Wednesday, January 12, 2011

CMOs Need More Efficiency in Wake of New Financial Reality

Report shows innovations in technology could cut costs; points to new areas for research

Seattle, WA - Charter management organizations (CMOs) must find new ways to help schools operate more efficiently, innovate with new technologies, and adapt to leaner times, according to a new report from the Center on Reinventing Public Education (CRPE) at the University of Washington.

Given the weakened economy and the expectation that CMOs will be able to scale up the number of charter schools they manage, issues of financial sustainability are of crucial importance to the success of CMOs and the charter school movement. Paying for Scale: Results of a Symposium on CMO Finance summarizes the debate and discussion of these issues among a panel of researchers, CMO operators, funders, and financial analysts convened in April 2010 by CRPE and the Bill & Melinda Gates Foundation.

For most CMOs financial self-sustainability remains out of reach, with philanthropic groups providing needed funding for growth. CMOs had hoped to achieve financial self-sustainability through revenue from existing charter schools. "The nirvana is that you are able to throw off enough cash from each school to be able to fund your own growth," said panelist Kevin Hall, from the Charter School Growth Fund. "But inadequate public funding for per pupil costs and for capital and facilities expenses presents enormous challenges. Diseconomies of scale, in which operational costs increase with growth, may also significantly inhibit CMO financial self-sustainability."

The panel agreed that innovative use of technology could help CMOs achieve needed efficiencies. For example, Rocketship Education, a CMO that currently runs two charter schools at a surplus, combines teacher-led classes with online instruction. Students spend about one-quarter of their school time on computer-based curriculum, mostly to practice basic skills. Online instruction allows Rocketship to save 25 percent of teacher salary costs, or $500,000 per year. Other CMOs are experimenting with different cost and service delivery models.

The discussion exposed the need for more evidence to replace speculation on CMO finances. The group pointed to a number of avenues of research that could help CMOs live up to the promise of expanding charter schools, including finding cost-effective ways to implement school turnarounds and identifying solutions to the complex issues of diseconomies of scale.

The recession and its impact on both public and private funding are going to force CMOs to cut costs and reduce their reliance on philanthropy. Ken Zeff of Green Dot Public Schools said this will probably be healthy for CMOs: "Efficient use of philanthropy is a good thing and is in everyone's interest."