Dear County and District Superintendents and Charter School Administrators:

FUNDING FOR CHARTER SCHOOLS AFFECTED BY ANDERSON UNION HIGH SCHOOL DISTRICT V. SHASTA SECONDARY HOME SCHOOL

The purpose of this letter is to ensure charter school authorizers and administrators are aware of how state general purpose and state and federal categorical funding will be affected by changes made to bring charter school sites into compliance with the law as affirmed by the court decision in Anderson Union High School District v. Shasta Secondary Home School (Shasta decision) and to provide contacts to answer any further questions.

The information included in this letter is also applicable to other scenarios related to charter school closure and establishment of new charter schools, and is not limited to charter schools affected by the Shasta decision.

The Law

On November 16, 2016, the Court of Appeal, Third Appellate District, issued a published opinion in the Shasta decision, holding that the geographic restrictions in Education Code (EC) Section 47605(a)(1) (https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=EDC&sectionNum=47605) apply to nonclassroom-based charter schools, and that a charter school may not locate a resource center outside the geographic boundaries of the authorizing school district, unless it can satisfy one of the statutory exceptions specified in EC Section 47605.1 (https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=EDC&sectionNum=47605.1). On January 18, 2017, the California Supreme Court denied review of the decision, which thus became final. 

In order to minimize disruption to pupils and educational programs, the State Board of Education (SBE) adopted a waiver policy in March 2017 for the limited purpose of setting guidelines for processing waiver requests providing charter schools operating noncompliant charter school resource center sites time to comply with the Shasta decision. This policy expired November 10, 2017. All waivers approved to date will expire on June 30, 2018. More information on the SBE policy can be found on the State Board of Education agenda and minutes from the March 2017 meeting at https://www.cde.ca.gov/be/ag/ag/main201703.asp.

Funding Impacts for Affected Charter Schools

When a new charter petition is approved, such as when a noncompliant resource center petitions and is authorized as a new charter school or when a charter school petitions to operate within the geographic boundaries of a different authorizer, the charter school will be assigned a new charter number from the SBE. The newly numbered charter school will be treated as a new charter school for funding purposes including, but not limited to, the Local Control Funding Formula (LCFF), Education Protection Account (EPA) funding, Lottery, and other state and federal categorical programs. A newly numbered charter school, regardless of prior affiliation with any other charter school, will be funded as a new charter school per EC Section 47602 (https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=47602.&lawCode=EDC).

General Funding Information

Following are some general guidelines and requirements charter schools, including those affected by the Shasta decision, should consider:

• The California Department of Education (CDE) strongly recommends that charter petition effective dates align with the funding fiscal year, July 1 through June 30, to avoid any disruption with a mid-year renewal or possible mid-year closure. As noted below, a mid-year closure may subject the charter school to severe instructional time penalties and adjustments to days of operation, both of which may impact funding.
• Pursuant to EC Section 47652 (https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=47652.&lawCode=EDC), instruction must begin by September 30th in order for a new charter school to be eligible for funding in the current year. Charter schools that change authorizer mid-year, despite continuous operation of the charter school, would be treated as a new school and would not be eligible for funding unless that transition occurred prior to the September 30th deadline described above. If the previously existing school stops instruction mid-year, the school is subject to a days of operation adjustment and may be subject to severe instructional time penalties that impact funding.
• A charter school’s largest source of funding is the LCFF entitlement paid through the Principal Apportionment. The entitlement is funded through a combination of LCFF state aid, in-lieu of property taxes, and EPA. The type of charter school will impact the In-lieu calculation and this should be considered when projecting cash flow (see In-Lieu of Property Taxes Reference Chart at https://www.cde.ca.gov/fg/aa/pa/inlieucs.asp [Note: The preceding link is no longer valid. Please visit http://staging.cde.ca.gov/fg/aa/pa/csfunding.asp]).
• Charter schools that offer nonclassroom-based instruction may need to have a Senate Bill 740 Determination of Funding approved by the SBE in order to receive funding for the nonclassroom-based average daily attendance (ADA). For new charter schools, this should be obtained not later than the SBE’s May meeting during the first year of operation. Information on the Funding Determination approval process is located at the Nonclassroom-Based Determination of Funding web page at https://www.cde.ca.gov/sp/cs/as/nclrbifunddet.asp. (Note: prior approved funding determinations are not transferable to new charter schools.)
• Advance Principal Apportionment funding is based on prior year Second Principal (P-2) Apportionment data and determines payments for the months of July through January.
  • New charter schools will not have prior year data and will not receive LCFF state aid or in-lieu of property taxes funding in the Advance Principal Apportionment (see next section for more information on advance funding for new charter schools).
  • Continuing charter schools should be mindful of how ADA changes impact funding as well as state aid and in-lieu of property taxes cash flow between Advance and First Principal (P-1) Apportionment. When ADA significantly decreases from prior year, as would occur if resource centers are established as separate charter schools, the continuing charter school may be overpaid and owe funds to the state once the charter school’s current year funding is recalculated at P-1.
• P-1 Apportionment funding is based on data reported by the charter school as of the first attendance period and determines payments for the months of February through May.
• P-2 Apportionment funding is based on data reported by the charter school as of the second attendance period and determines the June payment.

Funding for New Charter Schools

As LCFF funding at the start of a fiscal year is based on prior year data, an alternative data collection, apportionment process and payment schedule has been established for new charter schools in their first year of operation to begin the flow of state funding.

• New charter schools are eligible for advance funding in their first year of operation pursuant to EC Section 47652 (https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=47652.&lawCode=EDC) provided the school begins instruction by September 30th, has a charter number, and has a County-District-School (CDS) code.
• New charter advance funding includes a portion of the charter schools’ estimated LCFF state aid, EPA, in-lieu of property taxes and some federal categorical funding based upon preliminary attendance and enrollment data. This advance funding is not automatically generated. Charter schools must submit a Pupil Estimates for New or Significantly Expanding Charters (PENSEC) Report and a 20 Day Report order to receive this funding.
  • New charters that have both a charter number and CDS code by July may file the PENSEC Report. The PENSEC represents estimated attendance and provides for an LCFF state aid advance apportionment of approximately 37 percent of the charter school’s estimated annual entitlement with the payment usually being issued by the State Controller’s Office (SCO) by the end of September.
  • New charters that filed the PENSEC Report must, and charters newly numbered by September that have both a charter number and CDS code may, file the Charter 20 Day Report which represents actual attendance data for the first 20 days of instruction. The 20 Day LCFF state aid advance apportionment represents 55 percent of the charter school’s estimated annual entitlement less any monies already received in the PENSEC. Warrants are typically issued by SCO at the end of December.

Other State and Federal Categorical Funding for Charter Schools

The CDE also apportions state and federal categorical funding to charter schools. Some of those entitlements are not available to new charter schools or there will be a delay in receipt of those funds, as described below:

• State Categorical Programs: a new charter school will not generate funding in its first year of operation for any state programs funded on prior data. 
• Federal Categorical Programs: a new charter school that submits data in the PENSEC Report may be eligible to receive funding for Title I, II, and III based on current year data.
• A new charter school will not receive lottery funding in the first year, but will be made whole in its second year of operation. There is no disruption to funding for continuing charter schools.

Charter Schools that Close

Procedures for the closure of a charter school are established in EC and regulation. The timing of the closure of a charter school may have significant consequences for the charter school’s funding eligibility that should be considered.

• The charter authorizer must notify the CDE and provide a number of items to officially close the school, pursuant to EC Section 47604.32 (https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=EDC&sectionNum=47604.32) and California Code of Regulations, Title 5, Section 11962.1 (https://govt.westlaw.com/calregs/Document/I2EDF6BB0D48011DEBC02831C6D6C108E?viewType=FullText&originationContext=documenttoc&transitionType=DocumentItem&contextData=(sc.Default)). For funding purposes, the closed charter school will have no association with any new charter school being numbered or any continuing charter school to which the students transfer.
• It is recommended that charter schools remain open for the duration of the full school year. Schools that close mid-year are subject to a significant adjustment of ADA for days of operation below the minimum 175 days required pursuant to EC Section 47612 (https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=47612.&lawCode=EDC), as well as additional instructional time penalties for failure to deliver the statutorily required number of instructional minutes pursuant to EC Section 47612.5 (https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=47612.5.&lawCode=EDC). This applies irrespective of the school’s ability to place students in another school for the remainder of the school year.

New Charter School Actions to Receive Funding

Charter schools must complete three steps in order for CDE to have sufficient data to calculate and apportion LCFF state aid and EPA funding: 

• Obtain a CDS code. Applications for CDS codes may be submitted prior to the SBE numbering of the charter school. Once a new charter school is numbered by the SBE and the CDS Administrator has all necessary paperwork, a CDS code will be assigned. While the CDS code may not change in all cases, if a new charter number is assigned, the school will be treated as new for funding purposes.
• Complete the charter school annual information survey, which is typically released in May or June, to ensure timely payments.
• Complete PENSEC/20-Day report for Advance funding (see section above entitled Funding for New Charter Schools for more information). If this step is not completed, a charter school may still submit data and receive P-1 and P-2 funding.

For specific questions, please contact the respective CDE program areas listed in Resources for Charter Schools at https://www.cde.ca.gov/fg/aa/pa/chartercontacts.asp [Note: The preceding link is no longer valid. Please visit http://staging.cde.ca.gov/fg/aa/pa/csfunding.asp].

Sincerely,

Caryn Moore, Director
School Fiscal Services Division