The School District of Philadelphia
Office of Communications
440 N. Broad Street, Suite 301~Philadelphia, PA 19130-4015~(215)400-4040

FOR IMMEDIATE RELEASE

Media Contact: Lee Whack
215-313-8849



03/09/2017

SCHOOL DISTRICT OF PHILADELPHIA RELEASES REPORT ON THE STRANDED COSTS OF CHARTER SCHOOLS

Philadelphia - Today the School District of Philadelphia released a study that re-examines stranded costs associated with students enrolling or moving to charter schools.  Since 2012, The School District of Philadelphia (SDP) has relied on an analysis by the Boston Consulting Group which identified $7,000 of stranded costs for every student who left a District school to attend a charter-operated school.  

In 2015, the School Reform Commission contracted with Afton Partners to update the stranded cost analysis, look at school funding within the District, and how Philadelphia public schools use the funds they receive.  The report was designed to be a financial analysis of the impact of charter schools and it does not address the academic performance or legal compliance of charter schools.   The School District sought to answer the following questions in the report:  

  • Funding Analysis: How does public funding available to charter schools compare to District-run schools
  • Purchasing Power: What can charter schools afford compared to the SDP and how do they allocate their dollars compared to the SDP?
  • Stranded Costs: What constraints does the District have on its spending flexibility and because of that what are the financial implications of enrollment migration from district to charter schools? 
“This report reaffirms much of what we knew about stranded costs and it highlights the complexities and constraints of operating in a large urban school district, with a charter law that needs real reform,” said Joyce Wilkerson, Chair of the School Reform Commission.  “We need a charter law that allows The School District of Philadelphia to operate a logical school system that focuses on quality public education and puts the children of Philadelphia first.”

The answers to these questions, together, aim to provide a greater understanding of what the implications of future charter growth could be.  They will also inform how the District can mitigate the costs of current and future migration of students from District to charter schools. The Afton Group utilized actual financial data from the School District and was given access to data from 11 charter schools, chosen in part to meet the approximate grade distribution of the School District.

Key findings included:
  • District and Charter schools in Philadelphia receive nearly equal public funding per student when figures are weighted to adjust for debt service, rent and Special Education outplacements.
  • Philadelphia charter schools had fewer demands on uses of their funding (Facilities and Operations including maintenance and utilities, contractual obligations) compared to SDP, and therefore were able to spend more freely and align spending to strategic priorities, including instructional resources and technology.
  • Since 2005, SDP has reduced central office positions at a deeper rate than enrollment has declined - cutting 37% of central office positions while enrollment declined 27%.  As a result, the District spends $796 less per pupil on administrative costs in its directly managed schools than the charter schools spend.
  • SDP had tighter constraints on uses of funding (including contractual obligations, structural limitations, the continued rising costs of the Pennsylvania pension system (PSERS), and resourcing policies).  Because of lower salaries and benefits, charters could afford 3 teachers for the cost of every 2 at the District. The SDP spent 42% more per average teacher in FY14, due primarily to higher average salaries and total benefits at the District.
  • Due to contractual, structural, and policy constraints, it’s difficult for SDP to react and reduce its spending when students leave District-run schools.
  • Because of these constraints certain SDP costs remain at the District when students leave – defined in the report  as “stranded costs.”  Based on projected enrollment migrations, these costs are estimated to be $4,824 per student migrating from the District to a traditional charter school.  When debt service is considered as part of the equation, the SDP would experience stranded costs of $6,898 per migrating student. For students remaining in District operated schools, the District would have to spend an additional $461 per student to provide the same level of service.  
  • These stranded costs would be reduced by an estimated 65% when a Renaissance charter school is authorized instead of a traditional charter school.  A Renaissance charter school is a turnaround school – where the students remain at the same school, but the operator changes from district to charter. In this case, the enrollment leaves SDP from only one school, not many, and therefore District costs, particularly staffing, are reduced more efficiently.
“The District has significantly reduced the size of its central office over years of enrollment decline, resulting in significantly lower per pupil administrative costs ($796 less per pupil on administrative costs than charter schools),” said Uri Monson, Chief Financial Officer for The School District of Philadelphia.  “Some of the constraints that lead to stranded costs are partially controllable and can be mitigated with action by SDP, albeit via difficult actions such as layoffs and school closures.  Continuing to grow and improve District-managed schools, and attracting students back to great schools near where they live, would also mitigate these fiscal challenges for the District.”

This analysis is particularly important as the School District now has approximately 64,593 charter seats, a number that has more than doubled since 2008.  Since 2012, the number of seats at existing charters has grown by more than 7,200, and an additional 14 charter schools have opened with more than 7,400 seats.

As we continue to operate the District under a portfolio management approach with the goal of a network of great schools - be they traditional public schools, charter schools or  public magnet schools - this data will help inform our planning.  

The full report can be accessed at: https://webapps.philasd.org/news-files/pr-files/20170306_SDP_Summary_Outcomes.pdf

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