Special e-Law Update
for NC Charter Schools
Court Awards Funding to Charter Schools:
Sugar Creek Charter School v. Charlotte-Mecklenburg Bd. of Ed.
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March 6, 2009
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Special Update
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Sugar Creek Charter School v. Charlotte-Mecklenburg Board of Education, No. 05 CVS 9548 (N.C. App. Feb. 5, 2008).
The North Carolina Court of Appeals recently handed down an important decision that will influence how public schools manage their finances and fund charter schools. The case arose after a number of charter schools (the Schools) filed a lawsuit claiming that the Charlotte Mecklenburg Board of Education (CMS) had under-funded the Schools for the 2001-02 through 2004-05 school years in two respects. First, the Schools claimed that CMS had used different formulas to calculate per pupil expenditures for the schools in contrast to public schools, in violation of North Carolina law. To this end, while the schools were required to submit monthly enrollment reports, which CMS used to adjust the total monthly appropriation, the public schools received a monthly allocation based on the beginning-of-the-year enrollment figures. Because enrollment figures in both types of schools dropped over the year, the public schools on average received more money per student.
Second, the Schools alleged that, in making the funding allocations, CMS did not divide all of the money that the district had available in its general operating budget. In this respect, the Mecklenburg Board of County Commissioners had allocated to CMS money for two "special programs:" Bright Beginnings (a program for at-risk 4-year-olds) and the High School Challenge (a program for underachieving high schools). CMS failed, however, to deposit these monies into "special program funds," instead placing them in the local expense fund used for general operating expenditures. As a result, the Schools claimed that the special programs money should be allocated between all the schools in the district, including schools that did not run these special programs, on a per-pupil basis. In contrast, CMS maintained that the Board had earmarked the funds for the special programs and that therefore the money was allocated for those programs alone, regardless of the fund in which the money was placed.
The court agreed with the Schools on both claims. It did not, however, require CMS to adopt any particular funding formula but held that consistency is key: "CMS may either calculate the amounts due for both itself and the Charter Schools based on beginning of the year projections of the student population, on enrollments, or some other method, so long as that method is consistent for both CMS and the Charter Schools."
In upholding the Schools' second claim regarding the special funds, the court made clear that public school systems have the responsibility under North Carolina law to set up separate "funds," which are "independent fiscal and accounting [entities] . . . for the purpose of carrying on specific activities or attaining certain objectives." North Carolina law contemplates three types of funds: a local expense fund for current operating expenses, a capital outlay fund, and a special program fund. The court explained that when the LEA receives money from the State Board earmarked for a certain purpose, it should place the money in the proper account (e.g. money for capital projects in the capital expense fund). Careful allocation of funds is especially important because, the court concluded, money placed in a particular fund must be used for the purpose that each fund serves. Here, CMS erred because it placed money received for Bright Beginnings and the High School Challenge in the local expense fund, which the court held must be allocated between each school on a per pupil basis. If CMS had placed the monies for these programs in "special program funds," the monies could have been allocated for the programs alone.
Practice Points:
- Charter school boards and finance officers should adopt measures to regularly review and pursue proper funding procedures.
- Consider appointing someone or some group within or outside the school to monitor and, as necessary, negotiate or challenge funding practices.
- This case demonstrates the power of collective action; charters schools are well served to identify other funding and non-funding issues around which a collaborative effort is warranted.
We hope this update has been helpful.
Best regards,
David Hostetler, Esq.
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