Public charter school authorizers and legislators are working to create policy on charter school closure costs, but some fear regulations could cause smaller schools to never open due to financial constraints.
Indiana is considering a charter reform bill that initially would have required every charter school to have $100,000 in an escrow account upon opening. Legislators later removed the escrow account requirement from the bill.
James Betley, executive director of the Indiana Charter School Board, says having escrow accounts with set amounts and a closure process too prescriptive would eliminate the chance for smaller public charters to open.
“It would make it almost impossible for what we often call the mom-and-pop charters, the homegrown schools to open,” said Betley, adding that some of the best charter schools in his state and elsewhere are smaller and, therefore, don’t have the financial backing from charter school management organizations or education management organizations. “The only schools that would be able to open would be the ones opened by CMOs and EMOs.”
In Florida, legislators are considering a requirement that charter schools post a performance bond each school year equal to a half of the school’s projected operating funds to be used if the charter school defaults on any financial obligations after it closes.
William Haft, vice president of authorizer development at the National Association of Charter School Authorizers, told Watchdog.org the handling of the cost of charter schools closing is different by state, but it’s a concern for authorizers nationwide.
“The way it works in terms of handling the costs is, it has not always worked,” said Haft. “There hasn’t been a plan at the policy level and that’s something authorizers have been struggling with.”
Haft says there are usually three types of charter schools that close: schools that are open for a few years and don’t make it financially; schools that should probably never have been approved in the first place and close within the first year; and schools that close for reasons not related to finances. The first two groups are the ones that create the most headaches for authorizers, policymakers and taxpayers.
“Schools that are closing within the first year — it’s got less to do with the costs and more to do with preventing that from happening in the first place,” said Haft.
Haft says few charter schools close within the first year.
“When this does happen it’s disruptive,” he said. “That makes it a concern for me.”
The most recent analysis by the NAPCS showed 3.4 percent of charter schools that opened in 2013-2014 closed prior to the 2014-15 academic year (22 out of 642). There were no first-year closures in Indiana, while Florida saw seven out of 75 schools close in the first year.
Both Haft and Betley insist a strong authorization process is required for charters to succeed.
“As an authorizer, I’m fine with being responsible to and for these issues,” said Betley.
“Requiring an escrow is fine, but the authorizer is in a much better position to determine how much should be in that escrow account,” he said, explaining the authorizer is held responsible if a school is unable to fund its own closing costs.
Haft agrees the amount needed to ensure a charter school closure will be as painless as possible varies based on the size of the school and other factors. He said the average generally runs about $75,000.
Requiring schools to have money in reserve, a practice in places such as New Jersey, and requiring a closure bond are common ideas policymakers and authorizers are considering while looking at how to deal with charter closures, says Haft.
“It’s certainly about due diligence,” he said.