Delaware Department of Education Pulls a Fast One

And fails. For now. It’s a new school year so let’s start it off with a bang.

Over the weekend you may have seen news circulating about the Delaware Department of Education arbitrarily changing the formula that school districts use to calculate cost per student paid from local property taxes, a formula that makes up a very sizable portion of district budget expenses as you might expect. You may have heard this was a unilateral decision on the part of DDOE that had absolutely zero input from the school districts a change in said formula would effect. You also may have heard that this change was not only for newly started current school year but also for the previous school year.  And lastly, you may have heard that this change was designed entirely to generate additional cash flow to Delaware charter schools.

If you had heard any or all of the above, you heard correctly. Somewhere in a back room in Dover an agreement was made to alter the formula to grab more cash from traditional districts and send it to charters under the guise of “well, you (the districts) spend it on your students, so charters should be able to spend it on theirs.”

The outcry from the public, educators, legislators, and district administrations (particularly Christina School District’s), reached Secretary Godowsky’s ears yesterday and he has allegedly agreed to “stand down” on this issue (for now). That’s fine and dandy, but it’s critically important to understand the impetus behind such an arbitrary, sudden, and retroactive change in the funding formula because I am certain we will see something like this come back post-election.

Local cost per student that flows to charters is figured based on a traditional School District’s expenses for the previous school year (largely because you don’t know exactly what you’re going to spend for the upcoming/current school year). Districts have little flexibility in what expenses are included in this calculation, they are primarily directed by DDOE on what to include when they run the formula, basically if you use local property tax dollars to pay for it, it gets included in the formula. Charter proponents regularly complain that Districts do some sort of hocus-pocus, fuzzy-math, smoke & mirrors tricks to hoard local property tax revenue in underground bunkers that no one but district administrators know the locations of, to avoid having to pass it on to the deserving charter schools.

The most common complaint I have heard to that end is: “not all districts include the same factors when they calculate their charter payments”, which is accurate to an extent, closely followed by: “It’s not fair that districts get to exclude costs and force charters to pay for them on their own!”.

I’m familiar with Christina School District’s finances, so I will use them as an example. One of the “excluded factors” that charter fans run around yelling about is cafeteria costs, which by law are supposed to be included in the local cost per student calculations if cafeteria costs are spent in any part whatsoever by local property taxes. We heard this a LOT over the last few years as Christina tried to get a referendum passed.

Within Christina, there is an organization called “Child Nutrition Services” (CNS). CNS is a bargaining unit (union) entity that manages 100% of the food service for all of our district schools. CNS is entirely self funded. Said another way, CNS spends no property tax revenue from Christina School District taxpayers. With the combination of Free & Reduced Cost breakfast and lunch funds from the federal government and the proceeds from cafeteria sales themselves, CNS is able to support itself, staff, and operations entirely without local taxes. The District doesn’t hide tax revenue in cafeteria funds because there is no tax revenue supporting our cafeterias. If Christina is able to have its food service operations entirely self funded without the help of tax revenue, what grounds do charter schools have to demand they get a cut of cafeteria tax funds that don’t exist?

Christina, like many other high-poverty districts in the state, has a number of Title I and other associated federal programs and grants that they administer for their schools on behalf of the DDOE and federal government. These programs and grants are applied for and requested by each district individually. That is to say, not all districts have the same Title I programs and grants (or any other federal grants for that matter) as each other. Now, when federal funds come into the districts they don’t magically direct themselves to the programs, staff, and buildings that need them. Nor do the programs funded by these dollars run themselves. They, like all other finances and programs, require oversight and management which means there are humans involved, humans who have the audacity to request compensation for overseeing and managing these funds and programs. Interestingly enough, these programs and grants are written with this audacious concept in mind and provide a portion of the federal funds to help pay for the staff needed to run and manage them. Programs themselves, by the way, also have their own associated costs. The humans that manage and work within these federal programs are not federal employees, they work for the school district and are issued paychecks from the school district. But then, how do we get the funds for salary and employment costs from the federal ‘source’ to the district employee’s paycheck responsibly?

As before, there is no real way to accurately predict the costs of anything in advance; but the district could just transfer the federal funds in bulk and hope they ‘guessed’ right and then have to adjust everything afterward throughout the year on the 99.95% chance they would not correctly predict the exact expense amount.

– OR –

Once the district has an exact cost figure, they could pay it immediately out of their own coffers to keep things running smoothly without interruption, and then bill the federal funding source afterward. This is an example of indirect costs. It’s almost like being reimbursed for fronting the cost of a project or task, with associated expenses recorded each time they are made. (remember the “responsibly” bit I mentioned above?)

In this fashion, the costs associated with districts running federal programs are indirectly paid for by the federal government.

Now, also remember that I said each district applies for the grants and programs individually. Grants and programs are awarded to each district individually. Charter schools (for all but 1 district) are not a part of Districts. What grounds do they then have to argue they ‘deserve’ a cut of indirect costs associated with the management of programs they do not have?

The answer to both scenarios is: They have no grounds and would fail to successfully argue either case.

The above is all factual information. Below is a bit of Brian’s theorizing:

Let’s say despite all the posturing and complaining, Charter administrators and their friends knew they’d fail to successfully nab these funds but still wanted to find a way to leech more money off of traditional districts and its taxpayers without actually doing anything to earn that money. All these damn rules are in place that specify what they can be paid for and how much when it comes to local student costs and all these districts include and exclude different factors depending on funding source(s). How do we know who’s doing what?

DDOE sent an email to all district finance chiefs demanding a list of everything they include and exclude when they calculate local cost per student. They also demanded an explanation be given for each item on why it is included or excluded.  The chiefs complied. In return they received a DDOE email that stated what they were to now include for local cost per student for the coming school year and retroactively for the prior school year. No further explanation was given. When pressed for the same information the Districts provided to them, a response of “We will give explanations after we calculate the new bills.” was received from DDOE. These new inclusions drove up costs by 10-15% for some districts and instantly made every single financial report produced by ALL districts last year completely inaccurate. The result, of course, is a net gain in funds for charters that receive money from school districts.

Now, if you’re like me and many, many others who think if DDOE really wanted to sneak this through without anyone noticing, why in the hell would they 1. Jack up the costs by a ludicrous 10% all but guaranteeing that it’ll get flagged by any CFO who knows how to add, subtract, multiply, and divide; and 2. Make it RETROACTIVE for the last school year?

We know that funds for charters are paid out based on the sending District’s expenses for the previous year. Christina School District, by far, pays out the most each year to charter schools (~$20 million). Last year, Christina School District gutted $9 million from its operating budget to survive, resulting in a sharply decreased local cost per student. That sharp decrease would be felt this year by all charters that educate students who live in the Christina School District. In some instances, certain charters will see a reduction in funds of anywhere from $500,000 to well over $1.5 million.

With such a huge budget reduction, how could the local cost per student formula criteria be changed in such a manner that Christina would have to pay MORE out this year instead of less with out it looking specifically like it was being changed to solely target Christina?

A rising tide lifts all boats. With Christina slashing $9 million last year, this new formula applied retroactively would have increased Christina’s cost per student by roughly 3% resulting in a net increase payout this year for Charters that receive Christina resident students…despite the District having to decimate its budget last year.

Dirty doesn’t come close to describing this. Slimy doesn’t even come close to describing this. In fact, I do not know what descriptor would be appropriate here.

For the moment however, the ensuing outrage from social media, the blogosphere, legislators, parents, educators, and taxpayers has forced Secretary Godowsky to claim he will ‘stand down’ on this issue. Good news, right? You know better if you’re familiar with The Delaware Way.

I asked a district administrator about this ‘good news’ this morning. The reply:

Still too early to tell.  We have been led to believe that the Secretary will reverse “his position”, and will do so today.  Nothing yet,  however Legislators were kept in the dark as well.

Even if the Secretary does an about face, expect this to relapse after the elections because I seriously, seriously doubt this idea was his alone. It had help, executive and legislative, despite the claim that all legislators were in the dark on this. This fight isn’t over yet.