School districts across the U.S. face fiscal distress, yet financial health remains on the sidelines of state accountability systems, with few consequences for mismanaging education dollars and putting students, teachers, and taxpayers at risk. In recent years, the charter sector has led the way in promoting greater transparency, with numerous authorizers adopting financial performance frameworks that track and report on key measures of financial health.
The Arizona State Board for Charter Schools (ASBCS) adopted its own framework in 2012, which provides clear performance expectations and rates charters on financial outcomes. With the recent passage of HB 2663, which allows ASBCS to close charters that fail to meet these financial standards, now is a critical time to assess how this framework is working and implement needed improvements.
Our analysis finds that:
- The Financial Performance Framework’s roll-up mechanism fails to make important distinctions in performance.
- Closed charter schools are more likely to be financially distressed schools with low enrollment.
- Arizona’s three performance frameworks—academic, financial and operational—are disconnected.
Several reforms can improve ASBCS’s financial performance framework in the short term. The most important areas to address are the framework’s roll-up mechanism and creating the infrastructure needed to close financially distressed charters in a manner that is fair, transparent, and accounts for local context. To do so, Arizona should revamp its summative ratings and create a more nuanced infrastructure to better assess flagged charters, which could involve creating a second-tier evaluation system that incorporates both quantitative and qualitative data and enlisting the support of an objective, third-party financial reviewer before closure decisions are made. Importantly, Arizona should also add enrollment growth as a sustainability measure of financial performance that flags charters with substantive declines over a three-year period. Not only is enrollment often related to financial distress, but it also provides valuable insight into whether a charter is using tax dollars to meet the needs of a community.
In the long term, policymakers in Arizona and beyond should consider reforms to realize the full potential of financial data. Because measures of financial health capture important information about school quality that test-based accountability metrics miss, they should have a central role in evaluating performance, especially for schools of choice where parents can hold educators directly accountable for meeting their child’s needs. Parents choose schools based on more than just test scores, valuing concerns such as school safety, discipline, learning environment, and special programs. Since schools are financed based on enrollment, a focus on financial health and measures of demand is a focus on parental satisfaction.
The tax-exempt bond market for charter schools provides valuable insight into how financial measures can be integrated with current accountability systems or used to reimagine how schools are evaluated altogether. The most important lesson that policymakers can learn is how ratings agencies integrate financial health and the underlying demand signals in their assessments. In the context of state accountability systems, not only would this ensure that tax dollars are being used responsibly, it would also recognize how well schools satisfy parents. By unlocking the full potential of financial data, Arizona has the opportunity to become a national model for charter school evaluation that moves beyond test scores.