NJ CHARTERS CARRYING SUBSTANTIAL SURPLUS EVEN AS DISTRICTS MAKE CUTS

September 24, 2015

Education Law Center

edlawcenter.org

An Education Law Center analysis of the most recently available, audited school budgets shows many New Jersey charter schools carry a significant amount of surplus fund balance. Based on 2013-14 budget data, charter schools statewide have over $100 million in fund balance, with $87 million of that amount in “unrestricted” surplus funds. 

Fund balance refers to the difference between a district or charter school’s assets and liabilities, or the difference between revenues and expenditures.  Both school districts and charter schools carry fund balances in their budgets to address emergencies or other unforeseen occurrences. 

Fund balances are divided into restricted and unrestricted portions. Restricted funds are designated for specific purposes, such as maintenance, tuition or capital reserves.  Unrestricted funds can be appropriated as needed.

The NJ Department of Education (NJDOE) limits the amount of unrestricted fund balance to 2% of a district’s operating budget.  Charter schools are not subject to this requirement, and the NJDOE does not impose any limit on the amount of fund balance a charter can maintain as surplus.

The $87.4 million in unrestricted charter surplus represents 18% of the combined operating budgets of all charter schools statewide. Fund balances vary by charter school, with some having none, but others accumulating up to 200% of their annual operating budget.

Under the charter school law, the districts in which charters are located or draw students pay per-pupil funding for each student enrolled in a charter directly from the district’s budget. Many of the charters with substantial fund balances receive funding from districts such as Newark, Paterson and Camden that have had to make significant cuts in teachers, support staff and programs in recent years.

If charters, like districts, were subject to the 2% limit on unrestricted fund balances, an extra $77.7 million would be returned to district budgets.

For example:

⦁ Camden has nine charters with $9.6 million in unrestricted fund balance, and $8.4 million over the 2% limit.

⦁ Jersey City has 10 charters with $6.0 million in unrestricted fund balance, and $5 million over 2%.

⦁ Newark has 21 charters with $38.2 million in unrestricted fund balance, and $34.5 million over 2%.

⦁ Paterson has four charters with $6 million in unrestricted fund balance, and $5.4 million over 2%.

While charters accumulate excess fund balances, many of the districts that fund the charters are struggling to balance their budgets due to flat state aid and the NJDOE’s approval of charter enrollment growth without assessing the impact of the loss of funding on students in district schools. 

Compounding the problem, charter schools gained an additional $107 million from district budgets when legislators in the FY15 and FY16 State budgets gave them extra funding over and above the amount provided by the charter school law. For the current school year, this extra funding totaled $37 million, with $25 million of that taken from the Newark school budget alone. This led the State-operated Newark district to make another round of painful staff and program cuts in district schools. (See chart on page 26 of the Office of Legislative Services' FY16 Analysis of the Department of Education Budget.)

“We call on Education Commissioner David Hespe to immediately review charter school fund balances and apply the same 2% limit that districts must adhere to,” said David Sciarra, ELC Executive Director. “The Commissioner should then direct the charters to either return the excess surplus to district budgets or deduct the excess from future district payments to the charters.”

“The excess charter fund balance is available to provide desperately needed teachers, staff and programs for students in district schools,” Mr. Sciarra added. “Since charters are public schools, they cannot be allowed to carry unlimited, excess surplus they don’t need while the education of students who choose to attend district schools suffers from deep budget cuts.”

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