A third of Arizona’s charter schools are running on debt
March 19, 2018
According to a study conducted by the Grand Canyon Institute, a third of Arizona’s charter schools are in debt and more than a quarter of them have over $100,000 in losses.
The study looks at a school’s overall finances including their audits, Research Director for Grand Canyon Institute Dave Wells says. When a school runs out of money, they have a net loss so they have to pull from their assets. That eventually leads to having a net loss in assets, and it increases the school’s liability.
“We think about four in 10 have financial stress,” Wells says. “That can vary a great deal. They range from some that have small debts and ones that have already declared bankruptcy. There are ones that are in debt but are among the fastest growing and have a great product like BASIS.”
BASIS has increased their locations from two to 18 in the last eight years. The took 20 percent of the enrollment growth in charter schools over the last four years, Wells says. Based on their 2016 audit, they had lost $10 million out of about $100 million and their negative assets were at $23 million. Wells says BASIS would defend themselves by saying they are refinancing their debt to a lower interest rate.
The charter board is only allowed to close schools for academic reasons, not finance reasons. The board attempted to close StarShine Academy in 2012 for finance problems, but they were forced to allow the academy to remain open. StarShine reached $12.7 million in debt after building a bigger campus. Their projection of higher enrollment was miscalculated, and the students didn’t come. They recently declared bankruptcy.
“When [StarShine declared bankruptcy], they were only spending one dollar out of four in the classroom because they were spending more on their debt service,” Wells says. “The same is true for Phoenix Advantage [Charter School]. Today they are only spending about 25 percent of their money in the classroom.”
For students whose education is founded on investing in them, the charters are failing them. Wells says the Grand Canyon Institute would like to see a proactive action by the charter board to either find a financial improvement plan for the schools or close them down sooner instead of waiting for the middle of the year.
At the moment, the charter board has two options when a school comes up for renewal. They can choose not to renew the school and close it. The other option is to renew it for 20 years. There’s no in between.
“We want the legislature to give the charter board the authority to intervene for finance reasons…,” Wells says. “We think there should be a place for financial probation, where charters can be watched on a careful basis and they have to provide financial improvement plans. The charter board would oversee that and see whether or not they are going to meet those things.”