. Overall, RAND concluded that charter schools are cost-effective—attaining achievement scores comparable to those of other public schools even though they face considerable fiscal and facility challenges. Particularly noticeable, RAND found that charter schools participate in state-funded and federally-funded categorical programs at significantly lower rates than other public schools. RAND also found that charter school teachers and administrators are less experienced, but they feel more involved in decision making and have a greater sense of ownership of their classrooms and school site. Taken together, RAND's findings suggest that charter schools generally are viable, cost-effective reform strategies for improving academic achievement and serving certain students whose families desire additional school options.