/Ruling in Charter Fraud Case Has Major Implications for Small School District Budgets

Ruling in Charter Fraud Case Has Major Implications for Small School District Budgets

Dehesa School District in eastern San Diego County is one of eight school districts in California involved in the A3 charter school fraud case. / Photo by Adriana Heldiz

This post has been updated.

A universal rule of lawmaking: What seem to be the tiniest and most overlookable parts of a law frequently end up being those that play the most outsize role.

That was the case with a provision in the state’s Education Code that allows school districts to collect fees for each charter school they authorize to operate, up to 3 percent of the charter’s revenue. (Charter schools can’t simply open up shop. A school district must “authorize” them to open.)

The provision has allowed some small school districts – that often serve just a few hundred students – to collect millions of dollars in fees from online charter schools that enroll thousands of students. In some cases, small school districts have received more in fees than any other single source of revenue.

Until now, exactly how much fees school districts could and should collect have been murky questions. But a new ruling in the A3 charter school case – in which two ringleaders recently pleaded guilty to pocketing tens of millions of dollars in public funds – has helped to clarify that school districts should only be taking as much money as it costs for them to oversee the charter schools they authorize.

“These school districts collected significant fees for oversight work they did not perform,” said District Attorney Summer Stephan in a press release. “The clarification of California’s oversight fee law by [San Diego Superior Court] Judge [Frederick] Link brings much needed change for our public education system and will serve to improve oversight and integrity for years to come.”

Out of eight districts that authorized A3 schools, six entered into agreements with the court over the fees they charged. One district that entered into an agreement is Dehesa School District, which serves roughly 150 students in eastern San Diego County. Dehesa, the only San Diego County district involved in the scandal, authorized three of A3’s online schools.

As part of the agreement, the districts will pay back a combined $1 million in fees that went above and beyond their costs in overseeing the A3 schools.

A3 enrolled thousands of students from all across the state into its 19 online charter schools. Some of those students attended online classes, but many did not. The company followed an unofficial playbook in creating its empire. It would reach out to small school districts that didn’t have many students or much money and ask to open a charter school. Part of the inherent promise for those districts is that they would receive millions of dollars in fees.

Dehesa’s former superintendent, Nancy Hauer, was charged in the scandal. She has not yet entered a plea.

In one single year, Dehesa received roughly $2 million in fees from the A3 schools. The fees Dehesa collected from A3 represented its single largest source of revenue at times, prosecutors say. Dehesa operates one traditional public school, which serves elementary grades.

Bradley Johnson is the new superintendent of Dehesa and was brought in to help clarify the district’s practices around charter schools.

“It’s never been clear, especially from the California Department of Education” exactly how districts are supposed to be calculating the fees they collect from charters, said Johnson. But now he and other leaders at Dehesa have created a structure that provides more oversight of the charters they authorize, as well as more transparency around the costs associated with the fees they collect.

“If districts were provided some solid guidance and understanding of the rules earlier on,” said Johnson, “then we would probably be in a little bit of a different place at this point in time.”

Officials with the state Department of Education are considering drafting guidance to help school districts, wrote Scott Roark, a department spokesman, in an email. They have not, however, drafted any guidance yet. Roark also noted that other districts not involved with the A3 case are not currently being asked by the Department of Education to refund any fees they received beyond their oversight costs.

California’s Education Code has always laid out broad guiderails around collecting fees from charters. It says that school districts can collect up to 3 percent of a charter school’s revenue if the district also provides some physical space for the charter school. If the district does not provide any physical space to the charter, then it can collect up to 1 percent of the charter’s revenue.

Most of the districts that authorized A3 schools were collecting the full 3 percent in fees. District officials told prosecutors in some cases that they kept nothing more than a single room available for use for all charter schools in their district.

The court order makes it clear that even districts that provide physical space should be doing so in line with the costs of that space.

All of A3’s charter schools have closed. But Dehesa still oversees five charter schools. It now collects 1 percent or less from each of the charter schools it oversees and does not provide them with physical work space.

The district revised its practices and lost substantial revenue after the A3 schools closed. It had to freeze hiring on five teacher positions and eliminated roughly four classified positions, Johnson said.

“For a small district, that’s a big number,” Johnson said. “When you look at large districts of course that’s a very small amount of staff. For us it is certainly impactful.”

Johnson said the district has hired an outside firm to provide most of the oversight of its charter schools. He said the process is much more “robust” than in the past.

The oversight, he said, focuses on five key areas: educational programming, special education, governance, finance, human resources and operations.

Update: This post has been updated to include information from the state Department of Education sent after this post initially published.