Reform of California Nonclassroom-Based Charter Schools Has Improved Financial Oversight

For Release

February 14, 2005

Reform legislation signed into law in 2001 to improve state government oversight of the financial affairs of nonclassroom-based charter schools in California has reduced possible misuse of funds by the schools, according to a RAND Corporation study issued today.

Since the law was enacted, nonclassroom-based charter schools have greatly increased spending on both instruction and on staff members who hold education certificates, achieving two goals of the reform legislation, according to the RAND Education report.

However, the study—prepared for the non-partisan California state Legislative Analyst‘s Office—says the reform law has placed an administrative burden on nonclassroom-based schools and has not triggered all of the changes aimed at instructional improvement that state lawmakers intended. For example, researchers found evidence that instead of hiring more teachers as envisioned by the Legislature, some schools may have increased the pay of existing teachers in order to meet instructional spending rules.

“The charter school movement was founded on the principle of innovation and flexibility in the operation of schools,” said Cassandra Guarino, a RAND economist and lead author of the study. “While the reform has succeeded on some levels, we are suggesting a more holistic approach in judging nonclassroom-based charter schools that would restore more room for innovation.”

RAND researchers concluded that the rigid state standards imposed under the reform legislation may not be the best way to improve oversight of the nonclassroom-based charter schools. Their study says that by streamlining requirements for reporting financial information from nonclassroom-based schools, the state could maintain fiscal oversight of the schools but also reduce the administrative burden placed on smaller schools.

At the same time, the study says the state should consider creating performance guidelines that would trigger audits or reviews of schools that are unable to meet the standards, rather than automatically triggering onerous financial penalties.

Prompted by reports that operators of some nonclassroom-based charter schools were pocketing some of the money they received from the state, California lawmakers passed legislation in October 2001 intended to strengthen state oversight of the schools.

The legislation requires nonclassroom-based charter schools to devote at least 80 percent of their total revenues to instruction, spend at least half of their public money on staff with professional certificates, and achieve pupil-teacher ratios equal to or lower than those of the largest school district in the county where they operate. Charter schools that do not meet the standards face losing some or all of their state funding.

Charter schools that provide nonclassroom-based instruction have been growing rapidly in California, numbering about 160 during the 2003-2004 school year and enrolling about one-third of the 180,000 children statewide who attend charter schools. The schools provide instruction in non-traditional settings including various forms of independent study, such as computer-based instruction or teacher-directed distance learning.

Nonclassroom-based charter schools tend to enroll children at the ends of the achievement spectrum. Those students include low-achieving children who have emotional or behavioral problems that prevent them from attending regular school, as well as high-achieving children whose parents are seeking a more individualized school setting.

Guarino and other RAND researchers evaluated the impact of the legislation by interviewing stakeholders involved with the reforms, analyzing state funding data, and reviewing surveys of nonclassroom-based charter school principals and teachers.

Researchers say that both the administrative burden of preparing reports and the funding penalties imposed by the reform legislation have put some schools in financial jeopardy. Nearly half of the state‘s nonclassroom-based charter schools have experienced funding reductions as a result of the changes prompted by the reform law.

In addition, despite the increase in spending on instruction, the number of certificated teachers and pupil-teachers ratios has not improved. It appears it has been easier for some schools to meet the requirements by boosting salaries or paying bonuses, rather than adding teaching staff, according to the report.

Other authors of the RAND report are Ron Zimmer, Cathy Krop and Derrick Chau.

RAND Education conducts research and analysis on a variety of topics, including school reform, educational assessment, and accountability, and trends among teachers and teacher training.

A printed copy of “Nonclassroom-based Charter Schools in California and the Impact of SB 740” (ISBN: 0-8330-3753-6) can be ordered from RAND‘s Distribution Services ( or call toll-free 877-584-8642).

About RAND

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