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School Finance 101: Charter Schooling in the Post-Espinoza & Fulton Era

Charter schooling is at a critical juncture and the future of charter schooling across US states can take either of two vastly different paths. On the one hand, charter schooling could become increasingly private, more overtly religious, openly discriminatory and decreasingly transparent to voters, taxpayers and the general public.  On the other hand, charter schooling could be made more public and transparent and be shielded from religious intrusion and all that comes with it. We recommend a policy framework which advances the latter and protects against the former.

We wrote in 2019 about transparency problems in charter school financial arrangements with related parties, and proposed regulatory strategies for mitigating these problems.[1] These problems have, over time, led to accumulation of large sums of risky, inefficient, high-cost debt for financing land acquisition and capital investment (school buildings). These are not practices which can be clearly assigned to for-profit and non-profit charter schools managers. Rather, they are practices common to both, and often involve poorly disclosed relationships between charter operators and related parties under either umbrella (FP or NP).

On what would seem to be a separate issue entirely, the US Supreme Court has recently opened the door more widely to overtly religious operators in the charter sector, declaring that when a state permits private actors to access public financing to provide an ostensibly public service, states may not exclude religious organizations from participating. Even more recently the court has also indicated that government has limited authority to regulate the practices of these institutions if those regulations conflict with their religious views. This includes regulations prohibiting discrimination on a variety of bases.  

The murkiness of the public-private distinction under state charter school laws creates a substantial vulnerability of the charter sector to become something it was originally argued to avoid – the public financing of religious education and indoctrination which dominated existing private school voucher programs at the time. Even prior to the Espinoza[2] and Fulton[3] decisions, religious operators had become significantly involved in the charter sector, in some cases adding to the opacity and of related party transactions over land and building deals between religious and secular private organizations.[4]

These two issues – a) the intrusion of religion and all that comes with it (discriminatory practices in the name of free exercise, religious curriculum including teaching of creationism[5]) and b) financial liability and transparency concerns – can be addressed by a unified overhaul of state charter school statutes and regulations.

First, Justice Breyer’s dissent in Espinoza acknowledges the variation in governing status of charter schools across states.[6] We note that there are two layers to this which include entities that authorize the establishment of charter schools and citizen boards that govern those schools. Either or both may involve non-government entities and private citizens and governing bodies. The latter (private governance of schools themselves) being more common than the former (non-gov’t agencies authorizing charters).  We argue first that both of these layers must be governed by state actors, involving elected or appointed boards, who, in this capacity are public officials (not private citizens or institutions).

Maryland provides one example which is sufficiently tight in this regard. Charter schools are authorized by, governed by and financed through their host county school districts. Further, while private management companies may be hired to “operate” the schools, employees of the schools are under county district contracts. That is, teachers and other certified staff in Maryland charter schools are public employees and themselves “state actors,” even when they work under the direction of a private management company. 

This model provides for increased public transparency, and at the same time, minimizes potential for religious intrusion on the charter sector. A truly public governing board (like the district board of education, appointed or elected) would not be able to exclude from management contracts, firms with religious ties or origins on that basis alone. But, given that instruction is provided by public employees and the school governed by public officials, the school would be bound by constitutional requirements regarding discrimination and the provision of religious curriculum (here, the establishment clause prohibits advancement or promotion of religion).

Fiscal transparency may be improved by requiring public access to detailed records on any contractual arrangements made between public officials governing the schools and private management or other private service firms (busing, food, communications/technology, etc.). Private firms seeking public contracts, religious or not, should be required to provide full financial disclosure of detailed expense reports, including annual independent audits. Religious organizations should not be shielded from these religion-neutral regulations when seeking publicly financed contracts.  Finally, this governance and regulatory structure would better enable public oversight of capital investment and acquisition of public debt, ideally shifting the majority of capital financing back to district and state governance and lower cost general obligation bonds.

Charter school advocates who have long favored the flexibility (and limited transparency, albeit unsaid) which charter schools have been granted under current state laws would likely resist this approach, arguing that it undermines the very basis of “chartering.”[7] But we argue that the sector is at a critical juncture, and failing to act may have long term detrimental effects, which more severely undermine the public purpose of charter schooling and democratic society writ large. A more optimal model is attainable, in which contract flexibility is accessible for charter schools, while keeping the schools and their employees truly public. Given the current legal and political environment, a new approach is necessary.


[1] https://theconversation.com/charter-schools-exploit-lucrative-loophole-that-would-be-easy-to-close-111792

[2] https://www.oyez.org/cases/2019/18-1195

[3] https://www.oyez.org/cases/2020/19-123

[4] https://www.wxyz.com/news/clark-durant-in-battle-with-pulte-trust-a-major-cornerstone-charter-funder

[5] https://www.huffpost.com/entry/school-voucher-evangelical-education-betsy-devos_n_5a021962e4b04e96f0c6093c?ufa=

[6] https://supreme.justia.com/cases/federal/us/591/18-1195/#tab-opinion-4267760

[7] https://www.publiccharters.org/sites/default/files/documents/2021-02/2021_model_law_ranking_report_rd3.pdf

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Bruce D. Baker

Bruce D. Baker is a Professor in the Graduate School of Education at Rutgers, The State University of New Jersey, where he teaches courses in school finance polic...