To Survive, Charters Cannot Ignore the Bottom Line

Wednesday, May 1, 2013

To Survive, Charters Cannot Ignore the Bottom Line

by Marguerite Roza

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 have seen their state funds squeezed or delayed. Most charters have focused their energy on generating revenue by seeking funding parity via state finance laws, pursuing philanthropic funds, and developing lower cost financing models for their facilities.

What they have not done 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 do not apply the same principles. Many charters have failed to rein in escalating labor costs and still rely on the basic staffing model used by noncharters.

Some charter schools have innovated in ways that break the financial mold. Rocketship Education in California, Carpe Diem Schools in Arizona, and the Knowledge Is Power Program (KIPP): Empower Academy in Los Angeles have crafted models that blend traditional instruction and online learning. This approach has gotten people talking—but mostly about the technology itself, teaching and learning, and the monitoring of student data. People are rarely calling attention to the important ways that these approaches reduce costs.

Rocketship’s initial model relies heavily on technology labs for its students. Schools using the lab rotation model that Rocketship pioneered need only three teachers to teach four classrooms, shrinking the core teaching staff by 25 percent. The network has channeled the savings to technology and less-expensive technology staff—cost items that will never escalate as fast as the salaries and benefits of teachers do. The new approaches by both Carpe Diem and KIPP also reduce staffing needs and thus costs.

Still, these exemplars—while promising—represent a tiny share of school innovations. As someone who pays attention to dollar figures, I have been bothered for some time by the lack of serious interest among charter leaders to reinvent their cost structures. Two years ago, at the NewSchools Summit, I asked Jonathan Schorr, a partner at the NewSchools Venture Fund, “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 there were absolutely no agenda items directed at addressing productivity.

Schorr pointed out that charters were laser guided at solving one problem: redesigning schooling to yield improved outcomes for the students that they serve. Reducing operational costs had not been (and still is not) a priority.

But to keep helping students, charters will have to make cost reduction a priority. The sustainability problem now threatens the growth and even the continuation of some models. It turns out that charters face the same fiscal challenges that traditional schools do—and, in some cases, additional ones as well. 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 affect noncharters:

Total salary costs are set to escalate faster than revenues. Traditional districts lock in salary escalators tied to longevity, degree attainment, and cost-of-living adjustments. Although 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 successful charter schools.

Even in charters where the benefits package 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 may have been complicated by other factors) 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 to grow and even survive. In the process, they will 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 way is to use technology to replace some labor. When students spend part of their day in technology labs with online instruction, schools can save on labor costs and increase class sizes.

In addition, schools can be designed to have fewer staff working a longer year. Imagine an organization in which 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 approximately the same total labor output. Even if salaries for the smaller number of staff increase proportionately to compensate for their extra work, a school will save money by having fewer employees for whom benefits must be provided.

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 during the summer. Some high school students could take classes in the summer, in exchange for a lighter course load during the regular school year.

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

This blog has been adapted and posted with permission from Education Next. The original version was published June 26, 2012, in Education Next.


Marguerite Roza, Ph.D., is the director of the Edunomics Lab at Georgetown University and senior research affiliate at the Center on Reinventing Public Education (CRPE). Dr. Roza’s research focuses on quantitative policy analysis, particularly in the area of education finance. Recent research traces the effects of fiscal policies at the federal, state, and district levels for their implications on resources at both school and classroom levels. Her calculations of dollar implications and cost equivalent trade-offs have prompted changes in education finance policy at all levels in the education system. She has led projects including the Finance and Productivity Initiative at CRPE and the Schools in Crisis Rapid Response paper series. More recently, she served as the senior economic advisor to the Bill & Melinda Gates Foundation. Her work has been published by Education Sector, the Brookings Institution,Public Budgeting and Finance, Education Next, and the Peabody Journal of Education. Dr. Roza is the author of the highly regarded education finance book Educational Economics: Where Do School Funds Go?

Dr. Roza earned a Ph.D. in education from the University of Washington. Prior to that, she served as a lieutenant in the U.S. Navy, teaching thermodynamics at the Naval Nuclear Power School. She has a bachelor’s degree from Duke University and has studied at the London School of Economics and the University of Amsterdam.

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