Charter Schools: Federal Funding Available but Barriers Exist (Letter
Report, 04/30/98, GAO/HEHS-98-84).

Pursuant to a congressional request, GAO provided information on: (1)
the way selected states allocate Elementary and Secondary Education Act
title I and Individuals With Disabilities Education Act (IDEA) funds to
charter and other public schools; (2) factors that help and hinder
charter schools in accessing title I and IDEA funds; (3) whether factors
that help or hinder charter schools to access federal funds vary by the
funding path used in selected states; and (4) state and federal efforts
designed to help charter schools access federal funds.

GAO noted that: (1) in general, states either allocate funds to charter
schools directly, considering them to be independent school districts or
local educational agencies (LEA), or indirectly through a parent school
district, considering a charter school to be a member of an existing
school district; (2) overall, about two-fifths of the charter schools
GAO surveyed received title I funds, and slightly more than half of them
received IDEA funds or IDEA-funded special education services; (3) most
charter schools that did not receive funds did not apply for them; (4)
two-thirds of charter school operators whom GAO surveyed and who
expressed an opinion believed that they received a fair share of title I
or IDEA funds or IDEA-funded special education services; (5) a variety
of barriers, according to GAO's review, have made it difficult for
charter schools to access title I and IDEA funds; (6) these barriers
include a lack of enrollment and student eligibility data to submit to
states before funding allocation decisions are made and the time
required and costs involved in applying for such funds; (7) charter
school operators most often cited training and technical assistance and
notification of their eligibility for federal funds as factors that
helped them access title I and IDEA funds; (8) many factors that helped
or hindered charter schools access federal funds had no relation to the
schools' receiving their funds directly from the state or indirectly
through a parent school district, but some factors did relate to the
funding path; (9) for example, the working relationship between a
charter school and its sponsoring district could either help or hinder
the school's access to federal funds; (10) in contrast, charter schools
treated as LEAs and receiving federal funds directly from the state were
largely unaffected by their relationships with local school districts;
(11) several states and the Department of Education have begun
initiatives to help charter schools access federal funds; (12) some
states are revising or developing alternative allocation policies and
procedures to improve charter schools' access to federal funds and
providing training and technical assistance to charter school operators;
and (13) the Department recently issued guidance to states and LEAs on
allocating federal title I funds to charter schools and has funded the
development of an Internet web site with information on federal
programs, charter school operational issues, a charter school resource
directory as well as profiles of charter school states and charter
schools.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-84
     TITLE:  Charter Schools: Federal Funding Available but Barriers 
             Exist
      DATE:  04/30/98
   SUBJECT:  Charter schools
             Locally administered programs
             Intergovernmental fiscal relations
             Aid for education
             Surveys
             Eligibility determinations
             Technical assistance
             School management and organization
             School districts
             State/local relations
IDENTIFIER:  Dept. of Education Title I Program
             Arizona
             California
             Colorado
             Massachusetts
             Michigan
             Minnesota
             Texas
             
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Cover
================================================================ COVER


Report to Congressional Requesters

April 1998

CHARTER SCHOOLS - FEDERAL FUNDING
AVAILABLE BUT BARRIERS EXIST

GAO/HEHS-98-84

Charter School Access to Federal Funds

(104889)


Abbreviations
=============================================================== ABBREV

  AFDC - Aid to Families With Dependent Children
  ESEA - Elementary and Secondary Education Act
  IDEA - Individuals With Disabilities Education Act
  IEP - individualized education program
  ISD - intermediate school district
  LEA - local educational agency
  SEA - state educational agency
  SELPA - special education local plan area
  TANF - Temporary Assistance for Needy Families

Letter
=============================================================== LETTER


B-277264

April 30, 1998

Congressional Requesters

The number of charter schools is growing rapidly, offering a new
model for public schools.  This model is intended to address concerns
about our educational system, including unresponsive school district
bureaucracies, restrictive rules, and a lack of accountability for
student performance.  In addition, charter schools provide
opportunities for parents and others to create schools that reflect
their visions for their children's education, including design,
governance, and delivery features.  Charter schools are generally
designed to operate with more autonomy from state and local rules and
regulations than are other public schools.  In exchange for this
autonomy, charter schools are held accountable for meeting the terms
of their charters, which may include achieving stipulated academic
outcomes.  Schools that do not meet the terms of their charters face
revocation of their charters. 

Although state and local revenues primarily finance public schools,
the federal government provides several billion dollars annually to
help public schools educate our children.  For example, during fiscal
year 1998, the federal government will provide over $7 billion under
title I of the Elementary and Secondary Education Act (ESEA) to help
schools provide additional services to educationally disadvantaged
children.  In addition, under the Individuals With Disabilities
Education Act (IDEA), the federal government will provide about $4.2
billion to help schools pay for providing a free appropriate public
education to children with disabilities. 

Although the title I and IDEA programs are designed to help public
schools, concerns were raised during 1997 congressional hearings
about whether public charter schools receive the share of these funds
for which they are eligible.  Because of these concerns, you
requested that we study this issue.  On September 16, 1997, and again
on March 31, 1998, we testified on our ongoing work on this study.\1
This report augments the information we provided in our testimonies
and is based on the final results of our study.  In particular, you
requested that we provide information on

  -- the way selected states allocate title I and IDEA funds to
     charter and other public schools,

  -- factors that help and hinder charter schools in accessing title
     I and IDEA funds, and

  -- whether factors that help or hinder charter schools to access
     federal funds vary by the funding path used in selected states. 

In addition to this information, we are providing information on
current state and federal efforts designed to help charter schools
access federal funds. 

In conducting our work, we interviewed nationally recognized charter
school experts as well as officials representing national- and
state-level charter school advocacy and technical assistance
organizations.  We also identified and reviewed research on
operational and financial issues affecting charter schools
nationwide.  To determine the extent to which federal laws and
regulations affected the allocation of federal funds to charter
schools, we reviewed ESEA's and IDEA's statutory funding allocation
requirements and the Department of Education's program regulations. 

We chose seven states that collectively included 91 percent of the
480 charter schools reportedly operating in school year 1996-97.\2 We
conducted case studies for these states, which varied in the way they
allocate federal funds to charter schools.  For each state, we
reviewed charter school authorizing legislation and state title I and
IDEA state plans on file with the Department of Education.  We also
interviewed by telephone or in site visits officials of each state's
department of education to collect information on charter school
title I and IDEA allocation procedures.  We discussed with officials
the factors that helped or hindered charter schools' access to
federal funds.  In addition, we visited several charter school
operators in four states to discuss these same issues. 

Finally, we surveyed by telephone a representative sample of charter
schools in our seven case study states.  Two schools in our 50-school
sample were later discovered to be ineligible for our survey--1
school had been operating as a traditional public school in the
1996-97 school year, and 1 school had its charter revoked before the
1996-97 school year.  Officials from seven charter schools declined
to participate in our survey.  We completed interviews with officials
of the 41 remaining schools in our sample for an 85-percent response
rate.\3 These interviews included discussions about their experiences
in accessing federal funds.  Because of our sampling methodology, our
results apply to the charter schools operating in our sample states. 
Information we obtained from charter school operators was
self-reported and unverified.  Whenever possible, however, we
obtained documents from the operators pertaining to the matters they
discussed with us.  We did our work between May 1997 and March 1998
in accordance with generally accepted government auditing standards. 


--------------------
\1 Charter Schools:  Issues Affecting Access to Federal Funds
(GAO/T-HEHS-97-216, Sept.  16, 1997) and Charter Schools:  Recent
Experiences in Accessing Federal Funds (GAO/T-HEHS-98-129, Mar.  31,
1998). 

\2 The states are Arizona, California, Colorado, Massachusetts,
Michigan, Minnesota, and Texas. 

\3 App.  I shows the number of schools (1) operating in each of the
selected states, (2) included in our sample, and (3) responding to
our survey. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

In general, states either allocate funds to charter schools (1)
directly, considering them to be independent school districts or
local educational agencies (LEA) or (2) indirectly through a parent
school district, considering a charter school to be a member of an
existing school district.  In some cases, states use both approaches
depending on the particular chartering authority or program.  For
example, Massachusetts and Minnesota consider all charter schools to
be LEAs and allocate funds directly to charter schools.  On the other
hand, charter schools in California and Colorado receive federal
funds through a parent school district.  In Arizona, Michigan, and
Texas, charter schools receive their funds directly or indirectly
depending on a variety of factors, including the particular program
involved, the chartering authority, or other circumstances.  Overall,
about two-fifths of the charter schools we surveyed received title I
funds, and slightly more than half of them received IDEA funds or
IDEA-funded special education services.  Most charter schools that
did not receive funds did not apply for them.\4 Two-thirds of charter
school operators whom we surveyed and who expressed an opinion
believed that they received a fair share of title I or IDEA funds or
IDEA-funded special education services. 

A variety of barriers, according to our review, have made it
difficult for charter schools to access title I and IDEA funds. 
These barriers include, for example, a lack of enrollment and student
eligibility data to submit to states before funding allocation
decisions are made and the time required and costs involved in
applying for such funds.  Studies conducted by the Department of
Education\5 and the Hudson Institute,\6 a private, nonprofit public
policy research organization, identified similar barriers facing
charter schools.  On the other hand, charter school operators most
often cited training and technical assistance and notification of
their eligibility for federal funds as factors that helped them
access title I and IDEA funds. 

Many factors that helped or hindered charter schools access federal
funds had no relation to the schools' receiving their funds directly
from the state or indirectly through a parent school district.  Time
and resource constraints, for example, affected charter schools in
much the same way regardless of how they received their funds.  Some
factors, however, did relate to the funding path.  For example, the
working relationship between a charter school and its sponsoring
district could either help or hinder the school's access to federal
funds.  In contrast, charter schools treated as LEAs and receiving
federal funds directly from the state were largely unaffected by
their relationships with local school districts. 

Several states and the Department of Education have begun initiatives
to help charter schools access federal funds.  Some states, for
example, are revising or developing alternative allocation policies
and procedures to improve charter schools' access to federal funds
and providing training and technical assistance to charter school
operators.  The Department recently issued guidance to states and
LEAs on allocating federal title I funds to charter schools.  In
addition, the Department has funded the development of an Internet
web site with information on federal programs, charter school
operational issues, a charter school resource directory as well as
profiles of charter school states and charter schools. 


--------------------
\4 Although schools dependent on an LEA do not technically apply for
federal funds, we use the term to describe the process by which
charter schools must provide the necessary data to the LEA so the LEA
may apply for funds as well as charter school operators' expectations
about receiving funds. 

\5 A Study of Charter Schools, First Year Report, U.S.  Department of
Education, Office of Educational Research and Improvement
(Washington, D.C.:  May 1997). 

\6 Charter Schools in Action, Hudson Institute (Washington D.C.: 
July 1997). 


   BACKGROUND
------------------------------------------------------------ Letter :2

Charter schools are public schools that operate under charters (or
contracts) specifying the terms by which they may operate.  In
general, they are established under state law, charge no tuition, and
are nonsectarian.  State charter school laws and policies vary widely
regarding the degree of autonomy the schools have, the number of
charter schools that may be established, the qualifications of
charter school applicants and teachers, and the accountability
criteria that charter schools must meet. 

As of September 1997, 29 states and the District of Columbia had
enacted laws authorizing charter schools, according to the Center for
Education Reform.  In school year 1996-97, over 100,000 students were
enrolled in nearly 500 charter schools in 16 states and the District
of Columbia.  Most charter schools are newly created; about 33
percent were converted from existing public schools, and about 11
percent were converted from existing private schools, according to
the Department of Education.\7

Figure 1 shows the states with charter school laws as of September
1997 and the number of charter schools operating in the 1996-97
school year by state. 

   Figure 1:  States With Charter
   School Laws as of September
   1997 and Number of Schools
   Operating in School Year
   1996-97

   (See figure in printed
   edition.)

Source:  Center for Education Reform, Washington, D.C. 

Both the Congress and the administration have supported charter
schools.  For example, in amending ESEA in 1994, the Congress
established a grant program to support the design and implementation
of charter schools.  In addition, under the Goals 2000:  Educate
America Act, states may use federal funds to promote charter schools. 
The administration proposed doubling the roughly $50 million made
available under the new ESEA charter school grant program in fiscal
year 1997 to $100 million for fiscal year 1998; the Congress
ultimately increased funding for the program to $80 million. 
Finally, in his 1997 State of the Union Address, the President called
for the establishment of 3,000 charter schools nationwide by the next
century.\8

To explore the effects of education reform efforts, in January 1997,
the Congress began holding hearings in Washington, D.C., and around
the country.  The Congress has focused on developing charter schools,
among other reform efforts.  Charter school operators and others at
the hearings raised concerns about charter schools' receiving the
share of federal title I and IDEA grant funds for which they are
eligible.  Recent research conducted by the Department of Education
and the Hudson Institute raised similar concerns.  Although dozens of
financial aid programs exist for public elementary and secondary
schools, two programs, title I and IDEA, are by far the largest
federal programs. 


--------------------
\7 Not all states allow private schools to convert to charter
schools. 

\8 The President referred to this goal again in his 1998 State of the
Union Address. 


      TITLE I PROGRAM
---------------------------------------------------------- Letter :2.1

Title I is the largest federal elementary and secondary education aid
program.  The Department of Education administers title I, which
received about $7.4 billion in federal funding in fiscal year 1998. 
The program provides grants to school districts--or LEAs, as defined
in federal statute and regulations--to help them educate
disadvantaged children--those with low academic achievement attending
schools serving high-poverty areas.  Nationwide, the Department makes
about $800 available on average to LEAs for each child counted in the
title I allocation formula. 

Under title I, the federal government awards grants to LEAs through
state educational agencies (SEA), which administer the grants and
distribute the funds to LEAs.  About 90 percent of the funds the
Congress appropriates are distributed as basic grants; about 10
percent are distributed as concentration grants, awarded to LEAs
serving relatively higher numbers or percentages of children from
low-income families. 

To receive title I funds, SEAs must submit title I plans to the
Department of Education.  SEAs may submit these plans to Education
separately or as part of a consolidated plan incorporating several
federal education programs.\9 Title I plans must explain how a SEA
will operate its title I programs and demonstrate that a state has
established or is developing state content and student performance
standards as well as describe assessment systems used to measure
schools' progress in meeting state standards.  Moreover, state plans
must describe how the SEA will help each LEA and school affected by
the title I plan develop the capacity to comply with state standards. 
Once the plan is approved, the SEA is eligible to receive title I
funds, and the plan remains in effect as long as a state participates
in the program.  SEAs must periodically update plans, however, to
reflect substantive changes or as required by the Department of
Education. 

To be eligible for title I funds received by the state, federal
statutory and regulatory guidelines require LEAs to meet minimum
poverty thresholds.  To be eligible for basic grants, an LEA
generally must have enrolled at least 10 children from low-income
families, and low-income children must constitute more than 2 percent
of its school-aged population.  To be eligible for concentration
grants, LEAs generally must have enrolled more than 6,500 children
from low-income families, or more than 15 percent of their students
must be from low-income families.\10

LEAs that receive title I funds and have more than one school in
their district have some discretion in allocating these funds to
individual schools.  LEAs must rank their schools\11

according to the percentage of children from low-income families
enrolled in each school.  LEAs must use the same poverty measure in
ranking all their schools, but the title I statute provides four
measures from which LEAs may choose.  LEAs must serve, in order of
poverty, their schools that have more than 75 percent of their
students from low-income families.  After serving these schools, LEAs
may then serve additional title I-eligible schools, in order of
poverty, with remaining funds.  LEAs do not have to allocate the same
per poverty student amount to each school in the district.  LEAs must
allocate, however, a higher or equal per poverty student amount to
schools with higher poverty rates than they allocate to schools with
lower poverty rates.  (See app.  II for more details about the title
I program.)


--------------------
\9 These other programs include, among others, the title II
Eisenhower Professional Development program; title III educational
technology programs; title IV Safe and Drug-Free Schools and
Communities--state and local formula grants--program; title VI
Innovative Education Strategies program; and the Goals 2000:  Educate
America Act. 

\10 In 1994, the Congress amended title I to provide LEAs a third
grant type--"targeted assistance" grants.  Should the Congress
appropriate funds for these grants in the future, eligible LEAs must
have enrolled at least 10 low-income children, and these children
must constitute more than 5 percent of the children served by an LEA. 

\11 We use the term "school" to include school attendance areas. 
School attendance areas may be designated by an LEA for ranking
schools in allocating title I funds. 


      IDEA PROGRAM
---------------------------------------------------------- Letter :2.2

The IDEA part B program is a federal grant program for helping states
pay the costs of providing a free appropriate public education to all
eligible children with disabilities between the ages of 3 and 21
living in the state, depending on state law or practice.  The act
requires, among other things, that states make such education
available to all eligible children with disabilities in the least
restrictive environment.  The Congress appropriated approximately
$4.2 billion for the program for fiscal year 1998.  According to
Department of Education officials, these funds are expected to
provide, on average, about $639 per student for services provided to
the nearly 5,951,000 eligible students aged 3 through 21, plus an
additional $650 per student to provide services for approximately
575,800 eligible preschool children aged 3 through 5. 

Under the current formula, the Department of Education annually
allocates funds to SEAs on the basis of their reported numbers of
eligible children receiving special education and related services
for the preceding fiscal year,\12 the national average per pupil
expenditure, and the amount the Congress appropriates for the
program.  The most funding that a state may receive for any fiscal
year is capped at 40 percent of the national average per pupil
expenditure multiplied by the number of eligible children with
disabilities in the state who receive special education and related
services.\13 The IDEA Amendments of 1997 provide that each state will
receive its prior fiscal year allocation when the Congress
appropriates more than $4,924,672,200 for IDEA part B; 85 percent of
the remaining funds will be allocated to states on the basis of each
state's relative population of children aged 3 through 21 who are the
same age as children with disabilities for whom the state ensures the
availability of a free appropriate public education; the remaining 15
percent of these funds will be allocated on the basis of each state's
relative population of these children living in poverty. 

To receive funds, a state must demonstrate to the satisfaction of the
Secretary of Education that it has in effect policies and procedures
to ensure that it meets certain specified conditions.\14 The
conditions that states must meet include, among others, the
availability of a free appropriate public education to all children
with disabilities living in the state.  In reauthorizing IDEA, the
Congress added additional provisions specifically for charter
schools.  In particular, LEAs must now demonstrate to their SEAs that
they serve children with disabilities attending charter schools in
the same way they serve children with disabilities in their other
schools and that they provide IDEA part B funds to charter schools in
the same way they do to their other schools. 

Under the current formula, states must distribute at least 75 percent
of the IDEA funds they receive from the Department to LEAs and may
reserve the rest for state-level activities.\15 In general, SEAs
allocate IDEA funds to eligible LEAs on the basis of their relative
share of their state's total number of eligible children receiving
special education and related services.  When the Congress
appropriates more than $4,924,672,200 for IDEA part B, allocations to
LEAs are modified as allocations to states are modified according to
the 1997 IDEA amendments. 

States may allocate IDEA funds to LEAs or other agencies included in
the act's definition of LEAs.  These other agencies include, for
example, regional educational service agencies authorized by state
law to develop, manage, and provide services or programs to LEAs. 
Some states allocate IDEA funds to regional educational service
agencies for providing special education and related services to
children with disabilities enrolled in the schools of one or more
LEAs, including charter schools.  Other states allocate IDEA funds
directly to school districts, which then develop, manage, and provide
their own such services to children with disabilities.  (See app.  II
for more details on the IDEA program.)


--------------------
\12 This number may not exceed 12 percent of all school-aged children
in the state during the same time period. 

\13 This cap has not affected the allocation of funds because the
amount appropriated has not exceeded the cap. 

\14 Such demonstration replaces the state IDEA plans required before
the 1997 IDEA amendments. 

\15 The 1997 IDEA amendments capped the amount SEAs may retain for
state-level activities.  In the future, SEAs may retain an amount
that is 25 percent of the amount of IDEA part B funds that the SEA
received in fiscal year 1997, cumulatively adjusted by the lesser of
(1) the percentage increase, if any, in the state's allocation of
IDEA part B funds from the preceding fiscal year or (2) the inflation
rate. 


   FEDERAL FUNDS FLOW TO CHARTER
   SCHOOLS DIRECTLY FROM STATE
   SEAS OR INDIRECTLY THROUGH
   LOCAL CHANNELS
------------------------------------------------------------ Letter :3

States use several arrangements to provide funds to charter schools. 
In general, states allocate title I and IDEA funds or IDEA-funded
special education services to charter schools using one of three
approaches.  The seven states in our review used all three. 

The first approach involves states allocating title I and IDEA funds
directly to charter schools; Massachusetts and Minnesota use this
approach.  The second approach involves states allocating title I and
IDEA funds to charter schools through existing parent LEAs;
California and Colorado use this approach.  Charter schools, along
with other public schools in the district, then receive their share
of funds or services from their parent LEAs.  The third approach for
allocating funds to charter schools involves a mixture of the first
and second approaches.  In general, a charter school in a state using
this approach receives federal funds directly from the SEA--and thus
is treated as an LEA--if the school was chartered by a state agency
or through a parent LEA--if the school was chartered by a district or
substate agency.  States using this model include Arizona, Michigan,
and Texas.\16 (App.  III provides more details on the seven states'
federal funding allocation procedures.)

Under these three approaches, individual charter schools are
generally allocated funds on the basis of their treatment as either
(1) an independent LEA or school district (called the independent
model) or as (2) a dependent of an LEA--that is, as a public school
part of an existing school district (called the dependent model). 
Throughout our report, we refer to these two models of allocating
funds to charter schools as the independent or the dependent model,
respectively. 


--------------------
\16 In Michigan, the only state-level agencies that grant charters to
schools are state universities.  Other chartering authorities include
local school boards, regional intermediate school districts, and
community colleges.  In allocating federal funds, the state considers
all charter schools to be LEAs.  However, charter schools receive
funds or services through their chartering authority or other
intermediary.  We, therefore, consider Michigan as using the third
approach. 


   CHARTER SCHOOLS' LEA STATUS
   DICTATES MINIMUM CRITERIA USED
   TO DETERMINE FUNDING
   ELIGIBILITY
------------------------------------------------------------ Letter :4

Under title I and IDEA, the Department of Education allocates funds
to SEAs, which then allocate funds to LEAs.  LEAs, in turn, allocate
funds to individual schools in their districts. 

To be eligible for title I funds, LEAs--including charter schools
operating under the independent model--must meet the minimum
statutory eligibility criteria of enrolling at least 10 children from
low-income families with these children constituting more than 2
percent of their school-aged population. 

LEAs that have more than one school--including charter schools
operating under the dependent model--allocate title I funds to their
schools.  The federal statute and regulations specify complex
criteria and conditions that LEAs use in deciding how to allocate
funds to their schools, which results in shifting title I funds
received by LEAs to individual schools with relatively higher
percentages of students from low-income families.  An individual
school that is part of an LEA in a high-poverty area therefore might
have to have enrolled a higher percentage of low-income children to
receive title I funds than it would need if the school were treated
as an independent LEA.  In this case, a charter school that would
have received title I funds as an independent LEA may not receive
title I funds under the dependent model because other schools in the
LEA might serve higher percentages of low-income children. 

The benefits that individual schools may receive from IDEA funds vary
by state.  Two states in our survey--California and
Michigan--allocate IDEA funds to regional educational service
agencies.  In California, children with disabilities enrolled in
charter schools receive special education services through its
regional agencies known as "special education local plan areas."
Michigan's regional educational agencies may help charter schools by
providing special education services to children with disabilities
enrolled in the charter school or provide funds to reimburse charter
schools for eligible expenses. 

Other states in our survey operated somewhat differently.  For
example, Colorado allocates IDEA funds to LEAs.  Charter schools in
that state negotiate individually with their parent LEAs the terms
under which the school will receive IDEA funds or special education
and related services for children with disabilities enrolled in the
school.  Arizona, Massachusetts, Minnesota, and Texas, on the other
hand, allocate IDEA funds directly to charter schools in those cases
where the states consider charter schools independent LEAs.  In
Arizona and Texas, charter schools considered dependent members of a
parent LEA receive IDEA funds or special education services through
the parent LEA. 


   EARLY DATA SUGGEST THAT CHARTER
   SCHOOLS HAVE NOT BEEN
   SYSTEMATICALLY DENIED ACCESS TO
   FEDERAL FUNDS
------------------------------------------------------------ Letter :5

Although no centralized repository of data exists for determining the
extent to which charter schools have received federal funds
nationwide, our research suggests that charter schools in the seven
states we surveyed have not been systematically denied access to
title I and IDEA funds.  Despite the concerns about funding issues
raised during the 1997 congressional hearings as well as in response
to studies conducted by the Hudson Institute, our survey revealed
that most charter school operators who applied for title I and IDEA
funds received them.  Moreover, most charter school operators who
expressed an opinion told us that they believed that these federal
funds are fairly allocated to charter schools. 


      CHARTER SCHOOLS REPORT MIXED
      RESULTS IN RECEIVING FEDERAL
      FUNDS
---------------------------------------------------------- Letter :5.1

Overall, about two-fifths of the charter schools we surveyed received
title I funds for the 1996-97 school year.  Of our survey
respondents, slightly more than one-third of charter schools
operating under the independent model and almost one-half of the
schools operating under the dependent model received title I funds. 
Table 1 shows the number of charter schools surveyed that received
title I funds by funding model. 



                          Table 1
          
          Number of Surveyed Charter Schools That
            Received or Did Not Receive Title I
            Funds for the 1996-97 School Year by
                       Funding Model

                        Independen
                                 t   Dependent       Total
----------------------  ----------  ----------  ----------
Received title I funds           9           7          16
Did not receive title           16           9          25
 I funds\a
----------------------------------------------------------
\a Operators of 16 of these schools told us they did not apply for
title I funds.  We could not determine whether they would have
received title I funds had they applied. 

About two-fifths of the charter schools we surveyed did not apply for
title I funds.  Charter school officials who did not apply cited
reasons such as (1) a lack of time to do so, (2) their school was
ineligible for funds and therefore did not apply, or (3) they found
that applying for these funds would cost more than the funding would
provide.  Of those schools that applied for title I funds,
two-thirds, or 16 of 25, reported receiving funds.  Title I funding
for these schools ranged from $96 to $941 per poverty student; the
average school value was $466 per poverty student, and the median
value was $413.  The difference in per student funding relates to the
allocation formulas, which account for the number and proportion of
low-income children in the school, district, and county.  Title I
funds received by these schools represented between 0.5 and 10.0
percent of their total operating budgets.\17 For all but four of
these schools, funds received represented 5 percent or less of the
schools' total operating budgets. 

Regarding the IDEA program, slightly more than one-half of our survey
respondents received funds or IDEA-funded special education services. 
Of all charter schools surveyed, two-fifths operating under the
independent model received funds or IDEA-funded special education
services; three-
quarters of those operating under the dependent model received funds
or services.  Table 2 shows the number of charter schools surveyed
receiving IDEA funds or IDEA-funded special education services by
funding model. 



                          Table 2
          
          Number of Surveyed Charter Schools That
           Received or Did Not Receive IDEA Funds
              or IDEA-Funded Special Education
          Services for the 1996-97 School Year by
                       Funding Model

                        Independen
                                 t   Dependent       Total
----------------------  ----------  ----------  ----------
Received IDEA funds or          10          12          22
 funded services
Did not receive IDEA            15           4          19
 funds or funded
 services\a
----------------------------------------------------------
\a Operators of 14 of these schools told us they did not apply for
IDEA funds or IDEA-funded special education services.  We could not
determine whether they would have received funds or services had they
applied. 

Overall, about a third of the charter schools we surveyed did not
apply for IDEA funds or IDEA-funded special education services. 
Charter school officials who did not apply cited reasons similar to
those who did not apply for title I funds such as (1) a lack of time
to do so, (2) they were not eligible for funds, (3) they did not know
about the availability of IDEA funds, or (4) they found that applying
for these funds would cost more than the funding would provide. 
Four-fifths of the charter school officials who told us that they
applied for IDEA funds or IDEA-funded special education services
reported that they received funds or services for the 1996-97 school
year.  For schools that obtained IDEA funds, rather than services,
amounts received ranged from $30 to $1,208 per eligible student; the
average school value was $421 per eligible student, and the median
value was $206.  IDEA funds received by schools represented between
0.08 and 2.50 percent of their total operating budgets.\18


--------------------
\17 This is for the 14 schools reporting a 1996-97 operating budget
and receiving title I funds. 

\18 This is for the six schools reporting a 1996-97 operating budget
and receiving IDEA funds. 


      MOST CHARTER SCHOOL
      OPERATORS BELIEVE THAT THEIR
      SHARE OF TITLE I AND IDEA
      FUNDS IS FAIR
---------------------------------------------------------- Letter :5.2

Regardless of funding model, two-thirds of the charter school
operators expressing an opinion believed that they received a fair
share of title I and IDEA funding.  About one-fifth of the charter
school operators we surveyed had no opinion or did not answer the
question.  (See tables 3 and 4.)



                          Table 3
          
          Charter School Operators' Opinions About
           Whether They Received a Fair Share of
              Title I Funding by Funding Model

                        Independen
                                 t   Dependent       Total
----------------------  ----------  ----------  ----------
Received fair share             13          10          23
Did not receive fair             6           4          10
 share
Have no opinion\a                6           2           8
----------------------------------------------------------
\a "Have no opinion" includes nonrespondents and respondents who said
they had no basis on which to form an opinion. 



                          Table 4
          
          Charter School Operators' Opinions About
           Whether They Received a Fair Share of
            IDEA Funding or IDEA-Funded Special
            Education Services by Funding Model

                        Independen
                                 t   Dependent       Total
----------------------  ----------  ----------  ----------
Received fair share              9          12          21
Did not receive fair             8           3          11
 share
Have no opinion\a                8           1           9
----------------------------------------------------------
\a "Have no opinion" includes nonrespondents and respondents who said
they had no basis on which to form an opinion. 

Regarding IDEA funding or IDEA-funded special education services,
however, about as many survey respondents under the independent
funding model believed that they received a fair share as believed
otherwise.  For charter schools under the dependent model, on the
other hand, about four times as many survey respondents believed that
their schools received a fair share of IDEA funds or IDEA-funded
special education services than believed otherwise.  (See table 4.)


   SOME BARRIERS HINDER CHARTER
   SCHOOLS IN ACCESSING TITLE I
   AND IDEA FUNDS
------------------------------------------------------------ Letter :6

According to our interviews with charter school operators we
surveyed, charter schools do not appear disadvantaged in accessing
federal funds.  Nonetheless, these operators, as well as state
officials, technical assistance providers, and studies conducted by
the Hudson Institute and others have identified barriers that have
hindered charter schools in accessing title I and IDEA funds. 
Reported barriers include (1) difficulties in establishing program
eligibility, (2) workload demands that prohibited schools from
pursuing program funds or made doing so too costly, (3) charter
school operators' and district and state administrators' lack of
program and administrative experience, and (4) ineffective working
relationships with state or local program administrators. 


      DIFFICULTY DEMONSTRATING
      PROGRAM ELIGIBILITY
---------------------------------------------------------- Letter :6.1

Charter school officials we spoke with reported barriers to
establishing their eligibility for federal funds, especially
regarding the title I program.  A variety of factors caused these
barriers, including (1) a lack of prior year's enrollment data, (2)
problems collecting student eligibility data, and (3) the timing
involved for a school's charter being issued and deadlines for
submitting student eligibility and enrollment data.  These barriers
particularly troubled newly created charter schools.  Charter schools
converted from traditional public schools generally did not have
these problems when current enrollment was at or near full capacity
and title I eligibility had already been established. 

In its July 1997 report, the Hudson Institute noted that states
typically allotted title I funds to schools on the basis of the
previous year's enrollment of title I-eligible students, which
resulted in "leaving start-up charters completely stranded for their
first year." In our survey of charter school officials, three
officials told us that because they had no prior year's enrollment or
student eligibility data, state guidelines made their schools
ineligible for federal funds.  Two of the three respondents that had
this problem were officials of newly created schools; the third
respondent represented a charter school that had been converted from
a private institution.  Department of Education officials told us
that they believe most of the problems "start-up" charter schools had
in accessing federal program funds were due to not having such
enrollment data to submit to state officials. 

Other such start-up eligibility problems also presented some barriers
to schools.  For example, some officials noted that their schools are
incrementally increasing the number of grades served as the original
student body progresses.  One school official told us that, while the
school now serves grades 9 and 10, it will eventually serve grades 9
through 12.  In addition, officials we surveyed at other schools were
implementing a similar growth strategy.  In these cases, a 1-year lag
in reported enrollment data--reflecting past rather than current
enrollment--may significantly affect the amount of federal funding
for which a school may be eligible.  For example, one charter school
official we spoke with told us that next year she will receive title
I funds on the basis of this year's enrollment of about 100 students. 
She anticipates, however, that enrollment will increase almost 50
percent next year and that the school will be eligible for additional
title I funding for about 40 newly enrolled students.  But because of
the time lag in reporting data, the school will have to wait until
the following year for the additional funds.  Over time, as
enrollment stabilizes, these problems will lessen for schools. 

In addition, charter school officials reported difficulty in
collecting student eligibility data required to receive title I
funds.  In some states, school officials must collect data on
students' family incomes to establish eligibility for federal funds. 
Some officials told us that because of privacy concerns, some
families hesitate to return surveys sent home with students that ask
for household income levels.  One official told us that he believed
parents may not understand that such data are used to establish the
school's eligibility for federal grant funds. 

In another case, a charter school official told us that verifying
student eligibility data was a barrier in accessing funds because the
process was time consuming.  In this case, charter school officials
had to manually match their student enrollment records with state and
local Temporary Assistance to Needy Families (TANF)\19 records to
verify student eligibility.  The business administrator for the
school told us that it took him and another staff person
approximately 2 full days to manually match the records for the
approximately 1,000 students enrolled in his charter school. 

Another charter school official told us that timing issues prevented
her from accessing federal funds:  She said that her school's charter
was approved after the deadline had passed for the state allocation
of title I funds to LEAs. 


--------------------
\19 This program was formerly known as the Aid to Families With
Dependent Children (AFDC) program.  The Personal Responsibility and
Work Opportunity Reconciliation Act of 1996 replaced AFDC with TANF
block grants to the states. 


      CHARTER SCHOOL OPERATOR
      WORKLOAD DEMANDS
---------------------------------------------------------- Letter :6.2

Even though researchers at the Hudson Institute and the Department of
Education found that financing issues were a significant concern for
charter schools, several charter school officials told us that the
time and cost involved in accessing federal funds and complying with
program requirements exceeded the benefits that could be obtained;
therefore, they did not pursue these funds.  Regarding federal funds,
the Hudson Institute noted, "[charter] schools themselves are seldom
equipped--in human terms--to maximize their aid."

In our survey of charter schools, several school officials emphasized
that they had little time and resources to devote to accessing title
I and IDEA funds given their other administrative and educational
responsibilities.  These officials often played multiple roles at
their schools, including principal, office manager, nurse, and
janitor.  One operator told us that even if all he had to do was to
sign on a dotted line and stuff an envelope, he would not have time
to do so.  Another said that if she receives anything in the mail
with the words "title I" on it, she throws it away because she has so
little time to attend to such matters. 

Although a majority of the charter school operators who expressed an
opinion in our survey believed that the title I and IDEA application
processes were only somewhat or not at all difficult, some operators
told us that, nonetheless, it was not worth their while to pursue
these funds.  Two operators, for example, told us that the amount of
title I funds their schools would be eligible for was simply not
worth the effort to obtain them.  In addition, charter school
officials in four states told us that IDEA program requirements were
cumbersome and involved too much paperwork. 


      LACK OF PROGRAM AND
      ADMINISTRATIVE EXPERIENCE
---------------------------------------------------------- Letter :6.3

We spoke with technical assistance providers and consultants who had
worked with charter schools who said that charter school operators
are often dedicated educators but lack business and administrative
experience in general or experience with federal categorical programs
in particular.  They told us that such inexperience may possibly
discourage individuals from pursuing federal funding available to
their schools.  In addition, according to the Hudson Institute,
charter school operators were often unaccustomed to the business and
administrative aspects of running a charter school and with filling
out forms for state and federal categorical programs.  Moreover,
because charter schools represent new and additional responsibilities
for districts and state agencies that oversee and administer federal
programs, according to state and district officials, it has taken
some time to develop new policies and procedures to accommodate
charter schools; therefore, these policies and procedures may not
have been available when charter schools were authorized. 

In our interviews with charter school operators, some cited their
lack of experience with the title I and IDEA programs as a barrier to
accessing these funds.  One operator told us that she did not know
that IDEA funds may be available to her school to help pay for the
costs of educating the school's students with disabilities. 
According to another operator, although the state had mailed her
information and application materials for the title I program, the
amount of information was overwhelming and appeared designed for
large, traditional school districts and thus discouraged her from
reviewing the materials and applying for funds.  She told us that,
eventually, her school accessed these funds because a friend who
operated his own charter school convinced her that she was forgoing a
significant amount of funding.  According to other operators we spoke
with, they found title I and IDEA application procedures difficult
but that having completed the process once, they expected to
encounter fewer difficulties when they applied for such funding
again. 

One of our site visits revealed that a lack of established allocation
policies and procedures created barriers for charter schools.  For
example, the business administrator at a charter school we visited
told us that accessing funds required many visits and phone calls to
district officials to understand the allocation processes and
procedures as well as to negotiate a fair share of federal funding
for his school.  According to district officials we spoke with,
because their school district had approved and issued several
charters to individual schools with varying degrees of fiscal
autonomy, working out allocation issues has taken some time.  These
officials noted that they have limited time and resources for
developing new policies and procedures for charter schools,
especially because the number of charter schools and their student
populations constitute a small portion of their overall operations. 

In addition, some state officials said that charter schools presented
them with new administrative responsibilities and that they had to
reexamine title I laws and regulations to determine the extent of
their administrative flexibility under the program.  According to one
state official, for example, she was uncertain whether a state could
reserve title I funds from her state's allotment specifically to
provide funding for charter schools during their first year of
operation.  An education official in Arizona told us that because
most charter schools in that state are considered independent
districts, the state's education department's workload has
significantly increased.  He noted that for over 50 years, the
department was used to working with about 200 traditional school
districts.  Now that Arizona has authorized about 200 charter
schools, the department is essentially working with over 400 school
districts.  Therefore, the department has had to change its focus,
which this official called ï¿½conceptually challenging.ï¿½ The department
is now spending proportionally more time with charter schools than
with traditional school districts, according to this official.  In
adapting to these changes, the state education department has
consequently changed and revised policies as it has gained experience
in administering charter schools.  As a result, he said, state
application and allocation procedures for charter schools differ from
procedures used only 1 year ago. 


      INEFFECTIVE WORKING
      RELATIONSHIPS
---------------------------------------------------------- Letter :6.4

Schools operating under the dependent funding model may face more
barriers than schools operating under the independent funding model
because the former schools must go through an intermediary--or school
district--in accessing federal funds, rather than receive funds
directly from the state.  According to one charter school operator,
her school's parent LEA unfairly used its discretion in allocating
funds to schools in its district.  She said that all of the
district's federal title I funding went to one school.  Even though
state officials told her that it was within the LEA's discretion to
allocate funds the way it did, she believes that her charter school
and other district public schools eligible for funds should have
shared in at least some of the funding.  According to another charter
school operator, uncooperative district officials hindered her
school's accessing federal funds because the officials did not
provide assistance in obtaining funding for her school. 

In the Department of Education's 1997 report on charter schools, the
Department found that charter schools' relationships with local
district staff, local boards, and state boards or departments varied
widely.  The Department noted that in conducting field visits to
charter schools, it found examples of local district boards or
superintendents playing an active role in initiating and supporting
the development of charter schools.  In other cases, however, it
found that local district staff or boards resisted charter schools
and the school developers often had to face intense or hostile
discussions and negotiations.  In some of these cases, according to
the study, the relationship between the school and the district has
remained sour; in others, such differences have dissipated over time. 


   CHARTER SCHOOL OFFICIALS REPORT
   A VARIETY OF FACTORS HELP THEM
   ACCESS FEDERAL FUNDS
------------------------------------------------------------ Letter :7

Charter school operators reported that outreach and technical
assistance were key factors that helped them access federal funds. 
In addition, according to other operators, state and local program
officials' flexibility helped them access funds.  Other factors cited
by school officials include the use of consolidated program
applications, use of computerized application forms and processes,
and the ability to rely on sponsoring district offices for grants
administration. 

Charter school officials most often cited receiving information about
the availability of federal funds and the amount their schools would
be eligible for as factors helping them in accessing title I and IDEA
funds.  Officials cited several sources from which they had obtained
such information, including their own states' departments of
education and local school district officials.  Receiving information
about federal programs addresses the lack of awareness cited by some
operators as a barrier.  Moreover, receiving information on the
possible funding amount for which a charter school may qualify
enables operators to make better judgments about whether pursuing
such funding is worth their time and effort and enables them to
better prioritize their administrative responsibilities. 

Charter school officials also credited training and technical
assistance provided by states, school districts, and consultants with
helping them access federal funds.  Charter school operators in
Arizona were particularly pleased with the amount and availability of
assistance that the state's department of education offered them. 
They noted that the state informed them of funding opportunities and
offered them technical assistance on many occasions.  According to
another survey respondent, being able to rely on his charter school's
parent LEA for federal grants administration relieved him of having
to apply for and administer the grant funds, which helped his school
access these funds.  Finally, some respondents told us that their
schools employed consultants to help in applying for federal and
state funds, which enabled them to focus their time and effort
elsewhere. 

A respondent in another state cited the use of consolidated
applications as a help in accessing funds.  As discussed earlier,
SEAs may submit consolidated applications for several federal
education programs.  In turn, SEAs may also allow LEAs to submit one
application for these same programs.  One respondent told us that her
state's use of technology helped her access federal funds:  Her state
used the Internet to allow schools to obtain and submit title I
applications. 


   FACTORS THAT HELP OR HINDER
   SCHOOLS IN ACCESSING FEDERAL
   FUNDS DO NOT VARY SIGNIFICANTLY
   BY FUNDING PATH
------------------------------------------------------------ Letter :8

Many of the factors that helped or hindered charter schools in
accessing federal funds, according to our work, had no relation to
whether schools received their funds directly from the state or
indirectly through a parent school district.  For example, both
independent and dependent charter schools can have difficulty
demonstrating title I eligibility.  Dependent charter schools
required to submit student eligibility data to their parent LEAs may
find it just as difficult to collect such data as independent charter
schools, which must submit the same data to SEAs.  Similarly, both
independent and dependent charter school operators we interviewed
frequently cited a lack of time and inexperience with administrative
program requirements as barriers to accessing funds.  One factor,
however, that hindered dependent but not independent charter schools
in accessing funds was the working relationship between a charter
school and its sponsoring district.  Because LEAs have some
discretion in allocating title I funds to schools in their districts,
an ineffective working relationship can hinder the allocation of
funds to dependent charter schools. 

In addition, factors that helped charter schools access funds had no
relation to the path that funding took.  Both independent and
dependent charter school officials cited that notification of program
eligibility helped them in accessing funds.  Although both
independent and dependent charter schools also cited that training
and technical assistance provided by states, local districts, or
consultants were helpful, independent charter school operators more
frequently said so.  On the other hand, several charter school
operators in California and Colorado--states that consider most
charter schools dependent members of existing school districts--
reported that receiving IDEA-funded special education services,
rather than funds, from their local school districts helped them
access federal funds. 


   STATE AND FEDERAL EFFORTS TO
   HELP CHARTER SCHOOLS ACCESS
   FEDERAL FUNDS
------------------------------------------------------------ Letter :9

Several states and the Department of Education have begun initiatives
to help charter schools access federal funds.  Some states, for
example, are revising or developing alternative allocation policies
and procedures to better accommodate charter schools' access to
federal funds and providing training and technical assistance to
charter school operators.  The Department of Education recently
issued guidance to states and school districts about allocations of
title I funds to charter schools.  The Department is also using funds
provided to them under the ESEA Public Charter School Grant Program
to study and support the establishment of charter schools. 


      STATE EFFORTS TO HELP
      CHARTER SCHOOLS ACCESS
      FEDERAL FUNDS
---------------------------------------------------------- Letter :9.1

Some states in our review had developed or were devising strategies
to support charter schools as part of their overall education reform
efforts.  Chief among these strategies were efforts designed to
reduce barriers to charter schools' demonstrating their eligibility
for federal programs and addressing their inexperience with federal
programs by offering training and technical assistance. 

Some states had used their administrative flexibility under the title
I program to develop creative solutions to overcome some charter
schools' barriers to accessing federal funds.  Some states, for
example, have decided to allow charter schools to use comparable--and
more easily obtainable--data to establish the income levels of
students' families.  One state has developed a way to estimate a
proxy for the number of title I-eligible students attending charter
schools.  This has allowed newly created charter schools in the state
to demonstrate eligibility for title I funds without having a prior
year's enrollment history.  Once these charter schools have
established eligibility for title I funds, states have provided funds
to these schools in their first year of operation.  To do so, states
have used their own title I administrative reserve funds and funds
available to the SEA for reallocation to LEAs.\20

In some cases, states have continually refined their allocation
policies and procedures as the states and charter schools have gained
more experience.  For example, Arizona officials reported they have
significantly changed their state's title I allocation procedures for
the third time in as many years to better accommodate charter schools
in distributing federal funds.  According to state officials, their
policies and procedures have been evolving as the number of charter
schools in the state has increased and as the state and charter
schools have gained administrative experience. 

In developing their most recent allocation policies and procedures,
Arizona officials reported they used the state's "title I committee
of practitioners." This committee, required by federal statute,
advises the state and reviews proposed or final state title I rules
or regulations.  By law, these committees consist of school district
officials, administrators, teachers, parents, board of education
members, pupil services personnel, and representatives of private
school children.  According to Arizona education officials, they
added charter school representatives (a charter school teacher as
well as a parent of a charter school student) to their state
committee.  The committee spent 6 to 8 months developing and
considering alternative methods for allocating title I funds to
charter schools before deciding on the current procedures.  State
officials said that as a result, they believe the state has developed
a better approach to allocating title I funds to charter schools. 

These officials reported that adding charter school representation to
the title I committee of practitioners was not only important for
ensuring charter schools' fair consideration in developing allocation
procedures, but also underscored the state's commitment to charter
schools as a part of its overall education reform efforts.  Of the
seven states in our review, only Arizona had added charter school
representation to its state title I committee of practitioners. 
Officials in other states in our review acknowledged that adding
charter school representation to title I committees of practitioners
was a practical approach for ensuring that charter schools' needs
were considered when developing or changing state regulations and
procedures.  Under the IDEA program, state advisory boards serve
similar purposes as do title I committees of practitioners.  In
reauthorizing the program, the Congress required that states include
charter school representatives on these boards.  The title I program
has no similar requirement. 

Besides developing alternative allocation policies and procedures,
some states have actively sought to inform charter school operators
about their possible eligibility for federal funding and have
provided them with training and technical assistance in applying for
and administering federal funds.  For example, Minnesota and
California officials reported they send the same information to
charter school officials as to officials of traditional school
districts.  In addition, Colorado officials have developed guidance
for charter school officials and have posted it on the Internet. 
Arizona officials have developed cross-programmatic teams of state
department officials and assigned specific charter schools to each of
the teams.  In doing so, the state has provided charter schools with
a single point of contact for obtaining information about and
technical assistance for all federal and state programs. 

Although our study was not designed to compare states, Arizona
appeared to be making the most comprehensive effort to help charter
schools access federal funds.  (Arizona also has, by far, more
charter schools than any other state).  Arizona state officials
attributed the overwhelmingly positive responses we received from
charter school officials there to the state's extensive planning
efforts and the technical assistance they provide.  Arizona officials
noted that planning was a difficult and time-
consuming process yet crucial in carrying out its education reform
initiatives.  In applying to the Department of Education for title I
funding, Arizona's title I plan recognized that charter schools would
require such training and technical assistance if all school children
in the state were expected to attain the state's academic standards
and goals. 

In addition, other state officials recognized that charter schools
require training and technical assistance to, among other things,
access federal funding.  A Massachusetts official told us that
because charter schools there are brand-new school districts, most
operators would need help in applying for funding and complying with
program requirements.  Although the state did not address its
strategy for helping charter schools in its title I application to
Education, this official reported that doing so would be appropriate
because charter schools typically have little experience with federal
programs. 

According to a Colorado charter school official, state title I
applications and plans could also help charter schools access federal
funds, even though charter schools in Colorado are authorized by and
receive funding through traditional school districts.  He noted that
a state could demonstrate its commitment to charter schools as part
of its overall education reform initiatives within its plan.  By
doing so, he said, the state would build the expectation that
districts authorizing charter schools would serve eligible students
enrolled in charter schools with available federal resources.  He
believed that such an effort would effectively address barriers faced
by charter schools caused by ineffective working relationships with
district officials. 

The Department of Education does not now require states to
specifically address the plans they have developed to ensure that
eligible students enrolled in charter schools are served by federal
program resources.  In providing guidance to states in preparing
their title I applications and plans, however, the Department told
states that their plans could provide a framework for demonstrating
the use of federal program resources within the context of states'
school reform initiatives.  In addition, the Department noted that
state plans should provide information on serving children intended
to benefit from federal programs. 


--------------------
\20 Reallocation funds include title I funds from an LEA that is
eligible for an allocation but chooses not to participate in the
program or has carryover funds from a prior fiscal year that exceed
limitations.  Reallocation funds also include funds that an SEA has
recovered from an LEA that failed to spend funds in accordance with
the law. 


      DEPARTMENT OF EDUCATION
      EFFORTS TO HELP CHARTER
      SCHOOLS ACCESS FEDERAL FUNDS
---------------------------------------------------------- Letter :9.2

During our study, the Department of Education developed guidance to
states and LEAs on allocating title I funds to charter schools.  This
guidance was completed and published in March 1998.  The guidance
clarifies that SEAs and LEAs must take all reasonable steps to ensure
that charter schools receive their full title I allocations.  The
guidance strongly encourages SEAs and LEAs to be appropriately
flexible in accommodating charter schools by, among other things, (1)
allowing more convenient times for collecting eligibility data, (2)
allowing substitution of comparable poverty measures when
appropriate, and (3) using available reallocation funds to serve new
charter schools unable to demonstrate eligibility in time for initial
funding allocations. 

In creating the Public Charter School Grant program under ESEA, the
Congress provided funding to the Department of Education for
financial assistance for designing and initially implementing public
charter schools nationwide and for evaluating the effects of such
schools, including their effects on students, student achievement,
staff, and parents.  Under the national activities provision of the
statute, the Department may reserve up to 10 percent of the funds
appropriated in any fiscal year for (1) peer review of applications
for funding; (2) an evaluation of charter schools' impact on student
achievement; and (3) other activities designed to enhance the federal
program activities' success.  According to Education officials, the
Department has organized its national activities into three broad
areas:  (1) engaging the public, (2) research and development, and
(3) outreach. 

The Department is engaging the public by sponsoring national, state,
and regional meetings to improve the public's charter school
awareness.  In November 1997, for example, the Department of
Education sponsored a national conference for charter schools in
Washington, D.C.  The Department invited state officials and charter
school operators from across the country and conducted many workshops
on topics including federal categorical education grant programs, new
requirements under the recently reauthorized IDEA, and information on
the development and implementation of charter schools.  The
Department also funded the development of an Internet web site\21
with general information on federal programs, charter school
operational issues, a charter school resource directory and profiles
of states that have authorized charter schools as well as profiles of
individual charter schools. 

As already noted, the Department published in May 1997 the first-year
results of its 4-year study of charter schools.  As currently
planned, the 4-year study will include an annual survey of all
charter schools, a longitudinal study of a stratified random sample
of 72 charter schools, and information collected from site visits and
testing at 28 matched comparison schools.  The Department is also
conducting a charter school teacher fellowship program and three
target research studies of charter schools involving the (1)
education of children with disabilities, (2) school finance, and (3)
assessment and accountability issues. 

The Department's community outreach efforts include developing models
for charter school operator leadership training programs, fostering
cooperative relationships between charter schools and other public
schools, and involving community organizations in operating charter
schools. 


--------------------
\21 The web site address is www.uscharterschools.org. 


   CONCLUSIONS
----------------------------------------------------------- Letter :10

Barriers that charter schools face in accessing federal funds appear
to have no relation to charter schools' treatment as school districts
or as members of school districts.  Rather, other barriers, many of
which have no relation to the path federal funds take, have more
significantly affected charter schools' ability to access title I and
IDEA funds.  These barriers include state systems that base funding
allocations on the prior year's enrollment and student eligibility
data, the costs of accessing funds compared with the amounts that
schools would receive, and the significant time constraints that
prevent charter school operators from pursuing funds.  Despite these
barriers, most charter school operators who expressed an opinion
believe that title I and IDEA funds are fairly allocated to charter
schools. 

Although a variety of factors help charter schools access federal
funds, according to our review, training and technical assistance
appear to be critical to ensuring that charter school operators can
access these funds.  To this end, effective state and district
planning would help ensure that federal program resources are
directed to eligible students enrolled in charter schools.  In
addition, involving charter school operators or representatives in
such planning efforts would provide additional assurance that charter
schools and their students are appropriately considered. 


   RECOMMENDATIONS
----------------------------------------------------------- Letter :11

We recommend that the Secretary of Education direct states to include
in their title I plans information on the strategies, activities, and
resources that the SEAs will use to ensure that title I program
resources serve eligible charter school students.  We further
recommend that the Secretary take steps necessary to direct states to
include charter school representation on states' title I committees
of practitioners that advise states on implementing their title I
program responsibilities. 


   AGENCY COMMENTS AND OUR
   EVALUATION
----------------------------------------------------------- Letter :12

The Department of Education provided written comments on a draft of
our report.  (See app.  IV.) The Department noted that our report
helps to allay concerns about charter schools being systematically
denied the opportunity to receive title I and IDEA funds.  The
Department also noted that in addition to its efforts discussed in
our report, it is developing a "Charter School Operators' Guide to
the Department of Education" to provide charter school operators with
information on its programs.  The Department also commented that it
has stressed the importance of involving charter schools in federal
programs in its meetings with state, local, and school-level
administrators and that it provides technical assistance to charter
school operators, school districts, and states.  In addition, the
Department noted other of its efforts to help charter schools access
federal funds. 

Regarding our recommendation that the Secretary direct states to
address charter schools in their title I plans, the Department noted
that it will include this requirement in its instructions to states
for title I or other program or consolidated state plans when
appropriate.  Regarding the recommendation in our draft report that
the Secretary direct states to include charter school representation
on states' title I committees of practitioners, the Department noted
that while it strongly encourages states to include charter school
representatives on these committees, it lacks the legal authority to
require states to do so.  We revised our recommendation to include
the Secretary's taking any additional steps that may be necessary to
implement the recommendation. 

The Department also provided editorial and technical comments, which
we incorporated as appropriate. 


--------------------------------------------------------- Letter :12.1

As arranged with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution
until 7 days after its issue date.  At that time, we will send copies
of this report to the appropriate House and Senate committees, the
Secretary of Education, and other interested parties.  We will also
make copies available to others on request. 

If you have any questions about this report, please call me at (202)
512-7014 or Jeff Appel, senior evaluator, at (202) 512-9915.  This
report was prepared under the direction of Harriet C.  Ganson,
Assistant Director.  Other major contributors to this report are
listed in appendix V. 

Cornelia M.  Blanchette
Associate Director, Education
 and Employment Issues

List of Requesters

The Honorable James Jeffords
Chairman, Committee on Labor and Human Resources
United States Senate

The Honorable Dan Coats
Chairman, Subcommittee on Children, Youth and Families
Committee on Labor and Human Resources
United States Senate

The Honorable Bill Goodling
Chairman, Committee on Education and the Workforce
House of Representatives

The Honorable Frank Riggs
Chairman, Subcommittee on Early Childhood, Youth and Families
Committee on Education and the Workforce
House of Representatives

The Honorable Joseph Lieberman
United States Senate

The Honorable Tim Roemer
House of Representatives


NUMBER OF CHARTER SCHOOLS
OPERATING DURING THE 1996-97
SCHOOL YEAR IN STATES WITH CHARTER
LAWS, INCLUDED IN OUR SAMPLE, AND
RESPONDING TO OUR SURVEY
=========================================================== Appendix I

                                                                                  Schools
                                                                                     that
                                           Cumulative                          refused to
                      Charter  Percentage  percentage  Schools in     Schools  participat
States                schools    of total  of total\a      sample    surveyed           e
-----------------  ----------  ----------  ----------  ----------  ----------  ----------
Arizona                   164          34          34        13\b          10           2
California                109          22          57        15\c          12           2
Michigan                   76          16          73           5           4           1
Colorado                   32           7          79           3           3           0
Massachusetts              22           5          84           7           5           2
Minnesota                  19           4          88           6           6           0
Texas                      16           3          91           1           1           0
All others\d               42           9         100          \e          \e          \e
=========================================================================================
Total                     480         100                      50          41           7
-----------------------------------------------------------------------------------------
\a Cumulative percentages of total may not add due to rounding of
percentages. 

\b Although included in our universe of charter schools, one school
had its charter revoked before the 1996-97 school year. 

\c Although included in our universe of charter schools, one school
did not operate under a charter during the 1996-97 school year. 

\d Charter schools were also operating in Alaska, Delaware, the
District of Columbia, Florida, Georgia, Hawaii, Illinois, Louisiana,
New Mexico, and Wisconsin during the 1996-97 school year. 

\e Not applicable. 

Sources:  Center for Education Reform, Washington, D.C., and GAO
analysis. 


TITLE I AND INDIVIDUALS WITH
DISABILITIES EDUCATION ACT
PROGRAMS' ADDITIONAL STATUTORY AND
ALLOCATION REQUIREMENTS
========================================================== Appendix II

This appendix augments the report's information on statutory,
application, and allocation requirements for both title I and the
Individuals With Disabilities Education Act (IDEA) programs. 


   TITLE I STATUTORY AND
   ALLOCATION REQUIREMENTS
-------------------------------------------------------- Appendix II:1

Title I part A,\22 the largest federal aid program for public
elementary and secondary schools, provides funds to local educational
agencies (LEA) through the states to enable schools to improve the
academic achievement of eligible children either by providing
additional or more intensive instruction or by upgrading the entire
instructional program of the school.\23 The federal government awards
grants to state educational agencies (SEA), which administer and
distribute these funds to LEAs.  The statute authorizes three types
of grants:  basic grants, concentration grants, and targeted grants. 
Most LEAs nationwide receive basic grants; fewer LEAs receive
concentration grants, which go to LEAs with high numbers or
percentages of children from low-income families. 

The Department of Education determines title I part A allocations for
each county in the country through a statutory formula based
primarily on (1) the number of children aged 5 through 17 from
low-income families using updated census poverty counts, (2) state
per pupil public expenditures, and (3) the amount appropriated in a
given fiscal year.  Under the statute, 10 percent of title I LEA
appropriations are distributed as concentration grants and the
remainder as basic grants.\24

In 1994, the Congress amended title I through the Improving America's
Schools Act\25 to provide for targeted assistance grants.  These
grants would allocate more funds to LEAs with either more poor
children or a greater percentage of such children.  If the Congress
appropriates funds for these grants in the future, eligible LEAs will
receive the funds.  Although the 1994 law stipulates that future
title I funds appropriated in excess of those for fiscal year 1995
are to be distributed as targeted assistance grants, appropriation
provisions in fiscal years 1996, 1997, and 1998 have overridden this
stipulation.  Thus, no targeted assistance grants have yet been
distributed. 

The Department of Education allocated title I funds for school year
1997-98 to counties using updated poverty estimates provided by the
Bureau of the Census.  Each county's allocation is determined by
multiplying the number of children counted in the formula by 40
percent of the respective state's per pupil education expenditure and
accordingly reducing down to the amount appropriated.  LEAs with high
numbers or percentages of low-income students receive additional
funds as concentration grants.  Generally, awards to states cover
July 1 to September 30 of the following year.  These funds remain
available at the state and local level for an additional fiscal year
for obligation and expenditure. 

An SEA may reserve up to 1 percent or $400,000 (whichever is greater)
from the state's title I part A and certain other title I allocations
for administration.  In addition, an SEA must reserve 0.5 percent or
at least $200,000 of these funds to carry out school improvement
activities, including providing technical assistance, incentives, and
other strategies to help title I schools and LEAs to meet state
education standards.  The rest of the funding goes to LEAs. 


--------------------
\22 Elementary and Secondary Education Act of 1965, title I, part A,
20 U.S.C.  6311.  Other parts of title I include grants for Even
Start (part B) programs of joint services to young disadvantaged
children and their disadvantaged parents for the education of migrant
(part C) and neglected or delinquent (part D) youth, capital
assistance for services to private school children, and funds for
program evaluation and innovative practices demonstrations.  Part A
accounted for roughly 92 percent of title I appropriations in fiscal
year 1998. 

\23 The program gives individual schools broad discretion for using
their funds to meet the educational needs of eligible students. 
Examples of allowable expenditures include employee salaries and
benefits; payments to rent or lease privately owned facilities;
maintenance and operating costs; costs of purchasing equipment,
including mobile vans, computers and textbooks; and costs associated
with training and developing personnel.  Expenditures must be
targeted to eligible school children unless a school (with at least
half of its students from low-income families) chooses to operate a
schoolwide program. 

\24 In the fiscal year 1998 appropriations act, the Congress overrode
the statute and provided 15 percent of grants to LEAs separately as
concentration grants. 

\25 Improving America's Schools Act, P.L.  103-382. 


      SEAS DISTRIBUTE GRANTS TO
      LEAS
------------------------------------------------------ Appendix II:1.1

Under the statute, the SEA suballocates county aggregate amounts
determined by the Department of Education for basic and concentration
grants (after adjusting for funds reserved for state administration
and school improvement activities) to eligible LEAs in each county on
the basis of their number of formula children.  In states where the
counties and LEAs are the same, the SEA adjusts the county allocation
by reserving funds for administration and school improvement.  In
states where many LEAs overlap county boundaries, an SEA may apply to
the Department for permission to allocate its total state basic grant
allocation directly to LEAs regardless of individual county
allocations.  (Concentration grants do not have this provision.)

Formula children include (1) children aged 5 through 17 from
low-income families and (2) children who live in local institutions
for neglected children.  In determining the number of children from
low-income families, the title I regulations require that an SEA use
the best available data on the number of such children and the same
measure of low-income statewide for basic and concentration grants. 
The SEA has broad discretion in choosing the poverty data it will use
for determining LEA eligibility and for allocating funds.  The
poverty data used must further the purposes of title I part A by
directing funds to high-poverty areas. 

An eligible LEA receives basic and concentration grant funds on the
basis of its relative share of its county's total formula population. 
The statute guarantees that an LEA eligible for basic grants receives
a "hold-harmless" or minimum amount based on a percentage of the
amount allocated to it in the preceding year.  Beginning in school
year 1997-98, the hold-harmless amount to which each LEA is entitled
varies according to what percentage its formula count is of its
school-aged population.  LEAs in which the number of formula children
make up 30 percent or more of their total 5- through 17-year-old
population receive 95 percent of their prior year allocations; LEAs
in which the number of formula children range between 15 and 30
percent of their school-aged population receive at least 90 percent
of their prior year allocations; those in which the number of formula
children is less than 15 percent receive 85 percent of their prior
year allocations.  Concentration grants in school year 1997-98 have
no hold-harmless provisions.\26


--------------------
\26 For school year 1998-99, the Congress established in the fiscal
year 1998 Department of Education Appropriation Act a 100-percent
hold-harmless guarantee for basic and concentration grants. 


      LEAS HAVE DISCRETION IN
      ALLOCATING TITLE I FUNDS TO
      SCHOOLS IN THEIR DISTRICTS
------------------------------------------------------ Appendix II:1.2

LEA officials have discretion in allocating title I funds to
individual schools in their districts.  Within LEAs, school officials
target funds to schools with the greatest percentages of poor
children.  Although SEAs allocate basic and concentration grants to
LEAs through different formulas, school districts combine these funds
for use as a single program.\27

An LEA must first rank individual schools by poverty,\28 using the
same poverty measure for all schools.  Allowable measures include

  -- children aged 5 to 17 in poverty counted in the most recent
     census data approved by the Secretary of Education,

  -- children eligible for free and reduced-price lunches under the
     National Free School Lunch Act,

  -- children in families receiving assistance under Temporary
     Assistance for Needy Families,

  -- children eligible to receive medical assistance under the
     Medicaid program, and

  -- a composite of any of the above measures. 

LEA officials must rank schools on the basis of percentage (not the
number) of low-income children counted.\29 All schools ranking above
75 percent must be served in order of poverty.  After serving these
schools, the LEA may serve lower ranked title I-eligible schools. 
The LEA may continue distributing funds using the districtwide
ranking for all schools or rank the remaining areas by grade span
groupings.  If an LEA has no areas ranking above 75 percent, it may
rank all schools by grade span.  To the extent that it has schools
overlapping grade spans, the LEA may include a school in the grade
span in which it is most appropriate. 

An LEA may designate as eligible any school in which at least 35
percent of the children are from low-income families.  It may use
part A funds in a school that does not serve an eligible school
attendance area if the percentage of children from low-income
families enrolled in the school is equal to or greater than the
percentage of such children in a participating school attendance area
of the LEA.  If remaining funds are not sufficient to fully fund the
next ranked eligible school, the LEA may distribute these funds to
the school if the LEA believes the amount will be sufficient to have
an impact. 

An LEA with an enrollment of less than 1,000 students or with only
one school per grade span does not have to allocate funds to areas or
schools in rank order.  If an LEA serves any areas or schools below a
35-percent poverty ranking, the LEA must allocate to all its
participating schools or areas an amount per low-income child that is
at least 125 percent of the LEA's allocation per low-income child. 


--------------------
\27 If appropriated, targeted grants will similarly be combined by
the LEA and its member schools. 

\28 We use the term "school" to include school attendance areas,
which may be designated by an LEA for ranking schools in allocating
title I funds. 

\29 This is the case unless funds are sufficient to serve all
schools. 


      TITLE I APPLICATION
      REQUIREMENTS
------------------------------------------------------ Appendix II:1.3

To receive title I funds, an SEA must submit a state plan to the
Department of Education for approval.  Once approved, this plan
remains in effect for as long as a state participates in title I part
A, but the plan must be updated to reflect substantive changes.  An
SEA may choose to submit the plan separately or as part of a
consolidated plan incorporating many of its federal education
programs. 

A consolidated plan provides required information on its management
of federal programs and how state and local reform efforts will serve
the children intended to benefit from these programs.  The
consolidated plan is to provide a specific framework for determining
how federal program resources, along with state and local resources,
will be used in the context of the state's own school reform plan and
other reform initiatives.  The consolidated state plan is intended to
help the state focus on coordinating and integrating different
programs as well as state and local activities to improve the
academic achievement of all children. 

In addition, each state is expected to establish and maintain a state
committee of title I practitioners required to be substantially
involved in developing the state plan.  The committee advises the
state on the education of its disadvantaged children and on proposed
state rules or regulations regarding title I.  The committee consists
of LEA representatives, title I administrators, teachers, parents,
members of local boards of education, representatives of private
school children, and public services personnel.  Although charter
school representatives may serve on the committee, no statute
requires that they be included. 

Although no specific federal statute requires individual schools to
file plans or apply for title I part A funds, LEAs must have on file
with their SEAs an approved plan that includes descriptions of the
general services to be provided; coordination activities with the
LEAs' regular programs of instruction; additional LEA assessments, if
any, used to gauge program outcomes; and strategies to be used for
providing professional development.  States vary widely regarding
requirements for plans.  If the SEA plan for title I part A is part
of a consolidated plan, the state may require LEAs to submit their
title I part A plan as part of a consolidated application to the
state. 


   IDEA STATUTORY AND ALLOCATION
   REQUIREMENTS
-------------------------------------------------------- Appendix II:2

IDEA part B authorizes formula grants to states to help them make a
free appropriate public education available to children with
disabilities.\30 Such children are those identified as having one or
more physical or mental disabilities ranging from hearing impairments
to learning disabilities who, because of these disabilities, need
special education\31 and related services.\32 Under the current
formula, Education allocates funds to SEAs annually on the basis of
their reported number of eligible children receiving special
education and related services for the preceding fiscal year,\33 the
national average per pupil expenditure, and the amount appropriated
by the Congress for the program.  Under this formula, states must
distribute at least 75 percent of the IDEA funds they receive from
the Department to LEAs and may reserve the rest for state-level
activities.\34

In general, SEAs allocate IDEA funds to eligible LEAs on the basis of
their relative share of their state's total number of eligible
children receiving special education and related services. 

IDEA requires that SEAs, LEAs, or other state agencies identify and
evaluate children with disabilities.  Once a child is determined
eligible for special education services, a written individualized
education program (IEP) must be developed to establish learning goals
for the child and to specify the instruction and services that an LEA
will provide.  An IEP team, including LEA representatives, regular
and special education teachers, the parents of the child for whom the
IEP is developed and, whenever appropriate, the child with a
disability, develop the IEP.  LEAs have responsibility for providing
the child with the special education and related services specified
by the IEP at no cost to the child's parents. 


--------------------
\30 IDEA, part B, 20 U.S.C.  1411. 

\31 The term "special education" means specially designed
instruction, at no cost to parents, to meet the unique needs of a
child with a disability, including instruction conducted in the
classroom, in the home, in hospitals and institutions, and in other
settings, and instruction in physical education. 

\32 Related services are defined as transportation, and such
developmental, corrective, and other supportive services (including
speech-language pathology and audiology services; psychological
services; physical and occupational therapy; recreation, including
therapeutic recreation; social work services; counseling services,
including rehabilitation counseling; orientation and mobility
services; and medical services, except that such medical services
shall be for diagnostic and evaluation purposes only) as may be
required to assist a child with a disability to benefit from special
education, and includes the early identification and assessment of
disabling conditions in children. 

\33 This number may not exceed 12 percent of all school-aged children
in the state during the same time period. 

\34 The 1997 IDEA amendments capped the amount SEAs may retain for
state-level activities.  In the future, SEAs may retain an amount
that is 25 percent of the amount of IDEA part B funds that the SEA
received in fiscal year 1997, cumulatively adjusted by the lesser of
(1) the percentage increase, if any, in the state's allocation of
IDEA part B funds from the preceding fiscal year or (2) the inflation
rate. 


      SEAS AND LEAS MUST ESTABLISH
      ELIGIBILITY TO RECEIVE
      FEDERAL IDEA FUNDS
------------------------------------------------------ Appendix II:2.1

To receive funds, a state must demonstrate to the satisfaction of the
Secretary of Education that it has in effect policies and procedures
to ensure that it meets certain specified conditions.  Such
demonstration replaces the state IDEA plans required before the 1997
IDEA amendments.  The conditions that states must meet include, among
others, that

  -- a free appropriate public education is available to all children
     with disabilities residing in the state;

  -- all children with disabilities residing in the state are
     identified, located, and evaluated and a practical method is
     developed and implemented to determine which children with
     disabilities are receiving needed special education and related
     services;

  -- an IEP is developed, reviewed annually, and revised
     appropriately for each child with a disability;

  -- to the maximum extent appropriate, children with disabilities
     are educated with children who are not disabled, and special
     classes, separate schooling, or other removal of children with
     disabilities from the regular educational environment occurs
     only when the severity of the disability is such that education
     in regular classes with the use of supplementary aids and
     services cannot be achieved satisfactorily; and

  -- children with disabilities and their parents are afforded the
     procedural safeguards required by the act. 

A state that has on file with the Secretary of Education polices and
procedures that demonstrate it meets any of the above conditions,
including information filed before the effective date of the 1997
IDEA amendments, is deemed to have met such condition. 

In addition, as was the case before the 1997 IDEA amendments, states
must establish state advisory panels on the education of children
with disabilities.  The 1997 IDEA amendments, however, specify that
representatives of public charter schools must be included on these
panels.  Advisory panels consist of parents of children with
disabilities, individuals with disabilities, teachers, state and
local education officials, administrators of programs for children
with disabilities, representatives of other state agencies,
representatives of private schools and public charter schools, at
least one representative concerned with the provision of transition
services to children with disabilities, representatives of state
juvenile and adult corrections agencies, and representatives of
institutions of higher education that prepare special education and
related services personnel.  These panels advise the state on
educating children with disabilities and comment on any proposed
state rules or regulations regarding the education of these children. 


TITLE I AND IDEA ALLOCATION
APPROACHES USED IN SELECTED STATES
========================================================= Appendix III

In general, states allocate title I and Individuals With Disabilities
Education Act (IDEA) funds to charter schools on the basis of
schools' local educational agency (LEA) status.  Charter schools
considered LEAs typically receive funding directly from state
educational agencies (SEA); charter schools considered to be part of
an LEA receive funding through the LEA that granted the school its
charter.  The seven states in our review generally used one or both
of these approaches.  As this appendix shows, some states have
variations to these funding schemes.  Charter schools' LEA status,
for funding purposes, is generally determined by the states' charter
school laws or the agencies in the state that grant charters to
schools.  We obtained information for this appendix from state
officials in each of the seven states in our review. 


   ARIZONA
------------------------------------------------------- Appendix III:1

Agencies authorized to grant charters to Arizona schools include the
state board of education, the state board for charter schools, and
local school boards.  Schools that receive their charters from one of
the state boards are considered independent LEAs regarding title I. 
Each LEA charter school determines its number of eligible students on
the basis of student eligibility for the free lunch program.  In the
first year that charter schools operated, Arizona allocated these
funds to charter school LEAs using projections of eligible student
enrollments.  The state adjusted the allocations when it received
actual information on eligible students.  Arizona abandoned the use
of projections to fund first year schools because of objections
resulting from reallocating funds using actual information.  The
state now reserves 1 percent of its federal title I allocation and
uses these funds as well as any funds available for reallocation to
serve new school districts (including charter school LEAs).  The
amount of title I funding granted per eligible student varies by the
student's county of residence.  Schools chartered by a local district
are considered member schools of that district and, until recently,
had to receive title I funds through this district.  On the basis of
a recent ruling by the state's Attorney General, Arizona has decided
to allow schools chartered by local school districts to apply for
title I funds directly to the state and will receive funds from the
state if eligible. 

The state uses a similar approach for allocating IDEA funds.  Schools
chartered by one of the state boards are considered LEAs; schools
chartered by a local school district are considered a member of that
district.  LEA charter schools determine the number of eligible
students on the basis of students with an individualized education
program (IEP).  Schools may either apply to the state directly or
apply jointly with other LEAs.  Eligible expenses are billed to the
state and reimbursed up to a school's allocation.  Schools chartered
by a local district are considered member schools of that district
and receive IDEA funds and services through the district. 


   CALIFORNIA
------------------------------------------------------- Appendix III:2

Agencies authorized to grant charters to California schools include
local school boards and county boards of education.  Almost all
charter schools in California are considered dependent members of a
parent school district.  Title I funds are granted to districts on
the basis of the number of children attending district schools from
families receiving Temporary Assistance for Needy Families (TANF). 
Charter schools may receive part of their parent LEA's allocation,
depending on the number of eligible children attending the charter
school and the poverty ranking process used by the LEA to distribute
its allocation.  Some California LEAs use TANF information to rank
schools and allocate funds; other LEAs use free and reduced-price
lunch eligibility data.  Newly created charter schools receive no
title I funds in their first year of operation.  Charter schools that
have converted from a public school receive title I funds on the
basis of the prior information collected on eligible children
attending the school.  Parent LEAs may reserve title I funds from a
charter school's allotment to administer the title I part A program. 
The amount that an LEA may reserve for these purposes has no
statutory limit. 

Most California public schools--including charter schools--are
considered dependent members of a special education local plan area
(SELPA) for IDEA purposes.  The SEA has established SELPAs to serve
as the LEAs.  SELPAs receive IDEA funds and provide all necessary
services required to serve children with disabilities.  In most
cases, eligible children attending charter schools receive services
provided by the SELPA. 


   COLORADO
------------------------------------------------------- Appendix III:3

In Colorado, only local school boards may grant charters to schools. 
All charter schools are considered dependent members of a parent
school district.  Title I funds have been granted to districts on the
basis of 1990 census poverty data updated using Aid to Families With
Dependent Children information.  Future LEA allocations will use TANF
and free and reduced-price lunch counts for LEAs to update the census
poverty data used for distributing these funds.  Districts then
distribute title I funds to dependent schools on the basis of poverty
rankings based primarily on free and reduced-priced lunch eligibility
data.  Newly created charter schools have not received title I funds
in their first year of operation.  Parent LEAs may reserve title I
funds from allotments made to charter schools to administer the title
I part A program.  The amount that an LEA may reserve for these
purposes has no statutory limit. 

Colorado's charter schools are considered dependent members of a
parent school district for IDEA purposes.  Charter schools must
negotiate with their parent districts the terms under which IDEA
funds or services are provided to them.  Charter schools' particular
arrangements, therefore, vary by school.  In some cases, for example,
the parent district receives IDEA funds and provides all necessary
services for serving children with disabilities.  In exchange,
charter schools pay the parent district an amount equal to the
average unfunded additional cost of serving children with
disabilities.  In other cases, charter schools and parent districts
negotiate an amount of IDEA funds that will be used by a charter
school for serving children with disabilities.  The charter school,
however, must absorb any costs in excess of the negotiated funding
amounts.  Any particular charter school and its parent district may
have another unique arrangement. 


   MASSACHUSETTS
------------------------------------------------------- Appendix III:4

In Massachusetts, only the state board of education may grant
charters to schools.  All charter schools in Massachusetts are
considered independent LEAs.  Charter schools determine the number of
eligible students for title I on the basis of enrolled students from
families receiving TANF.  Massachusetts uses title I funds available
for reallocation to serve some charter schools in their first year. 
In addition, charter schools may agree to share funds with the school
from which eligible students transferred.  The SEA allocates to
charter school LEAs the same amount it allocates to other LEAs in the
same county. 

Charter schools in Massachusetts are also considered independent LEAs
for IDEA purposes.  The schools determine the number of eligible
students on the basis of students with IEPs.  Schools may either
apply to the state directly or jointly with other LEAs.  LEAs submit
quarterly statements of eligible expenditures that they have incurred
to the state.  The schools receive their IDEA allocation in quarterly
distributions. 


   MICHIGAN
------------------------------------------------------- Appendix III:5

Agencies authorized to grant charters to Michigan schools include
local school boards, intermediate school boards, community colleges,
and state public universities.  All charter schools in Michigan are
considered independent LEAs for title I purposes.  Charter schools
determine the number of eligible students on the basis of student
eligibility for the free and reduced-price lunch program.  Michigan
does not allocate title I funds to charter schools in their first
year of operation.  The amount per eligible student allocated to LEAs
varies by the eligible student's county of residence.  Schools
chartered by state public universities receive their funds through
the sponsoring university, which acts as the school's fiscal agent. 
Chartering authorities typically charge the charter school a fee
equal to 3 percent of the funds granted. 

All public schools in Michigan are considered members of an
intermediate school district (ISD) for IDEA purposes.  The SEA has
established a series of ISDs to serve as the LEAs for this purpose. 
Charter and other public schools apply for assistance to the ISD. 
They may either apply directly or join with another school or local
school district to request funds or services.  ISDs may help charter
schools by providing services or funds to reimburse the school for
eligible expenditures. 


   MINNESOTA
------------------------------------------------------- Appendix III:6

In Minnesota, local school boards and public postsecondary
institutions may grant charters to schools, subject to the approval
of the state board of education.  All charter schools in Minnesota
are considered independent LEAs for title I purposes.  They determine
the number of eligible students on the basis of student eligibility
for the free and reduced-price lunch program.  Initially, the state
did not allocate title I funds to charter schools during their first
operating year.  The state now reserves 1 percent of its title I
allocation and uses this as well as any funds available for
reallocation to serve new school districts (including charter school
LEAs).  The SEA uses a statewide per pupil average to allocate title
I funds to LEAs. 

Charter schools in Minnesota are also considered independent LEAs for
IDEA purposes.  They determine the number of eligible students on the
basis of students with IEPs.  Schools may either apply to the state
directly or jointly with other LEAs.  Charter schools bill eligible
expenses to the state, which reimburses the schools up to the
schools' allocations.  Charter schools bill eligible expenses over
and above IDEA allocations back to the LEA where students reside. 


   TEXAS
------------------------------------------------------- Appendix III:7

In Texas, both state and local boards may authorize charters for
newly created schools as well as charters for schools converting to
charter schools.  Local school boards create "campus" charters, which
are member schools of the local school district and receive funds
through them.  State-authorized charter schools are termed "open
enrollment" charter schools and considered independent LEAs for title
I purposes.  The state allocates title I funds to LEAs on the basis
of census poverty counts for the LEA's geographical attendance area. 
Because the students enrolling in charter schools come from the
attendance areas of differing LEAs, the state proportionately
redistributes the title I funds that would have been allocated to the
school district where the charter school student lives.  Charter
schools receive this funding on the basis of enrollment, even in the
first year of operation, and have been receiving title I funds for
each year that they have been operating. 

State-authorized charter schools in Texas are also considered
independent LEAs for IDEA purposes.  These schools determine the
number of eligible students on the basis of students with IEPs. 
Schools may either apply to the state directly or jointly with other
LEAs.  Charter schools bill eligible expenses to the state, which
reimburses the schools up to the schools' allocations.  Schools
chartered by a local district are considered member schools of that
district and receive their funds through them. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
EDUCATION
========================================================= Appendix III



(See figure in printed edition.)



(See figure in printed edition.)


GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
=========================================================== Appendix V

GAO CONTACTS

Harriet C.  Ganson, Assistant Director, (202) 512-9045
C.  Jeff Appel, Evaluator-in-Charge, (202) 512-9915

ACKNOWLEDGMENTS

In adddition to those named above, the following individuals made
important contributions to this report:  Gene G.  Kuehneman, Jr.,
senior economist; Benjamin F.  Jordan, Jr., evaluator; Erin Krasik,
intern; Susan Poling and Robert Crystal, attornies; Catherine
Baltzell and Wayne Dow, methodologists; and Liz Williams, editor. 


*** End of document. ***