LAUSD Loses More Than Half a Billion Dollars to Charter School Growth

New independent report reveals a fiscal crisis that could have deep negative implications for both district schools and existing charter schools.


report by MGT of America, an independent research firm, reveals that LAUSD has lost an astonishing $591 million to unmitigated charter school growth this year alone. If costs associated with charter school expansion are not mitigated with common sense solutions, the district will face financial insolvency, according to an analysis of the report.

As the number of independent charter schools continues to grow, it becomes increasingly important for LAUSD to quantify, forecast, and manage the costs associated with independent charter expansion. LAUSD oversees more charter schools than any other district in the country. Charters are privately managed despite relying heavily on district and taxpayer funding.

Taken together, the findings in the report paint a picture of a system that prioritizes the growth opportunities for charter school operators over the educational opportunities for all students. 

The first set of findings deal with issues related to oversight of charter schools, including funds collected for oversight and LAUSD activities to meet their oversight responsibilities.


The annual oversight revenue collected from charter schools does not cover the annual budget of the Charter Schools Division (CSD) 


The cost to the district for the space occupied by the Charter Schools Division, estimated at $92,006/year, represents a direct cost to the district that is not covered by charter school oversight funds.


There are direct costs to the district for oversight that are beyond those allocated to the CSD and not currently funded by the oversight revenues. The additional oversight activities occur in the Special Education Division (SPED) and the Office of the Inspector General (OIG). The total cost is estimated at $1,416,259. Allocating any portion of the charter school oversight revenue to divisions other than CSD is

a district decision.


There are significant and quantifiable indirect costs to LAUSD for the independent charter schools operating in the district. Indirect costs include time/opportunity losses when district staff spend time managing or dealing with charter schools, rather than district schools. Many district functions have these time/opportunity costs in support of charter schools, but they have not been identified, gathered, or quantified. The indirect administrative cost is estimated at $13,845,203. These costs are not supported through the 1% oversight fee that is collected and used to fund the CSD. The allocation of the revenues from the 1% oversight fee is a district decision.


There are 56 charter schools in LAUSD that are operating in district facilities. The law allows the district to collect a 3% oversight fee for charter schools located in district facilities that are not paying rent. None of the 56 schools is paying the 3% fee. The estimated oversight revenue lost is $2,062,517. This is a district decision.


The district is required to provide LCFF funding to charter schools starting in August, although the district does not receive the tax revenue from the county until January of each year. The estimated “cost of money” is $86,132. This is a state-wide issue. MGT has identified several areas of impact relative to specific groups of students. This group of findings describe issues with special education and English language learner programs.


Special education revenue in LAUSD is impacted by state regulation. The state funding formula (AB602) that provides equal financial support regardless of disability has the effect of penalizing LAUSD due to its higher percentages of identified students who have higher needs than students in the charter schools. No cost estimate. This is a state-wide issue.


LAUSD has a significantly higher proportion of high-need and high-cost special education students, compared to the independent charter schools in the district. No cost estimate. This is a state-wide issue.


The state regulation allowing independent charters to join SELPAs other than LAUSD takes additional funding away from LAUSD that could otherwise be used to provide district program support. The estimated cost is $10,356,338. This is a statewide issue.


The state funding formula (LCFF) that provides equal financial support regardless of EL level has the effect of penalizing schools/districts that have higher percentages of identified students who have higher needs compared to other schools/districts. (Note: There is no estimated cost attached to this finding. MGT was not able to identify the relative EL levels at district and charter schools.) MGT has also identified a finding regarding the impact of declining enrollment.


The declining enrollment in LAUSD is having a financial impact on the district. The declining enrollment is not solely based on the increase in number of charter schools. The impact should be softened by the state’s use of the previous year’s ADA that allows districts to recognize revenue loss for one year in arrears and reduce costs as enrollment declines. However, the “soft landing” only applies to students who move to another district and not to students who leave for charter schools. The estimated cost is $55,619,684. This is a statewide issue. MGT has identified a final issue that is based on the UTLA contract.


The LAUSD – UTLA contract allows teachers to take a Leave of Absence (LOA) and work in a charter school and return to LAUSD/UTLA status. There may be an impact on LAUSD due to the legacy benefit costs. The estimated cost is $250,000 per employee. This is a contract issue.


The data described in this report make clear that there is a financial impact on LAUSD that is caused by independent charter schools. The impact is not the fault of the charter schools. Several of the identified findings document the legislated, state-wide decisions that have impacted school districts and some are based on decisions made by the district.

This review defines the issues and the fiscal impacts and invites the district and the state to review and consider ways to address them.

From this review it is clear that the financial future of the Los Angeles educational system is threatened and charter schools contribute to that threat.