Charters 101: Parents Ask, “How Are Charter Schools Paid For?”

stacks of coins in front of blue toy school house

In education, everyone’s top concern should be, “How are the children?” However, when it comes to the heat and noise of debate about education policy, the fight often boils down to money. People who oppose school choice see education funding as a finite pool, and resent any movement of students or resources from traditional public schools to schools of choice. From the perspective of parents of charter school students, you want to make sure that your children are being treated fairly as compared to public school students in traditional district schools, in terms of resources to pay teachers, buy supplies, and build school facilities. This blog post gives families an overview of how charter schools are paid for and how public school finance works in Texas. This will help dispel myths about charter schools when you are having conversations with friends and family, and when you are advocating for charter schools to your elected officials; in recent posts, we explained how to find who represents you and how to contact them.

This post is part of our ongoing Charters 101 series, providing clear explanations for charter school parents about how they can become stronger advocates for high quality education.

Texas Public School Finance

Public schools in Texas get money from federal funds, as well as state and local sources. Federal programs provide additional funding for special populations of students, but are a relatively small part of the overall budget—less than 10 percent, before the pandemic. Traditional public schools get public funding from both state and local sources. Charter schools don’t receive local funding, so state funds are essential to how charter schools are paid for.

The Texas Education Agency (TEA) distributes money to traditional public schools and charter schools through the Foundation School Program. The state raises revenue for education from a variety of sources, including sales taxes, mineral rights, and the lottery. As we explained in another post, the Texas Legislature determines how much money is allocated towards public education and what formulas are used to calculate how much money goes to each school district and charter school. In 2019, the legislature approved HB 3, a state law that rewrote funding formulas, increased teacher pay, and raised the share of state funding of public education as compared to local funding, among other changes. Both charter schools and traditional schools benefitted from HB 3.

Traditional public school districts raise revenue through property taxes. Tax rates are set by school boards and tax elections; county tax assessor-collectors set property values. Each local school district that includes valuable real estate—such as luxury homes, high rise office buildings, or factories—must send some of their revenue back to the state, a process called recapture or “Robin Hood.” In 2019, HB 3 decreased the amount of recapture and established guaranteed yield levels to help even out the differences caused by gaps in local property wealth.

HB 3 also changed the formulas for calculating how much money the state distributes to school districts for maintenance and operations (M&O)—over 80 percent of education revenue. M&O expenses include teacher salaries, administration costs, and classroom supplies. Starting with the number of students who are attending classes, there are adjustments based on how many students are receiving services such as special education, dyslexia, bilingual education, early childhood education, transportation, and career and technical education. There are also adjustments for districts with fast-growing populations, small- or mid-sized districts (that have higher administration costs), and rural districts with sparse populations. Districts can gain extra funding for teacher incentive pay and for meeting college, career, and military readiness goals.

Building new schools involves a big up-front cost; the solution is to sell bonds and then pay off the bonds over time. Traditional public school districts raise revenue for interest and sinking (I&S) funds that are used to pay off debts. The state also allocates funding for facilities through the Instructional Facilities Allotment (IFA) and Existing Debt Allotment (EDA).

Charter School Funding in Texas

Charter schools are public schools, and there are similarities in how are charter schools paid for when compared to traditional public schools. However, charter schools don’t raise local revenue, so there is a special set of formulas for state funding to fill that gap. For M&O funding, the state covers 100 percent of the basic funding (known as Tier One) and provides additional funding (Tier Two) based on state average tax rates. As school districts across the state hold elections to raise property tax rates, that will gradually increase state funding to charter schools as well.

The changes in HB 3 that made school funding more equitable—by increasing funding based on student need—benefit charter schools as well as traditional public school districts. Charter schools serve a higher percentage of low-income students and English language learners than traditional public schools, and serve a similar proportion of students with special needs.

All charter schools, regardless of their enrollment, are eligible for the allotment for small- and mid-sized districts, averaging $1,058 per student in the 2021 fiscal year. Also, charter schools that build new facilities are eligible for the New Instructional Facilities Allotment (NIFA), which includes $1,000 per student in the first year of operation. However, charter schools are not eligible for the Fast Growth Allotment (FGA).

Beginning in 2019, charter schools began receiving facilities funding calculated using the state average debt service rate for school districts. Currently, facilities funding amounts to approximately $178 per student per year. Charter schools don’t receive facilities funding through the IFA and EDA programs.

Do Texas Charter Schools Receive Fair Funding?

Everyone involved in education should be focused on making sure every child gets a great education, regardless of whether they go to an open enrollment charter school or a traditional public school. In reality, the attention often shifts to questions about how the money gets allocated. Now that we know more about how are charter schools paid for, the next question is, do Texas charter schools receive fair funding? The evidence shows that, no, Texas charter schools do not receive fair funding—in fact, there is a gap between what charter schools receive and what traditional public schools receive.

The Texas Public Charter Schools Association (TPCSA) created a memo and a one pager to explain how public charter schools are funded. The TPCSA analysis of TEA data from 2019–2020 found that charter schools receive $676 less per student than traditional public school districts. Charter schools have two funding sources—state M&O and I&S—whereas traditional public schools have four, including local M&O and I&S. Traditional public school districts are receiving about 55 percent of their revenue from local sources and 45 percent from the state. Most (about 95 percent) of charter schools are small enough to qualify for the allotment for small- and mid-sized districts anyway.

A team at the Reason Foundation analyzed TEA data from 2018–2019 and determined that charter schools receive about $813 less state and local funding than traditional public school districts—a difference of 7 percent. The largest factor in this gap is the difference in facilities funding. Charter schools receive more funding per student for operations than traditional public school districts, but it’s not enough to close the gap caused by facilities funding. The Reason Foundation analysis found that the funding gap still exists in city-by-city comparisons of charter schools and traditional public schools. The disparity exists even after analyses controlling for characteristics such as percentages of students who are economically disadvantaged, receive special education services, have limited English proficiency, etc.

Some school finance analyses exclude facilities funding (such as local I&S revenue) from comparisons between charter schools and traditional public schools. Whenever you see interest groups making claims that charter schools get more funding than traditional public schools, take a closer look at the data to see what’s being included in each category.

The answer to the question, “Do Texas charter schools receive fair funding?” is no: charter schools are receiving less revenue per student than traditional public schools. This is an important point to keep in mind when advocating for your children’s schools, once you learn who represents you and how to contact them.

“How are the children?” is the question we should be asking about education, as Citizen Stewart often reminds us. In reality, education policy often devolves into fights about money. As parents, knowing the basics about school finance, especially the differences between how are charter schools paid for as compared to traditional public schools, arms us with talking points when we are confronted with false information, whether in casual conversation or when we are advocating for charter schools to our elected officials. The next post in the Charters 101 series will discuss charter school authorizing—where do charter schools come from? With these blog posts and events, we will help you become a stronger education advocate, and influence education policy in Texas to better serve students and families.

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