Lawmakers Press PDE on Cyber-charter Finances and Proposed $8,000 Reimbursement Cap

Lawmakers on the Pennsylvania House Appropriations Committee pressed the Pennsylvania Department of Education on Feb. 24 about a proposed $8,000 cap on cyber-charter reimbursements and findings in a recent Auditor General audit of five cyber-charter schools.

Committee members said the scale of revenue growth and reserves at several large cyber charters raises questions about oversight and whether state funding is delivering instructional value. Representative Schweier cited the Auditor General's cover letter and summarized that the audit found “potential for wasteful and or discretionary spending of taxpayer dollars that could go beyond the legislative intent of the charter school law.”

That audit, discussed during the hearing, reviewed Commonwealth Charter Academy, Pennsylvania Leadership Charter School, Insight PA, PA Cyber, and Reach Cyber. Committee members quoted audit findings that the five cyber schools' combined revenue rose by about $425 million (about a 90% increase in the audited period) and that the schools accrued fund balances totaling roughly $619 million as of June 30 in the period described in the audit. One school, Commonwealth Charter Academy, reportedly moved $354 million from its general fund to a capital projects fund and spent about $196 million to buy or renovate 21 buildings during the audited period.

"There aren't many [oversight tools], and all of our tools would come after the fact," Pennsylvania Secretary Rowe told the panel, describing PDE's authority as largely exercised during renewal reviews when audited financials and submitted data are examined. She said PDE can review appropriateness at renewal but cannot claw back expenditures made earlier.

Representative Cutler asked whether an $8,000 cap on cyber reimbursements would create perverse incentives for cyber schools to raise charges to that cap. Rowe replied the cyber reimbursement calculation is not an arbitrary charge set by cyber operators but is derived from allowable expenditures and completed on a state form (PDE-363), which determines tuition. "A cyber school doesn't have the ability to change the amount; that is determined by the 363," she said. Committee members pushed back, asking whether schools could reclassify expenditures to raise future rates; Rowe said the state determines the allowable methodology and PDE can provide technical assistance and data to policymakers.

Several members noted very low standardized-test participation and proficiency rates reported for large cyber schools on the publicly available Future Ready PA index, and questioned whether the Commonwealth is "getting what it pays for." Representative Schweier cited proficiency rates in single digits and low participation rates to argue for closer scrutiny.

Auditor General Tim DeFoor's report, as summarized in the hearing, flagged uncommon expenditures in cyber schools including staff bonuses, gift cards, vehicle payments, and fuel stipends, and signaled the potential for spending inconsistent with legislative intent. Lawmakers used those findings to argue for both financial controls and clearer accountability mechanisms.

Rowe and committee members agreed that cyber schools and brick-and-mortar charters occupy different fiscal positions: cyber operators reported much higher fund balances (one member said cyber schools had fund balances near 41% while districts averaged less than 8%). Rowe said that disparity, combined with the audit findings, suggests a need for legislative review and possible changes to charter law and funding rules.

Committee members asked PDE for more detailed data and for technical assistance to craft policy responses. Rowe said PDE was willing to provide data and noted that many of PDE's enforcement tools are exercised at renewal or after audited financial reports are filed.

Ending: Lawmakers pressed PDE for more data and suggested charter-law reforms; PDE said it will provide technical assistance, but several members said legislative change is needed to prevent perceived misuse of public funds and to align funding with student outcomes.