An enrollment surge fueled a 144% bank balance increase for Pa. cyber charters. The Pa. auditor general has concerns.

Pennsylvania cyber charter schools’ revenues have exploded, jumping by nearly 90% over three years and leading to some questionable uses of taxpayer money, Pennsylvania Auditor General Timothy L. DeFoor said Thursday.

DeFoor said he found no illegal practices in examining the finances of five of the state’s 13 cyber charters — Pennsylvania Leadership Cyber Charter, Reach Cyber Charter, Commonwealth Charter Academy, Pennsylvania Cyber Charter, and Insight Pennsylvania Cyber Charter.

Still, because of a pandemic-fueled enrollment surge and federal COVID-19 relief funds, the schools’ revenues soared from $473 million to $898 million, and their fund balances rose from $254 million to $619 million — a 144% increase, which DeFoor said “could be considered excessive for public school entities.”

Auditors grow “concerned whenever revenues and fund balances significantly increase, because it opens the door for questionable and discretionary spending of our tax dollars,” DeFoor said at a Harrisburg news conference.

Reserves, he said, “are meant to cover anticipated bills, so there’s no interruption in a child’s education. It isn’t money meant to sit in the bank of a cyber charter school, growing year after year. These are your tax dollars.”

The problem, the auditor general said, is the outdated law that governs how cyber charters operate.

The formula dates back to 2002, when, DeFoor pointed out, “we were still using dial-up to access the internet, floppy disks were the best way to store and share data, and the iPhone and iPad weren’t even invented.”

Pennsylvania auditors general have been pointing out flaws with the cyber charter formula for 15 years, but charter schools generally are a political hot-button issue, and Republicans — who control the state Senate — have been reluctant to alter the law.

But, DeFoor, a Republican, said, “until the funding formula is fixed, this problem will continue to happen.”

In his budget proposal unveiled earlier this month, Gov. Josh Shapiro, a Democrat, called for capping cyber charter tuition rates at $8,000 per student, which he said would save school districts $385 million. Similar proposals in past years have failed to gain traction with Republican lawmakers, who control the Senate.

Cyber charter schools have long faced criticism from public education advocates, who say the schools are draining district budgets — districts pay cyber charters for each enrolled student based on what the districts spend per pupil, ranging from about $7,000 to $25,000 per regular-education student and between $18,000 and $60,000 for students with disabilities — and turning out subpar academic results.

Cyber charters have defended their performance, saying they often serve nontraditional students and are popular with families, and have fought back against efforts to cut their funding. (DeFoor’s report also notes that the cyber charters pay lobbyists to represent their interests.)

Commonwealth Charter Academy, Pennsylvania’s largest cyber charter, has drawn heightened scrutiny; the school has grown rapidly in recent years to now enroll more than 33,000 students. At the same time, it has been amassing millions in assets and buying property statewide. Education advocates have reviewed its spending, including at car dealerships and entertainment venues, and accused the school of misusing tax dollars.

The audit covered the 2019-20 to 2022-23 school years; since then, lawmakers changed the way charters are paid for special-education students. The new rates took effect Jan. 1 and still vary by district, and, DeFoor said, “arbitrarily charging different tuition rates not aligned to the actual cost of that education puts school districts and taxpayers at risk of overpaying for a cyber charter school education and cyber charter schools at risk of potentially not receiving enough funding if their costs exceed tuition payments.”

The audit discovered cyber charters using funds for staff bonuses, gift cards, vehicle payments, and fuel stipends.

DeFoor flagged Commonwealth Charter Academy in particular, noting that it had transferred $354 million, and spent $196 million of that, from its general fund to build or renovate 21 buildings during the audit period. That “seems a bit out of the ordinary for a public school that is based on online instruction,” the auditor general said.

The audit also singled out Pennsylvania Leadership Cyber Charter, which applied for and received a $4.3 million Paycheck Protection Program loan given by the U.S. Small Business Administration to small firms hit hard by the pandemic.

“While PA Leadership may have been eligible for the loan, it is questionable whether PA Leadership should have applied for a loan, as its revenue increased following the COVID-19 pandemic,” the audit found.

DeFoor said he believed the audit required action by Shapiro, the legislature, and the Pennsylvania Department of Education.

He recommended that Shapiro appoint, within six months, a task force to review the cyber charter funding formula; that the General Assembly act quickly to study and pass legislation “to implement a fair and equitable cyber charter school funding formula”; and that the state education department review cyber charter agreements and, in particular, scrutinize Commonwealth Charter Academy’s building boom to determine whether it aligns with charter school law and consider revising or clarifying “appropriate use of taxpayer monies for student and family supports.”

DeFoor said he believed people on both sides of the aisle would be unhappy with the audit — some saying it went too far, others saying it did not go far enough. But, he said, data informed the examination, which was “not based on a political agenda, or the needs of a special interest group.”

Commonwealth Charter Academy, in a response included in DeFoor’s audit, disagreed with some of the auditor general’s conclusions, including its questioning of some CCA expenses. Among other areas, the audit noted that CCA paid for gas for staff working out of its family service centers, with stipends up to $400 a month “even if employees were commuting a short distance during the audit period.”

“CCA’s thoughtful expenditures on staff compensation, student activities, fleet vehicles, and facilities are directed toward expanding and improving educational programs and opportunities for students and families — something the auditors could have explored if they conducted onsite visits to CCA’s buildings,” school officials said in a statement Thursday.

Reach Cyber Charter officials, meanwhile, raised strong objections to DeFoor’s report, which “from its inception was never about Reach’s finances, procedures or processes,” they said in their response to the audit. “The report was specifically designed … to follow an agenda of anti-cyber charter school policies advanced by our opponents.”

Cyber charters also pushed back on proposed cuts to their tuition rates.

“We already receive per pupil funding that is typically 70-80 cents on the dollar; any further reduction would lead to even greater inequities that unfairly target disadvantaged students,” Pennsylvania Leadership Cyber Charter said in its response to the audit, and also defended its fund balance policy.

Pennsylvania Cyber Charter officials, answering the audit, said that any move to fund public cyber school students “at increasingly lower rates than other public school students is inherently discriminatory.”

Eileen Cannistraci, CEO for Insight PA Cyber Charter, said Thursday the school would be willing to participate in a task force that considered “cyber charter funding holistically and objectively,” but opposed “an arbitrary flat tuition rate … that is not based on real data or input from the cyber charter sector.”

Insight was among the schools DeFoor flagged for paying employee bonuses, a practice that “while permissible … may be uncommon given that the cyber is a public school entity,” according to the report. (Among other cyber charters, CCA also paid staff bonuses, with annual payments ranging from $3,000 to $7,000, the report said.)

Cannistraci said the audit confirmed that Insight PA is a “good steward of taxpayer dollars.” She defended the charter’s bonuses — it paid $1.6 million over the audited period, including $900,000 in 2022-23 alone — as valid in the face of an ongoing teacher shortage affecting schools across Pennsylvania.

Susan Spicka, executive director of Education Voters Pa., a group that opposes cyber charters, said that the audit was a “clarion call for immediate action,” but that forming a task force would “simply kick the can down the road” and allow problems to continue unabated “while Harrisburg wrings its hands.”