Citing out-of-control expenses and expenditures, school districts and state Democrats push for new cyber charter funding formula

Just weeks into the school year, Superintendent Amanda Hetrick felt frustration every time she looked at the balance sheet for the Forest Area School District, a sprawling but sparsely populated community in the Allegheny National Forest.

The district spends $22,111 annually to educate regular-education students. But it spends a whopping $45,438 per child for special-education students – many of whom, in recent years, have left Forest Area for cyber charter schools, taking those tuition dollars with them, as the law currently mandates.

The losses of both regular and special education students have strained the finances of a district whose $500,000 federal rural-schools subsidy was cancelled last year – and whose 350 mostly low-income students are spread over 503 square miles, making transportation particularly expensive. 

That’s why Hetrick and her colleagues across the commonwealth’s public districts have been crossing their fingers for passage of a measure – championed by state Democrats and included in Gov. Josh Shapiro’s long-delayed state budget – that would impose a flat annual statewide rate of $8,000 per student for cyber charter students and impose other accountability measures, including limiting the schools’ real estate holdings and mandating well checks for cyber students. 

The $8,000 figure is equivalent to the average per-pupil education cost at district-run cyber programs, according to state Rep. Mary Isaacson of Philadelphia, who sponsored the bill.

At stake is a quarter-billion dollars – the amount the state currently spends but would save if its funding formula to cyber charters is revised to the $8,000-per-pupil proposal.

Beyond the resultant savings for their individual districts, public-school superintendents – as well as their advocates, both inside and outside the state legislature – say reform would bring accountability to a fast-growing parallel system of 14 cyber charters statewide. Critics allege that the sector engages in dubious recruitment efforts, siphons off taxpayer education dollars for questionable expenditures and is often frustratingly opaque about where all that money is actually going.

The issue has taken on new urgency as schools face a collective financial crunch due to the freeze in government funding as the state budget impasse entered its fourth month. In early September, officials from 215 commonwealth districts affiliated with the Pennsylvania Association of Rural and Small Schools signed a letter to state legislators, calling for cyber charter funding reform to be a "non-negotiable priority" and critical to the districts’ long-term financial stability.

Among them was Hetrick, who said a fair, flat tuition rate could save Forest Area nearly $300,000 per year – and bring the district’s per-pupil cyber expenditure into line with many of its lower-spending peers. Especially during the budget crisis, “those savings would make a huge difference,” she said in early September, just before her long-planned retirement on Sept. 30.

Currently, districts pay rates that vary by thousands – sometimes tens of thousands – of dollars to educate each child who opts for online education at one of the state’s 14 cyber charter schools. In many cases, district officials say, those rates are excessive, given what they claim are the lower costs of educating students online.

“It’s a very irrational system of funding,” observed Susan Spicka, the executive director of Education Voters PA, a nonprofit that advocates for traditional public schools – and has been among the most vocal critics of cyber charters.

“Pennsylvania is one of the only states that provides funding to cyber charter schools that is based directly on what school districts do in their own buildings. So there’s no relationship with the cost of the education the cyber charter is providing to kids, and the tuition they get from the school districts.”

Districts across the commonwealth overwhelmingly support the cyber charter reform package. So does the Pennsylvania State Education Association, a powerful union that has tried to serve as a bridge between its majority public school membership and the 1,000 cyber charter school employees who are also members. 

Unsurprisingly, cyber charters – and most state Republicans – oppose the proposed legislation, arguing that critics fail to appreciate the true costs of running an online school. But no serious or specific counter-proposal has emerged, either from the GOP or from the charter school community.

“We believe no single model of public education should be singled out,” offered Tim Eller, the chief branding and government relations officer for Commonwealth Charter Academy, the state’s largest cyber charter school. “Any conversation about funding changes must look comprehensively at all public schools – school districts, charters, and cyber charters alike – to determine what is in the best interest of every student.”

That comprehensive survey is long overdue, according to many in the sector. “Ten years ago, at least they met with us … they visited schools, so they got (their argument) from some kind of a knowledge base,” said Maurice Flurie, president of the board of the Pennsylvania Coalition of Charter Schools and CCA’s former longtime CEO. “The last few years, the opponents don’t even want to educate themselves … Nobody has truly examined what is the cost of a standalone cyber charter.”

A growing alternative

By many accounts, Pennsylvania leads the nation in the shift to virtual schooling – both in the number of students enrolled in cyber charters and in the volume of taxpayer dollars directed to online schools. The nonprofit organization Children First PA calls the commonwealth “the cyber charter capital of the nation,” with more than 60,000 children enrolled in 14 online schools – three times the population of Pittsburgh Public Schools. 

More than half of those students attend the Harrisburg-based Commonwealth Charter Academy, which took 17 years – from its 2003 founding until the pandemic – to grow to 10,000 students. But between 2019 and 2024, CCA more than tripled its student body, to 35,000 pupils.

Post-pandemic, CCA has also seen its geographic distribution diversify: While cyber charters initially appealed largely to urban families dissatisfied with historically underfunded city schools, the mainstreaming of online education has drawn far more rural and suburban students in recent years, according to Eller. Across the commonwealth, virtually all the recent growth in charter school enrollment comes from the explosive growth of cyber enrollment, according to Children First.

While many families clearly find the alternative schools appealing, several organizations have raised questions about how well they serve their populations. An investigation by the Education Week Research Center revealed that many cyber charters fail to graduate even half of their students on time. Even the National Alliance of Charter Schools has called for states to enact policies reforming their cyber charters, noting in a report that nationally, students enroll in cyber charters for an average of only two years and concluding that “far too many (schools) have experienced notable problems.” 

A system in need of a reboot

Under the current formula, whenever a district pupil transfers to a cyber charter, the district forwards to the online school a sum based on the amount it has allocated for that student’s education. The result is a system in which some districts pay far more than others to educate children at cyber charters – often in the same school.

That the cyber charter arrangement needs some kind of overhaul is about the only thing most stakeholders can agree on. The current funding arrangement dates back to 2002, when the state’s first cyber charters were authorized.

Back then, few could have foreseen the growth that would come from the confluence of pandemic-era online education – which brought cyber schooling into the mainstream – and the GOP-driven school choice movement, which allows parents to opt out of traditional public schools, paying for alternatives like charter schools with district tuition dollars.

In the decades since, three successive state auditors general have called for reform of the cyber charter funding formula. The current auditor general, Tim DeFoor, a ­Republican, released a report this past February showing that five Pennsylvania cyber charter schools had seen their revenues legally increase by $425 million from 2020 to 2023, while those schools’ reserve funds grew by nearly 150%. This latter figure, in particular, has prompted critics to suggest that cyber schools are inappropriately hoarding cash – beyond what is needed for routine expenses – rather than spending it on education.

DeFoor concluded that reform is past due for “an outdated funding formula that does not use actual instruction costs to determine tuition, set guidelines for spending or set limits for cyber charter school reserve funds.”

“The cyber charter funding formula needs to change to reflect what is actually being spent to educate students and set reasonable limits to the amount of money these schools can keep in reserve,” he added in a statement.

In Cumberland County, Mechanicsburg Area Superintendent Andrew Bitz said the district’s annual cyber charter expenditures tripled over the past decade, from $1.5 million to $4.8 million last year – nearly 5% of the $101.5 million budget for 2024-25 – while the number of cyber charter students grew far more modestly. Some of the cost increase is due to an increase in the proportion of cyber students – from 18% to 30% – who are classified as special education and thus cost the district $30,000 per pupil, compared to $15,000 for regular education students.

“There’s no question in my mind that it’s not fair,” said Bitz of the funding formula. “It’s absolutely inequitable. We have a situation where 500 different school districts are paying 500 different rates for the same service for a student.”

Cyber charter officials agree that reform is in order, but question their opponents’ motivations. “I think (the funding system) is absolutely broken,” affirmed Flurie. But Brian Hayden, the CEO of PA Cyber Charter – a 25-year-old K-12 institution with 11,000 students – cautioned that “a lot of people that say that it needs to be fixed – that’s just code for them to say, ‘We want to cut funding.’

“Let’s fix it. Let’s see what the costs really are,” he said. Noting that the proposed reform would slash PA Cyber’s operating budget by what he calls an untenable 40%, Hayden added: “What frustrates me is these are public school kids (charters are taxpayer-funded and must adhere to public-school standards around items like testing and special education) ... And didn’t we just have a lawsuit in Pennsylvania (over inequitable state funding for different districts) that says we need to fund all public school kids adequately?”

Brick-and-mortar school officials justify district-to-district disparities in per-pupil expenditure, Bitz explained, because “we’re providing a different product, if you will, a different service … to our students than what a neighboring district provides.” Echoing a common refrain among public school advocates, he added: “In the case of the cyber charter, they are providing the exact same product to students, regardless of whether they’re from our district … or halfway across the state.”

Mechanicsburg Area allotted an additional $500,000 in this year’s district budget just to cover rapidly escalating cyber charter costs. “We could probably hire about 10 support staff for that amount,” Bitz commented.

Numbers like that prompted Isaacson, a longtime fixture on the state House Education Committee, to introduce her bill. “I saw what was going on with the cyber charter schools and the effects it was having on school districts,” she said. “The current formula allows for students to be paid per pupil by whatever the school district spends to educate a child in their brick-and-mortar schools, and a cyber charter school obviously doesn’t have such expenses.”

Across the aisle, state Rep. Roman Kozak, a first-term Republican from Western Pennsylvania, said the finances of cyber charters are not as obvious as many Democrats assume. He’s in a unique position to know: Before his election last year, Kozak was on the faculty of PA Cyber Charter School for nearly a decade, making him the only state legislator with insider knowledge of that sector.

A father of four school-age children who did his student-teaching stint at commonwealth public schools, Kozak said his Republican colleagues generally agree that funding reform is overdue. And he emphasized that cyber charters are not the enemy of public schools, despite the often-hostile rhetoric between advocates for the two camps.

“I think sometimes it’s repeated … ‘Oh, they’re just trying to kill public education.’ And that’s not the case. We just want education to serve the family, in the way that the family thinks is best for their kid,” he told City & State. “I saw what cyber education did for many families – how it changed students’ lives … gave them a new purpose.”

Explaining his opposition to Democrats’ standardized funding proposal, Kozak added: “I don’t believe in one size to solve for most things when it comes to education … in particular, I think the thing that was most frustrating about the number that was thrown out there is that it wasn’t grounded in any sort of reality and research … or any sort of feedback or participation from those involved in cyber charters.”

Hayden agreed, but said his colleagues were ready for negotiation, “not to be a victim of it – but to be part of the conversation,” he emphasized. “It has to be fair, transparent, based on facts, not perceptions – and doesn’t treat our students as second-class.”

The growing role of special education

Among the thorniest issues in the cyber charter funding debate is the role of special education students. According to Flurie, such students make up roughly 30% of the state’s cyber charter students, a proportion that has grown markedly at some schools. At CCA, Tim Eller said the special education rate was in the low 20s until recently but is now a full third of the student body.

Under the current funding formula, school districts allocate significantly higher per-pupil expenditures for special education students, meaning such students bring vastly more dollars when they transfer to cyber charters. Critics say the system incentivizes charters to recruit special education students – especially those with mild impairments, who are relatively inexpensive to accommodate – or to classify borderline students as special education once they arrive.

Spicka said the current system’s inequities place the financial burden on taxpayers. Her organization is advocating for reform, she explained, because the special education funding that follows students to cyber charters is not based on a particular child’s needs, but is instead a district-wide rate determined by dividing the amount that district spends overall to educate students with disabilities by the number of students in the district.

“I think we know that some kids have a disability that requires very few services … Like a kid who needs a half an hour a week of speech therapy or a little occupational therapy,” she said. “On the other end of the spectrum, you have a kid who might need a full-time nurse, or who needs to be assigned to a building where it is $80,000 a year plus transportation.”

Spicka finds it “kind of intuitive” that a family with a child in the latter category would choose the brick-and-mortar infrastructure of a traditional public school. As evidence, she asserted that public district schools typically have more special-education students at the higher-cost end of the spectrum.

“And then you send this money to cyber charter schools, and they end up getting $10,000 or $20,000 more per student in special education tuition than they spend providing these kids with their services,” Spicka added. “And they can spend it on anything they want.”

Numbers aside, it is challenging to establish causality – and cyber charter officials reject the notion that they are cherry-picking or recruiting students for their financial benefits. They argue that most special education students arrive already classified as such, and that families increasingly opt for online programs because their needs are not met at the public schools.

Eller affirmed that the majority of CCA’s education students enroll with that classification already in place. Word-of-mouth recommendations and lack of cooperation from district schools are among the reasons he most often hears for these students transferring to a cyber charter. “And they’re never going to admit that publicly,” he added, “but we got a lot of families that say they were recommended by their district to come to CCA.”

“In a traditional public school, they may not get that dedicated (one-on-one) aide,” noted Flurie. “Those families are dissatisfied … In a cyber charter school, because that’s mandated in the IEP (Individualized Education Plan) to accommodate special needs, those aides and services are pushed directly into the home. That speech pathologist is doing that work with them at the kitchen table.”

Hetrick, the Forest Area superintendent – whose district spends more than $45,000 annually per special education pupil, whether they require a full-time, one-on-one therapist or relatively minor accommodations for ADHD – said she’d like to see a multi-tiered payment formula for special education students, based on the intensity and cost of their needs.

Questionable, and questioned, expenditures

Critics of cyber charters also point to expenditures they say are questionable at best and, in some cases, unethical abuse of taxpayer education dollars. And under the current funding system, virtually all of it is legal.

In February’s report, DeFoor highlighted instances of cyber charters legally spending taxpayer education dollars on such items as vehicle payments, fuel stipends, gift cards and staff bonuses.

“One cyber charter school paid $4 million in gift cards to students in a single year,” noted Spicka of the audit. “Another spent $9 million on advertising. They can spend as much money as they want on anything they want.”

The report also turned up substantial capital expenditures: The state’s largest cyber charter, Commonwealth Charter Academy, paid $196 million to purchase and renovate 21 buildings, “which to us seems a bit out of the ordinary for a public school that is based in online instruction,” noted DeFoor’s report. 

Eller called that flagging a misunderstanding of cyber charter schools’ operational structure. 

The $196 million facility figure, he noted, represents 21 buildings spread across Pennsylvania. “By comparison, many school districts spend hundreds of millions of dollars on a single building,” he said. He noted that those 21 buildings house staff offices, serve as testing sites for required standardized exams, and host activities such as career expos and student health screenings and resources like tutoring and technology support.

“Unfortunately, the audit team never visited any of our facilities during the audit field work – despite multiple invitations – to see firsthand how they are used to benefit CCA students,” Eller added.

Isaacson cited Department of Education findings showing that cyber charters have used tuition to endow foundations, purchase real estate and create reserve funds – none of which, she said, are necessary for online institutions that are paid directly by school districts. (Districts typically use reserve funds to meet unexpected expenses, such as building repairs or, currently, meeting payroll and other financial obligations while state education funds are frozen due to the budget impasse).

She also criticized the business practices of some cyber charter schools – pointing in particular to television commercials as evidence that the schools use money intended for education on expensive marketing to recruit lucrative students. As an example, she cited the East Stroudsburg district, which has high per-pupil expenditure – and a steady rotation of cyber charter commercials in its media market.

“We learned through a lot of marketing techniques that the cyber charter schools like to shop around for school districts that pay a lot of money per pupil,” notes Isaacson. “But schools aren’t supposed to be businesses.”

But Flurie defended the practice of marketing for a sector – cyber charters – that is still not widely known. Without advertisements, “How would a family know what their choices even are?” he asked. “Everybody knows what McDonald’s is, but McDonald’s still advertises so that people know what’s being offered.”

Kozak acknowledged that as the sector has grown, so has the potential for questionable expenditures – as sometimes happens with brick-and-mortar institutions as well, he noted. “It’s dishonest to say there haven’t been serious abuses,” Kozak said of cyber schools. “We can’t defend this … money going to a bunch of things that are not education-related … They need to be dealt with, but we also need to hold everyone to the same standard.”

The real costs of virtual school

To a one, cyber charter educators interviewed refuted the idea that standalone institutions could provide their current educational programs on the proposed budget cap of $8,000 per pupil.

Both regular and cyber schools budget large amounts for teacher and staff salaries. But while the former obviously spend more on transportation as well as facilities like classrooms, cafeterias and playgrounds, cyber charters say they have far higher expenses for a myriad of items, many related to technology.

In addition to subsidizing internet costs for every student, online schools invest heavily in cybersecurity measures, including closed digital environments that bypass third-party software – which they say is more prone to security breaches – to protect sensitive student and family data.

“What does it take to protect that data – education records, health records?” asked Kozak. “Ask any company, or any public institution or hospital that has to deal with protection from cyber criminality. That stuff is serious … and it’s going to take a lot of IT infrastructure.”

Cyber schools also provide the physical infrastructure of online education, along with the constant maintenance that it all requires. “Think of a school like a CCA, with 35,000 students – now you’re talking 50,000 laptop computers that need to be warehoused, imaged (for inventory purposes) and maintained,” Flurie said, detailing costs far beyond computer purchases.

In addition, cyber school leaders say their curricula are designed from scratch, with content built around digital learning – as opposed to the district cyber programs, which can draw on existing curricula for online education. Cyber charters are “not just your digitized textbook with some videos attached to it,” said Flurie. “To build our learning management system at CCA was tens of millions of dollars.”

All of this, according to cyber school experts, requires an enormous staff beyond instructors – a constantly available team of professionals to troubleshoot software and hardware problems and handle tech-related purchasing, storage, inventory, setup and logistics.

Districts’ “cyber programs are a little piece of that school. But we are an entire cyber school,” affirmed Hayden, the PA Cyber Charter CEO. “We’re not just math on a screen. We have to recreate all of the infrastructure ... everything from the classes to the clubs, the field trips, National Honor Society – all of those other things that the school district is already doing.”

That from-scratch infrastructure, he said, far exceeds the $8,000 that existing schools spend to add on a cyber option. “We have to send the kids PE equipment to their homes … 11,000 homes,” Hayden elaborated. “And we have buildings: I have 300 people that work here in buildings that have electricity and heat and air conditioning and upkeep.”

Adding it all up

While some disagreements may result from a lack of familiarity with how cyber schools operate, others reflect more fundamental conflicts over issues as basic as whether cyber charters even qualify as public schools (cyber officials think so, but many public-school advocates disagree; the Pennsylvania School Boards Association, for instance, does not allow charter schools to be members).

Nor is it a given that disparate tuition payments for the same education are inherently unfair. Hayden, for one, views maintaining district-specific fees as a form of equity. “That kid that lives in that school district should have the same benefit of those taxpayer dollars as a kid that stays in the (local) schools,” he argued.

Whatever the rationale, districts are in agreement: The math just doesn’t add up for public schools over the long term, especially if the school choice movement continues to gather steam.

Hetrick, the retired Forest Area superintendent, recalls predicting this outcome 30 years ago in a graduate-school paper analyzing the economics of school choice.

“If you had a school district with, say, 500 students, and 25 students elected to go to a cyber charter school – the averages are one or two per grade – that’s not going to change anything you’re doing,” she explained.

“You’re still paying the same number of teachers. You’re providing the same number of classrooms. You’re saving slightly on supplies, but you’re still going to run all your bus routes.” The result, she concluded, is a situation in which school districts’ financial obligations remain steady while their revenues winnow.

“It didn’t make sense then,” Hetrick added. “And now we’re seeing the impact of years and years of funding cyber charters in this way.”