May 2014 - Grow Schools

California Charter Schools – Legislative Update

Last week both the California Assembly and Senate Appropriation Committees met to send the last batch of house of origin bills to the Assembly and Senate Floors. Friday, May 23rd was the deadline to hear all fiscal bills in a fiscal committee in their house of origin; for instance Assembly bills in the Assembly and Senate bills in the Senate. There were two bills that were opposed by most charter school groups and would have had negative impacts on charter schools in California. In an anticipated move both measures were opposed by the Appropriation Committees in both houses.
AB 1531 by Assemblyman Chau would have mandated that the charter school authorizer appoint the members of a charter school’s governing board. This bill was sponsored by the California Teachers Association and would have affected every charter school in the state. It essentially would have gutted the charter school law and made all charter schools dependent on their authorizer. The Assembly Appropriations Committee held this measure on its suspense file, killing it for the year.
SB 1317 by Senator Huff would have created new conflict of interest provisions for charter schools. The measure would have also placed limitations on governing board members loaning money or leasing property to their own charter school; violating these provisions would have mandated revocation of the charter school. This measure was sponsored by the California Charter Schools Association. The Senate Appropriations Committee held this measure on its suspense file and like AB 1531 it is dead for the year.
To view these measures go to www.leginfo.ca.gov and place in the bill number.

Below is an overview of the Governor’s May Revision provided by Capital Advisors Group:

The following is Capital Advisors Group‘s initial analysis of the Governor’s May Revision with a focus on the K-12 education components and impacts to California charter schools.
Overall State Revenues Continue to Improve – The Governor recognizes the continued growth in the state’s economy by revising his estimate of state revenues to reflect a net increase of $2.4 billion for 2014-15.
The revised revenue estimates reflect a private sector unemployment rate that has returned to pre-recession levels and continued revenue improvements from the top three sources: sales and use tax, personal income tax, and corporation tax.
It will be interesting to see if the Legislative Analysts Office (LAO) agrees with the Governor’s estimates. Some folks are already opining that the estimates may be low. Legislators have remarked in recent days that they are aware the Governor’s prior budget proposals have assumed lower levels of revenue than actually materialized – essentially making the argument that they may not want to be so conservative this time around. Obviously, one of the Governor’s claims to fame is his ability to constrain the Legislature’s tendency to overspend. Given the election year dynamics, we think the Governor is in a good position to continue holding the leash. If that is true, the May Revision doesn’t give the Legislature much to play with in terms of additional funding since the bulk of additional funding in the May Revision is being tapped to expand MediCal – which will be difficult for Democrats to oppose.
If the LAO disagrees with the Governor and opines that the estimates are low, we can expect some lively debate and negotiations over the next month. We expect their analysis in the coming days.
Governor’s Proposition 98 Estimate Reflects Minor Changes – The Governor’s estimate of the changes to the Prop 98 estimates for the prior year, current year, and budget year are minor, but important. Overall, the May Revision reflects a net $242 million increase in the Prop 98 guarantee over three years, as compared to the January proposal. Specifically, the May Revision reflects Prop 98 at the following amounts:
· 2012-13 – $57.8 billion (down $547 million from January)
· 2013-14 – $58.3 billion (up $1.5 billion from January)
· 2014-15 – $60.9 billion (down $700 million from January)
It will be interesting to see if the LAO agrees with the Administration’s estimates of the multi-year Prop 98 estimates.
Rainy Day Fund and Prop 98 Reserve
The Governor’s May Revision proposes a Rainy Day Fund and Proposition 98 Reserve that reflects the compromise that was worked out with legislative leaders. The proposal also includes a component to provide resources to pay down California’s long-term debts.
The General Fund (GF) revenues that will be transferred into the Budget Stabilization Account, the formal name of the Rainy Day Fund, will be calculated in two ways:
1. 1.5% of GF revenues in each fiscal year
2. GF revenues collected as part of the personal income tax on capital gains income, when those revenues exceed 8% of total GF revenues
These transfers will be made until the fund reaches a maximum of 10% of GF revenues.
The revenues transferred in this way will be used in several ways:
Rainy Day Fund
Prop. 98 Reserve
Withdrawal from, or suspension of, the Rainy Day Fund and the Prop. 98 reserve are permitted under limited circumstances if there is a budgetary emergency, a natural disaster or if spending remains at or below the highest level of spending over the last three years, adjusted for inflation and cost-of-living.
Debt Obligations: Between 2015-16 until 2029-30 half of the non-Prop 98 revenues transferred would be used to discharge debt obligations (e.g., Prop. 98 settle up, inter-fund loans, claims for mandated costs prior to 2004-05, and unfunded pension liabilities).
This revised Rainy Day proposal reflects a compromise worked out between Legislature and Governor Brown. Aside from one recent informational hearing held by the Assembly Budget Committee, this deal was largely worked out behind closed doors and has been made public as part of Governor Brown’s May Revision. The proposal is aimed at addressing California’s revenue volatility and inadequate reserves.
The proposal is in bill form in Assembly Constitutional Amendment X2 1 (ACA X2 1), carried by former Speaker John A. Perez; the bill was presented to the Senate Budget Committee on May 14. In that hearing the author indicated that there are further amendments pending on this bill. A more comprehensive analysis of this proposal will follow as soon as those additional amendments are available.
To take effect, the proposal would need to pass the legislature and be passed by the voters. If enacted, it would replace the current Rainy Day Fund (Prop. 58) and amend ACA 4, which is set to go before voters this November.
Fully Paying-Off Inter-Year Deferrals – Consistent with his January Budget proposal, the Governor continues to focus on paying off the state’s debt by the end of 2014-15. However, the mix of the one-time and on-going money is used to pay down these deferrals is changed.
Ambitious STRS Proposal – Easily the most significant K-12 education budget change contained in the May Revision, the Governor proposes to eliminate the unfunded liability associated with the California State Teacher Retirement System (CalSTRS) over the next 32 years; that unfunded liability is estimated by the Administration to be in excess of $74 billion.
As we have expected of any such proposal, the funding proposed to make the system whole comes from three sources:
1. Direct contributions by the state
2. Increased contributions from school employees covered by CalSTRS; and
3. Increased contributions from school employers
Details on each of these three sources are provided below. The Governor’s proposal is aggressive, places more than 60% of the funding burden on employers, and will certainly be the subject of additional discussion in the Legislature.
1) The state will cover approximately $20 billion of the total $74 billion by increasing its contribution rate from the current 3.04% of total employee compensation to 3.45% in 2014-15, 4.89% in 2015-16, and 6.33% in 2016-17 and beyond until the unfunded liability is discharged. This level of contribution from the state reflects the shortfall in CalSTRS funding that existed when a long‑term sustainable funding plan was put in place in 1990. In other words, the state feels that it has an obligation to contribute to the discharge of liabilities incurred prior to 1990, but not of those liabilities incurred after that point in time; the Administration argues that it is particularly not responsible for that portion of the liability created by benefit increases granted in 1998 and after.
The state will also continue to fund a supplemental inflation protection program or COLA in an amount equal to 2.5% percent of total employee compensation.
2) School employee contributions will cover approximately $8 billion of the total $74 billion through increases in the contribution rate. Because of existing statutory protections on employee contribution rates, the Administration is proposing to guarantee the (currently optional) supplemental inflation protection program in exchange for contribution rate increases. That rate is proposed to increase from the current 8% of compensation to 8.15% in 2014-15, 9.2% in 2015-16, and 10.2% in 2016-17 and beyond until the unfunded liability is discharged. These rates will apply to employees who entered the system prior to the 2013 enactment of the California Public Employees’ Pension Reform Act (PEPRA). For those employees who entered the system after the enactment of PEPRA the rate would increase to and be capped at 9.21%.
3) School employer contributions will cover approximately $47 billion of the total $74 billion, also through increases in the contribution rate. That rate is proposed to increase from the current 8.25% of compensation to 9.5% in 2014-15, and then will increase by an additional 1.6 percentage points each year until the rate reaches 19.1% in 2010-21; the 19.1% contribution rate will stay in place from that point on. There is no proposal to provide additional resources to school employers in order to fund this increase in costs.
The burden that an increase in the employer contribution rate from 8.25% to 19.1% places on local educational agencies is clear. According to the Department of Finance, the increase from the current rate of 8.25% to 9.5% in 2014-15 will cost districts $350 million, which translates to more than $55 per pupil as a statewide average (note that the impact in different districts may differ according to both the number of covered employees and compensation levels). To provide context for this level of cost increase, recall that the mid-year trigger cuts implemented in late 2011/early 2012 totaled $328 million. Because the first year increase in contribution rate is held at 1.25 percentage points, the budget impact in later years would be even greater.
Independent Study Reform – The Governor makes some edits to his January proposal to reform the state’s Independent Study (IS) law.
In January, the Governor proposed creating a “coursed-based” IS program option for LEAs, essentially allowing schools to claim ADA for students based upon course completion, an alternative to the traditional assignment-based IS. In the May Revision, the Governor removes a requirement from the January proposal that would have required the teacher, under the “course-based” IS option, to meet with students on a weekly basis. Additionally, because the Governor caught flack from the CDE over essentially possible for schools to receive 100% ADA under this option, the Governor revises the proposal to allow LEAs to claim the ADA but also applying the statewide excuses absence rate (so no LEA could receive 100% ADA).
Lastly, the May Revision changes the Governor’s IS reform proposal related to “site-based blended learning” to utilize a universal learning agreement that would apply to all students enrolled in the same course or courses.
The Legislature has opted not to include the IS proposal in the budget process and has instead opted to use SB 1143 (Liu) as the policy vehicle for these discussions. We have been working closely with the Administration and Senator Liu, chair of the Senate Education Committee, as she shepherds the bill through the Legislature. The changes to IS law contained in the bill, if enacted, would be a huge relief to LEAs in the state with students enrolled in IS programs. The most recent version of the bill amended-out the “site-base blended learning” option and instead focused on changes to current IS law and adding the “course-based” IS option. Staff in the Legislature have been resistant to the “site-based blended learning” option. The bill recently passed out of the Senate Education Committee with a bipartisan, unanimous vote.
High-Speed Internet Access For Smarter Balanced Assessments – While the Governor’s proposal does not contain additional one-time funds for Common Core implementation, he does use a little bit of the increased Prop 98 funding ($26.7 million) for a one-time increase in funding for the K-12 High Speed Network; the funding will be used to study broadband access in the state and provide grants to LEAs to expand networks based upon need.
LCFF Low Income Counts – The May Revision proposes some flexibility related the issue of determining, for LCFF purposes, the number of students receiving free or reduced-priced meals at Provision 2 and 3 schools.
The proposed solution is largely consistent with a resolution we have been advocating for since August. It would authorize Provision 2 and 3 schools to establish a base-year eligibility no less than every four years, provided that the school annually updates the count for newly enrolled (or dis-enrolled) students during the intervening years. It would also require the SPI to revise the LEA’s three-year rolling average of unduplicated counts (used to calculate LCFF) using 2014-15 instead of 2013-14, if doing so would increase the LEA’s rolling average.
K-12 Mandate Block Grant – The Governor proposes to increase funding for the block grant by $1.6 million due to increased ADA and adding three additional mandates to the block grant (Parental Involvement, Williams Case Implementation, and Developer Fees). This is in addition to two mandates proposed to be added to the block grant in January.
The Governor wants to pay off the state’s mandate backlog in 2016-17 and 2017-18. He counts this debt in his overall “Wall of Debt.” It is important to remember that the mandate obligations incur interest – making the later payoff is a bad deal for the state, but this means that those LEAs with outstanding claims will actually make some money off the delay if the claims are reimbursed.
Prop 39 Energy Efficiency Programs – The Governor decreases the amount of energy efficiency funding available to K-12 schools by $9 million to reflect a decrease in related revenue.
No Funding for Transitional Kindergarten (TK) – Not surprisingly, the Governor’s proposal does not contain funding for TK. However, we expect this to be a focus in final budget negotiations with the Legislature because Senate Pro Tem Darrell Steinberg is pushing hard for this to be included in his last budget as Senate leader. The lack of significant additional funding in the Prop 98 guarantee will likely hinder Steinberg’s effort.
Additional One-Time Common Core Funds? – Despite continued growth in state revenues, the Administration does not propose to provide another round of one-time funds for Common Core implementation. Some are encouraging a serious conversation about potentially taking two-years to pay off the inter-year deferrals and using some one-time money in 2014-15 for another round of Common Core funding.
What’s Next? – Over the next month, the Legislature will hold their final budget subcommittee hearings and each house will pass a budget bill that will go to the two-house Budget Conference Committee to put together a final budget bill that will ultimately go to the Governor. For every day after June 15 that the Legislature does not send a budget to the Governor, Legislators forfeit pay. We expect an on-time budget.
We expect the Governor, Senate Pro Tem, and Assembly Speaker to begin meeting privately soon. Additionally, because Democrats lack 2/3 control in the Senate, any components of the budget that would require 2/3 votes (The rainy day fund is an example of a 2/3 requirement; however, most parts of the budget impacting education would not require 2/3 vote) will mean Republican support will be necessary and would likely bring Senate Minority Leader Bob Huff (R-Diamond Bar) into the fold. We expect Democrats to do everything in their power to avoid issues that require 2/3 vote.
Thank you to Capital Advisors Group for their permission to distribute the above information.

This week California Governor Jerry Brown presented his May Revision, which revises his January budget proposal. It is forecast that the state’s revenues will come in at $2.4 billion more than earlier anticipated. This is positive news for charter school education in California. The major pieces of his May Revision are:

Creation of a larger state rainy day fund (which already has reached agreement with the legislature)
A Proposition 98 reserve
Paying off the deficit in the State Teacher’s Retirement Fund
Expansion of the state’s Medi-Cal program

The May Revise includes total funding of $75.9 billion ($45.1 billion General Fund and $30.8 billion other funds) for all K-12 programs. Specifically, the revise continues the changes outlined in the Governor’s January budget proposal by maintaining the additional $4.5 billion proposed for implementation of the Local Control Funding Formula (LCFF), creation of a Proposition 98 reserve and focusing on eliminating inter-year deferrals. He is also proposing to create a K-12 High Speed Network to study Internet connectivity and infrastructure and allocate grant funding to those school districts with the greatest need. This will aid in meeting technology requirements associated with Common Core implementation and adaptive testing. The revise contains $26.7 million for this program. It also proposes a fix for an issue that some schools participating in Provision 2 and 3 of the National Schools Lunch Program are having with the implementation of LCFF. Additionally, there is good news for charter schools with independent study programs as the Governor modifies his January proposal by:

Eliminating the requirement that teachers and students meet weekly to assess if a student is making satisfactory grades
Provides schools the opportunity to offer site-based blended learning, utilizing a universal learning agreement for all students enrolled in the same course or courses
Funds students enrolled in course-based indpendent study programs on the basis of average daily attendance, and not enrollment, and applying the statewide excused absence rate to average daily attendance claimed by local education agencies

To review the entire May Revision go to www.dof.ca.gov and click the link for 2014-2015 May Revision. We’ll be posting additional updates and information on the Governor’s revision and additional budget and legislative information as it becomes available, so check back or subscribe to our blog for ongoing posts on this topic and others relevant to charter schools.

The California Assembly Education Committee passed AB 2007 by Assemblywoman Shannon Grove from Bakersfield. This is very positive for California charter schools. The bill amends the charter school law to allow students attending non-classroom based charter schools to complete the school year (or course they are taking) with the school they are currently attending if they move out of that school’s geographic boundary. Though this is a simple clarification of existing law, it will have a major impact for many non-classroom charter schools that face instructional challenges when students move throughout the state for one reason or another. The measure will now heads to the Assembly Appropriations Committee for a vote. It passed the Assemby Education Committee on a unanimous 7-0 vote.
AB 2007 – Virtual or Online Charter Schools
Summary – Authorize a virtual or online charter school to also claim independent study average daily attendance for pupils who are residents of any other county in the state. If the pupil is enrolled in the virual or online charter school and moves to a residence outside of the geographic boundaries in which the charter school is authorized to operate, and continues enrollment in the virtual or online charter school. Provides for reenrollment within a specific time.
Status – 5/1/14 In Assembly. Read second time and amended. Re-referred to Committee on Appropriations.
For more information on current legislation at https://leginfo.legislature.ca.gov and input the bill number.
Check back for the latest California legislative information impacting charter schools in the state. To keep up on the latest information related to charter schools in California and across the country, sign-up for the Charter School Capital blog.

Charter school leaders are today’s entrepreneurs and education innovators. With more than 6,500 charter schools supporting 2.5 million students today, the power of charter school education thrives. Yet more than one million students remain on charter school wait lists across the country. Why? Lack of financial resources is cited most often as the reason many charter schools don’t succeed as charter schools don’t have the same access to capital as traditional school districts. On behalf of the Charter School Capital team, we’re proud to provide funding and services to support charter schools and the educational opportunities they afford students. We commend all charter school edupreneurs during National Charter Schools Week. These charter school leaders are making amazing things happen in education today. Please join us as we celebrate all charter schools, their mission and the leaders who drive education innovation across America.
– Stuart Ellis, President & CEO, Charter School Capital

Trying to help students with disabilities learn is a tough job. To be successful, school administrators need to focus on educating students, not on charter school funding or operational issues. As a start-up charter school, Learning Path Academy, located in West Palm Beach, FL, found themselves in need of a charter school working capital solution, and turned to Charter School Capital.
Learning Path Academy focuses on students with learning and language disabilities who may struggle in the traditional public school system. After securing school facilities, school administrators were ecstatic to open their doors last August. They believed and planned on state funding, but quickly learned that funding was based on making expenditures that would be reimbursed.
“As we started operating, the implementation grant we received from the state of Florida informed us that we had to spend the money, and then we would be reimbursed,” explains Isis Rosso, co-founder and director of operations at Learning Path. “Our first check from the district was tiny. It was enough to pay the rent and clean the building, but we were basically working for free for three months. That’s when we called Charter School Capital.”
Charter School Capital was able to furnish the working capital Learning Path needed, enabling them to continue offering the special attention and customized learning plans to their students in need.
The school’s special system, which focuses on a low student-to-teacher ratio and staff experienced with special needs education, also asks for heavy involvement from parents and reports on student progress regularly. Because of this, families have been tremendously pleased with Learning Path and enrollment is on the rise. The fairly new school currently serves 118 students in grades Pre-K through 4th, and is already making plans to add 5th grade and grow their student enrollment to 192, the maximum allowed currently.
To address this anticipated growth, school administrators understand that sufficient and flexible capital must be available for them to accomplish their goals.
“Knowing that my budget is going to grow, and knowing that Charter School Capital can help fill in the gaps where necessary, is a huge sigh of relief,” concludes Rosso. “We have developed such a wonderful relationship with the Charter School Capital team. They have great patience and help us do what we’ve got to do. These are the people who are helping me build my dream school.”

Providing a quality education to at-risk students often requires multiple resources. One-on-one teacher instruction, access to current technology and customized lesson plans for students with special needs are just a few of the tools necessary to help children from underserved communities reach their potential. This formula has lead to success for Skyline Education, a charter management organization in Arizona.
The multi-disciplined approach to education that Skyline’s six campuses provides “comes at a fairly high up-front expense,” says KJ Weihing, vice president of finance at Skyline Education. “We wanted to make purchases but didn’t have the up-front funding. That’s why we called Charter School Capital; they helped us get that short-term funding.”
Skyline opened its first campus in 2000, but it wasn’t until 2009 that organization began to experience rapid growth, adding five new campuses from 2009 to 2012. Skyline now serves more than 1,000 students in socially and economically diverse communities, including the Gila River Indian Community in Arizona.
Such dramatic growth created a real need to access working capital funding, explains Weihing. Skyline Education knew that it would be receiving its funding, but given the uncertain payment schedule from the State of Arizona, they didn’t know when. Skyline administrators knew they needed some form of help to even out their budget throughout the year but were very wary of outside funders until they met Charter School Capital.
“I was impressed with them and their fee structure,” says Weihing. “A lot of times there are organizations that will lend for high interest because they know you can’t get funds anywhere else. Charter School Capital’s fee structure was not outrageous [like that].”
The relationship Skyline has developed with the Charter School Capital team is rooted in much more than just financial terms. Weihing would recommend to any charter school needing funds to start-up or for growth, that they just “start the process,” stating that the two organizations have formed a real partnership dedicated to the success of all Skyline Education’s schools.
“Last year, we wanted to make new computer purchases for one of our schools, but we didn’t have the current funding on hand to make that happen. So we worked with Charter School Capital to provide us with the funding in order to get those computers into the classroom sooner than we would have been able to if we were waiting on funding,” concludes Weihing. The whole process has been “extremely seamless, quick and easy; I’m glad we did it.”

“Without Charter School Capital, we honestly wouldn’t exist.”
Those are the words of Ricardo Mireles, executive director of Academia Avance charter school in the Highland Park neighborhood of Los Angeles. Fortunately, Charter School Capital was there so that he and his team could focus on what really matters – their students. Academia Avance was founded in 2005 with 100 students in the 6th and 7th grades. Today, it serves 500 students grades 6-12, preparing them for college and career.

Dedicated to the idea that all students have a right to pursue a college education, Academia Avance offers rigorous course work relevant to today’s changing world, from language classes in Mandarin Chinese to computer classes in programming and robotics. However, what makes the school special is that it doesn’t just rely on books and testing to teach their students. With the understanding that hands-on experiences are vital to academic excellence, the school combines traditional classroom study with learning through projects, multi-cultural experiences and even internships at local businesses.
The results of this inter-disciplinary model are indisputable. In 2012, 100% of Academia Avance’s graduating students were accepted to 4-year university programs – a truly remarkable achievement. But it almost didn’t happen.
When Academia Avance was founded, funding for the school from the state of California proved inconsistent. The school wasn’t able to secure a traditional bank loan because they didn’t have a building to put up as collateral. To pay the bills, school administrators went looking for alternative options in charter school financing. That’s when they found Charter School Capital.
According to Mireles, Charter School Capital provided the flexibility, patience and professionalism in charter school funding needed to get Academia Avance up and running. “They allowed us to say ‘this month we need this much.’ I’m really appreciative of how Charter School Capital was able to understand what our need was.” Mireles believes he has a true partner in Charter School Capital, one that genuinely believes in the school’s mission and supports what the school is trying to accomplish. “It allows us to stay focused on our mission and our students.”