Civic Federation Publishes Report on Chicago Charter School Finances

October 05, 2011

On October 4, 2011 the Civic Federation released an independent analysis of Chicago charter school finances. The 170-page report, which is the first of a two-part study supported by the Searle Funds at The Chicago Community Trust, examined the publicly available budgets and audited financial statements of all Chicago charter schools in operation during FY2007 and 2008, measured how well the schools performed against key standards of fiscal accountability and evaluated their revenues and expenses. The report did not examine programs or curriculum.

Taken together, charter schools in Chicago had revenues that were more than enough to cover costs and most did not overspend on facilities or basic operations. Chicago charters also performed well according to financial indicator metrics developed by the Washington, D.C. Charter School Board called General Performance Assessment or GPA. As a group Chicago charters would have earned a B+ grade in 2007 for their financial performance and a B in 2008, according to GPA metrics.

With regard to financial accountability, charters also performed well. The number of schools that were in full compliance with CPS program and financial rules increased from 19 of 28 schools in 2007 to 23 of 28 in 2008. All of the charters also received unqualified audit opinions in both of the years studied. Over 80% of all expenses were spent on program-related services in both FY2007 and FY2008.

The Chicago charter schools in the aggregate were in good fiscal condition as evidenced by the following findings:

  • Over 60% of the 28 charter schools had surpluses or balanced budgets in FY2007 and FY2008.
  • An occupancy ratio of 25% or greater means that the school may be using too many resources to pay for facility expenses. In FY2007 and FY2008, the occupancy ratios of all Chicago charter schools were less than 25%. Thus, the schools were not using an excessive amount of resources to maintain their facilities.
  • A payroll + occupancy ratio that is higher than 75% indicates a school may be using too high a proportion of resources to pay for basic operating costs. In FY2007 and FY2008, most of the twenty-two schools reviewed had payroll + occupancy ratios of less than 75%. Thus, they did not use too high a proportion of resources for basic operations in either year.

The report uncovered fiscal warning signs at some schools that had declining budget positions, as well as possible threats to some schools’ long term financial footing due to payroll costs:

  • Several charter schools had a declining or negative budget position in 2007 and 2008. Nine of 28 charter schools for which data were available had declining or negative budget positions. Five charter schools reported a change from a budget surplus or a balanced budget to a budget deficit. Four charter schools reported a deficit in both fiscal years.
  • In FY2007 ten of twenty-two schools had payroll ratios of less than 50%. In FY2008 the number of charter schools with payroll ratios of 50% or less fell to six of twenty-two. A payroll ratio of less than 50% is desirable. If the amount spent on payroll is large, less money is available for other school activities and functions. High payroll ratios may be difficult to sustain over time absent new revenues or reduced costs.

Click here to download the complete report, which is also provides a primer on charter schools, including an overview of national charter school research, an outline of charter school funding models, a review of the legislative history of charter schools in Illinois and information about the funding of Illinois and Chicago charter schools.