A bill to give the state more financial control of Hawaii charter schools has some educators worried about what they see as a threat to the charters’ independence.

House Bill 622 introduced by House Finance Committee Chair Sylvia Luke is in part a response to unconfirmed reports of federal investigations of several charter schools in recent years over alleged financial mismanagement or other irregularities. The schools are not currently required to inform the state of such investigations.

It proposes shifting control of disbursed funds to the State Public Charter School Commission for any school where an employee has been federally charged with a work-related crime.

It also tasks the commission with establishing and maintaining a central bank account system to manage expenditures for all charter schools and selecting the auditor who will conduct yearly required financial reviews of the schools.

The measure is opposed by many charter school officials and has raised concerns at the state Board of Education.

“We’re just very confused by what’s going on,” said John Thatcher, director of the Connections Public Charter School, a K-12 school in Hilo. “This is just a direct blow to the autonomy of charter schools.”

Courtesy Josh DeWeerd

Commission members are nominated and appointed by the Board of Education, whose members are appointed by the governor.

Several charter schools have come under scrutiny by the commission, which authorizes contracts with the schools and monitors their compliance with state and federal laws. It can also initiate reviews, enforce intervention or revoke contracts when schools fail to adhere to standards.

Last year, the commission revoked the contract of Ka’u Learning Academy, a school serving third- to seventh-graders on the Big Island, following reports of financial irregularities and enrollment discrepancies.

The commission also reconstituted the governing board for Kanuikapono Charter School, a K-12 school on Kauai, following allegations of lack of internal controls, violations of governance rules and irregular enrollment and admissions practices, the Honolulu Star-Advertiser reported.

More recently, Kona Pacific Public Charter School, a K-8 school on the Big Island, received a notice of revocation by the commission for alleged commingling of funds between the school and the nonprofit Friends of Kona Pacific Public Charter School and also allegedly inflating its enrollment numbers, according to West Hawaii Today.

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“Those few schools aren’t representative of the whole, but I do understand in the actions of a few it can trigger what we’re seeing as a heightened sense of worry,” said Sione Thompson, executive director of the Charter School Commission. “There are schools that may be under (federal) investigation.”

The 36 public charter schools currently in operation — along with DreamHouse Ewa Beach, scheduled to open in July — are part of the Hawaii public school system but run by independent governing boards that select and hire school leaders, set curriculum and oversee the financial health of the school.

Correction: An earlier version of this story said charter schools are part of the Hawaii DOE.

Charter schools comprise about 11,500 students, or 6% of the total public school population. They are subject to the same statewide assessments and measures of student achievement as DOE public schools, but founded on the premise of being laboratories of innovation and thus removed from the oversight that DOE has for traditional public schools.

Burrowed within this framework of independence is also deep-seated financial uncertainty. Charter schools’ per-pupil funding this year was $7,466 per student — compared with $13,748 per student in regular schools. They must also pay for renting space with these funds as there’s no separate facilities allotment.

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That’s why proposed legislation to shake up the funding disbursement system or impose new controls has some charter school leaders concerned.

“We have been fiscally responsible for many years, (and are) being treated as if we’re not,” said Thatcher. “We just don’t understand it.”

Steve Hirakami, founder and director of Hawaii Academy of Arts & Science, on the Big Island for nearly 20 years, called House Bill 622 “a knee-jerk response to one or two errors” made by a handful of other charter schools.

“One school makes a mistake and they (lawmakers) paint a broad brush and say, you all got to do it,” Hirakami said.

The Legislature’s base budget for the upcoming school year includes $96 million for charter schools and $101 million for the 2020-21 school year.

Two other bills are also moving forward. One provides additional funding to cover mandatory incentive pay for charter school educators who are teaching in hard-to-staff areas or have national board certification. Another would continue 18 pre-K charter school classrooms started with a 2015 Federal Preschool Development grant.

A House bill that proposed a separate allocation for charter schools’ rental or lease of facilities, however, appears to have stalled in the Senate.

At least 17 of the state’s charter schools are Hawaiian culture focused. The Office of Hawaiian Affairs, which has submitted testimony in opposition to House Bill 622, has provided about $22 million in financial support for those schools since 2005-06.

A Central Bank Account?

House Bill 622 has taken several forms since it was introduced.

An earlier version passed by the House Finance Committee called for a centralized purchase order system that would have required charter schools to make specific funding requests to the commission before they could receive funds.

That proposal has since been replaced with one calling for the commission to establish and maintain a central bank account system for charter school expenditures.

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“The whole crux of 622 is actually the financial accountability,” said Luke.

She pointed to the current system of charter schools getting their per-pupil funding from the commission through a lump sum distribution from the Department of Budget and Finance.

“That’s when it gets lost,” Luke said. “The funding gets deposited into the various charter schools’ accounts as opposed to a state account. What we have been told by (Budget and Finance) is that they cannot really track where the money goes.”

Lawmakers this session have held up financial transparency in agency budgets as a mantle. Some believe this measure reflects that shift.

In written testimony for an earlier version of the bill, the Charter School Commission proposed the bank account system as an alternative to the purchase order system.

Thompson, the commission’s executive director, pointed out that each charter school maintains its own private bank account to manage finances, and that the commission relies upon self-reporting. There are times, he said, when some of the quarterly reports don’t align with the annual reports or audits of the schools.

“As legislators dug very deeply into budgets this year, it seems … that was a blind spot for our legislators in some ways,” he said. “Greater transparency is what I’m speculating is desired.”

Since charter schools contract with their own auditors, the commission receives the final reports but does not necessarily have access to the underlying data used for those audits, Thompson said.

“We do believe there should be a state oversight to the audits that doesn’t preclude independent schools from having their own independent audits,” he said.

“What I don’t want is 622 to overshadow the other bills,” Thompson said. “This bill is not the answer to all of the current issues that we’re having.”

Parts Of Bill ‘An Insult’

Another component of the bill that is unsettling to charter school leaders would impose a four-year waiting period before anyone who has been affiliated with a charter school can sit on the commission or state Board of Education.

“That’s really an insult to the credibility of the people who are busting their butts to make this thing happen under all adverse circumstances and inadequate funding and dedication,” said Hirakami.

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The current BOE chairwoman, Catherine Payne, was appointed to that position by Gov. David Ige in 2018. A former DOE principal, she was at the time serving as the chair of the Charter School Commission.

The commission currently includes at least four members who were formerly affiliated with charter schools or their governing boards, including Mitch D’Olier, who noted that those commissioners are aware of the financial challenges facing charter schools and that this knowledge is “very helpful” in discussions.

“Where this is coming from, we’re not sure. I wish I knew too,” Payne said. “I think this caught a lot of people by surprise.”

On behalf of the BOE’s ad hoc legislative committee this session, Payne has expressed concern with several aspects of the bill, including shifting funding control away from schools upon the filing of a federal charge against an employee. She has proposed amending that to require charter schools to inform the commission once an employee comes under federal investigation.

“We absolutely support legislation that holds charter schools accountable and has authorizers holding charter schools accountable but there is enough legislation already that gives authority to the authorizers and to the board to hold these schools accountable and they’re working really hard to address that,” Payne said.

The measure passed out of the House Finance and Lower and Higher Education committees before crossing over to the Senate. The Senate Education Committee then heard it, followed by Ways and Means.

Only one lawmaker, Sen. Kurt Fevella, who sits on the Ways and Means Committee, cast a dissenting vote.

“Just by reading the bill and listening to testimonies, it doesn’t seem like a good thing,” said Fevella, the lone Republican in the Senate. “Too much oversight kills any kind of program.”