Fact Checker: Hekia and Charter School Finances

Fact Checker: Hekia and Charter School Finances

Minister of Education, Hekia Parata, faced a few questions in parliament yesterday about the $2.5 million surplus that one of her charter schools has accumulated in only 15 months.

Save Our Schools would like to make a few points about the Minister’s answers that warrant comment.

The Minister attempted to deflect the primary line of questioning by saying that the Paraoa charter school Sponsor, He Puna Marama Trust, was responsible for several entities and that the charter school was only one of these entities.

True, Hekia, but the surplus relating to Paraoa on its own is $2,535,196. Total Trustee’s Equity, as at 31 December 2014, was $6,697,084, as shown in the Trust’s published 2014 financial statements.

The Trust was established in October 1997, but in only 15 months, a brand new charter school now provides over 37% of the Trust’s total net worth.

The accumulation of a surplus of $2,535,196 arising from total government revenue of $3,897,323, indicates there are real problems with the funding model: both in the generosity of the one-off Establishment Payment and the method and amount of the annual operational funding.

And the Ministry of Education knows this.

In a Ministry paper prepared for Cabinet in October 2013, the Ministry made this observation:

“36. The cost is particularly high, especially for small secondary schools. The development of a resourcing formula for Partnership Schools based on an equivalence with state schools highlighted the significant amount of base funding that small state schools get that is not roll-related. This is to ensure that they are viable, regardless of the number of students enrolled. Property funding for Partnership Schools is essentially a leasing model and is based in the school’s final roll so that the school does not have to move as its roll builds up.

37. These factors mean that the cost of small schools is much higher on a per student basis than larger schools (Figure 2 refers). [p. 5]”

And therein lies the heart of the problem.

Why is the government fully funding the establishment of small, expensive schools when there is capacity in the network that the taxpayer has already built and paid for?

And what happens if the model produces an amount of funding that proves to be greater than necessary to operate the school?

Overfund a State school and it’s an asset owned by the Crown and operated by a Board of Trustees, which is a Crown Entity; overfund a charter school and the private sector Sponsor gains directly from the government’s generosity.

All of the charter secondary schools, including Paraoa, are small and therefore bear high “fixed costs” funding. The Base Funding alone for each charter secondary school is over $1 million each year.

But this problem is compounded by the fact that the model is “cashed up” and paid out to the Sponsor, whereas State school assets are still owned by the Crown.

The funding model is also allocating the Sponsor an amount based on the assumption that the roll is heading for its Maximum Roll, as per the contract, of 300 students. This would still be a small secondary school by New Zealand standards, but in 2014, the actual roll for Paraoa ranged between 50 at opening and 52 in October. The 2015 opening roll is 76 but this is still only a quarter of the target roll.

A further problem lies with the “Property & Insurance” component of the annual operational funding. The funding model produced an annual allocation for this school of $737,936 but property costs incurred in 2014 amounted to only $239,097.

So, the property funding component alone generates additional net income for the Sponsor of half a million dollars a year – every year!

Save Our Schools calls on the Ministry to conduct an urgent review of the charter school funding model. There are flaws in its policy base, the method of funding and the amounts it is allocating to the individual schools.

A detailed analysis of the 2014 charter school financial statements is being prepared by Save Our Schools and will be released once the outstanding Sponsor financial statements have all been published.

ENDS

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