Philly schools overpaying charters millions of dollars for special-education students, district says

The Philadelphia School District overpays charter schools by millions of dollars because of a state formula that forces artificially high rates for special-education services, according to a new analysis by the district.

The rate is inflated, according to the analysis, because the city’s charters are serving a smaller share of students with severe disabilities but are compensated based on the district’s average costs to educate its larger population of needier, more expensive special-education students.

Because of the formula, "the really painful part of this is the inaccuracy grows exponentially over time,” Uri Monson, the district’s chief financial officer, told the school board’s finance and facilities committee Thursday.

Monson said special-education costs have been driving the growth in district payments to charters: Of the nearly $700 million in new revenue the district has netted since 2015, it has paid more than half to charters, even though charters enroll only 37% of Philadelphia public school students.

The district would be sending millions less to charters if legislation backed by Gov. Tom Wolf passes changing the charter funding formula — including how the schools are compensated for special-education students. The governor’s office says next year the district would be able to retain $90 million that would otherwise be sent to charter schools under the current formula.

» READ MORE: Wolf pushing charter-school bill that would change funding, accountability rules

Charter schools have protested the changes, which they say would dramatically cut funding and harm students. Philadelphia charters have calculated they would lose as much as $113 million.

While Wolf says the proposal would “align funding to actual costs,” charters complain the plan isn’t aligned to spending in Philadelphia, but based on statewide averages that are less than what the district spends.

“The state formula for charter funding can create unintended distortions, some favoring charters and others favoring districts," said Mark Gleason, executive director of the nonprofit Philadelphia School Partnership, which gives money to charter, district, and private schools. “The governor’s proposal goes way beyond addressing these distortions and would unfairly cut special education funding to Philadelphia charter school students by nearly 50 percent.”

Fielding questions from school board members at Thursday’s meeting, Monson said the current funding structure incentivizes charters to enroll more low-needs special-education students.

Since 2017, the rate of students identified for special education in the city’s charters has increased at three times the rate of district-run schools, Monson said — growing from 17.1% to 19.3% at charters, compared with 16% to 16.6% in the district’s schools.

Yet on the whole, charter students have less severe disabilities than students in district schools, according to Monson’s analysis.

“The concern that some folks have raised is: ‘Are there some kids who don’t have actual needs who are being identified as special needs?’ ” he said.

» READ MORE: Report: Philly charter schools serve more affluent, advantaged students than rest of district

Pennsylvania classifies special-education students in one of three “tiers," based on the severity of a student’s disability. In the Philadelphia School District in 2018, 80% of special-education students were classified as Tier 1, the lowest-severity — and least costly — group. The district spent an average of $20,000 per student in that category, Monson said.

In Philadelphia charters, about 93% of special-education students were Tier 1, according to Monson. The imbalance persisted at the more severe levels: About 13.5% of district special-education students were in Tier 2, compared with 5.4% of charter students. The remaining 6.6% of district special-education students fell into Tier 3, compared with just 1.3% of charter students.

The district spends significantly more on students with more severe disabilities: For Tier 2, it spent an average of $40,000 per student, and for Tier 3, an average of $79,000 per student.

That drives up what the district sends to charter schools: The current funding formula requires that districts pay charters for special-education students, based on an average of what the district spends on all of its special-education students. So the school district’s concentration of needier students increases the rate, which charters receive for every special-education student they enroll — even though the vast majority of their students fall into the least-severe category.

Without changes in the funding structure, and with charter schools continuing to grow at their current rate, Monson projects that by 2023, the district will be sending 40% of its budget to charters — surpassing the percentage of students enrolled in the schools.