ODE’s Charter School “Death Spiral”

Closing Charters Through Applied Mathematics

By Connor Brown


3rd Rail Politics has spilled a lot of pixels explaining how the Ohio Department of Education and liberal state legislators have tried to kill school choice under the guise of “reform.”  As the legislature has taken a hands-off approach, the court system has become the primary forum in which the fate of thousands of Ohio schoolchildren and their families will be decided.


Or not.  


 As the much-watched ECOT case heads to the Ohio Supreme Court, it is worth exploring how ODE is attempting to shut down the charter school movement even in the absence of a final court ruling.  


 The state Supreme Court may or may not ultimately bless ODE’s retroactive decision to selectively enforce a so-called “policy” to fund students only for time that was “documented” (and for time periods during which schools were not told of the “policy”).  And for the small schools that lack the resources to push back, the enforcement of the new “policy”—through financial clawbacks—was sudden death.  No time and no money to even argue.  Game over.


But even a major player like ECOT, which has taken ODE to court, could be forced to close its virtual and physical doors before a final decision is ever rendered.  The reason is simple mathematics.


Reduced Enrollment


For starters, ODE has done terrible reputational damage to community schools across the State.  As a result, for the first time ever, ECOT’s enrollment is down-- by about 11%.  ODE’s campaign to discredit the school has decreased enrollment by approximately 1,900 students.  As school funding is set “per pupil,” this causes financial projections to similarly plummet. 


100% Documentation Requirement


Even without falling enrollment, ODE’s new documentation requirement will cause funding reductions.  To be clear, ODE is withholding funds from a community school even for time periods where a student has an excused medical absence.  Under such a regime, it is simply not possible to maintain funding at 100% levels.  Community schools are predicting at least a 10-15% funding cut as a result. 


(Of course, under this ODE policy, a school has no real predictability of its funding, since they cannot project attendance upfront anyway… so again, the 10-15% haircut is really just a rough guesstimate). 


The Clawback Itself


The actual clawback (in ECOT’s case, $60 million) is obviously a major monthly financial hit that will quickly drain schools of any reserves even while litigating the underlying issue.  Depending on the repayment timeframe—a decision left to ODE—it can be fatal.


Lack of Management Support


Community schools are often run by private sector management companies that have proven to bring cost effective market efficiencies to otherwise unwieldy education-bureaucracies.  As they are tied to state funding, these management fees are essentially paid on a “per pupil” basis, so as enrollment drops, compensation to the management company is similarly reduced.  Reductions can rather quickly reach a point where a school could be forced to close for lack of any ability to contract for management services.    


Impact to Student Services          


Suffice to say, the charter school’s very survival is not assured.  On the contrary, the only way to sustain such financial hardship is to dramatically reduce costs.  This means cutting teachers, administrators, and student services.  


No Local Funding


An online school cannot cut computers, Internet service, or basic technology support—so the cuts must all come from personnel- as long as Ohio’s statutory 125:1 student : teacher ratio is maintained.  (Today most online schools operate at more like 30:1).  And unlike traditional districts who ride the local levy carousel, charters have no ability to “go to the ballot” to raise revenue.  These cuts are all that’s left.




Not insignificantly, the charters also must pay hefty sums in unemployment benefits after making draconian teacher cuts—so even the painful cuts to personnel do not improve the bottom line quickly.  Unemployment benefits for hundreds of teachers costs millions of dollars.


Death Spiral


And when the cuts start to hit, and student life suffers, more students drop out.  This leads to yet further reduced funding, which leads to more scaled back services, which leads to lower enrollments.  Rinse, lather, repeat. 


Asked about the so-called death spiral scenario, Rick Teeters, ECOT Superintendent, acknowledged the economic reality.  "We have some cash reserves, as we are required by law, but the school cannot possibly absorb the financial hits ODE is imposing.  It's not a death spiral, it's a death knell.  This shuts us down.  Period."


When charter schools talk about a “death spiral,” and the collapse of school choice without a vote of the legislature or a final decision from the state’s highest court, don’t just take their word for it.


It is simple math.