SUNY CHARTER SCHOOLS INSTITUTE March 12, 2012 MEMORANDUM To: Members of the Board of Trustees’ Education, College Readiness and Success Committee From: Susan Miller Barker, Interim Executive Director, Charter Schools Institute Subject: Merger and Consolidation of Existing Charter Schools Accompanying this cover memo is a brief from Institute General Counsel Ralph Rossi outlining the legal aspects of allowing the board of trustees of one charter school to merge or consolidate with another charter school. The purpose of this memorandum is to provide the Committee with a general overview of the merger and consolidation process envisioned by the Institute, and to describe the potential benefits of corporate merger or consolidation to charter schools and the children they serve. Mergers, as you recall, are included in the SUNY Replication Polices approved by the Committee in January. Prior to the May 2010 amendments to the Charter Schools Act (Act), an education corporation was restricted to operating a single charter school. The May 2010 amendments to the Act, however, removed this prohibition. This amendment has two practical effects: first, operating charter schools may revise their charters to operate an additional school or site, and second, two or more operating schools may apply for a revision to merge into one education corporation operating two or more schools. When the legal language is stripped away, merger consists of the following: - Common governance. A sole board of trustees can govern two or more schools eliminating the need to have multiple education corporations formed with the same board members. Paperwork and compliance burdens are reduced when one board can make decisions across a number of schools. - Common oversight and handling of finances. The resources of several schools can be pooled and directed to appropriately oversee the finances of all the schools and the one education corporation. Smaller schools are not restricted by their enrollment in access to resources for financial oversight because of reduced income. In addition, the education corporation can have one outside audit performed on the financial statements of the sole education corporation with audited financial schedules for each school or site. This is a key cost savings over having an audit for each separate school education corporation, especially when the financial policies, reporting systems and internal controls were intentionally designed to be the same. In addition, a common education corporation budget can be developed each year with schedules for each school that would allow the education corporation to direct and share resources amongst schools in a way that was previously difficult or impossible. The single education corporation with more employees also has increased buying power in purchasing employee benefits, insurance, technology, educational materials, services and commodities, and is better positioned for financing charter school facilities. - Shared Educational Programming and Resources. Merger allows several schools the ability to share programs and staff between schools, which is the most significant advantage of merger. Students with disabilities or English language learners can now be integrated from different schools into classes at one site and receive the appropriate setting, resources and instructors. Merged schools can locate a special education or other class in any one of the schools and serve at-risk students from across all of its schools. Similarly, teachers who previously may have taught part-time at more than one school can now be hired full time by the education corporation and be deployed as needed. - Improved student access. As students must be admitted to a charter school through a lottery, access to charter schools has always been limited even for schools in the same “networks” or under common management through a charter management organization. Charter schools students receive a returning student statutory preference under the Act that allows them to return each year, but does not allow any admissions preference for another charter school. Middle and high schools require greater resources than many charter schools can afford. Merger allows separate schools to legally combine to found middle and high schools where the existing elementary schools can legally direct students with the returning student preference. In addition, an education corporation operating multiple schools can accept students into any one of their schools so long as there are seats without the parents having to apply to multiple schools. The result is greater access to charter school education. The Institute has made significant progress in developing a framework to allow existing charter schools to merge, and anticipates bringing the first round of merger or consolidation revision applications to the Committee as soon as April or May 2012 for review, consideration, and potential approval. It is important to note that a merger involves existing schools only. Merger does not create a new charter school; it simply combines existing schools under one governing board. As set forth above, merging existing charter schools charter schools – technically termed education corporations – to better serve students in a variety of ways. Several SUNY authorized charter schools have contacted the Institute to express a strong desire to take advantage of the amendments to the Act by merging. The desire to consolidate pathways between existing elementary, middle and high schools drives much of this demand. This offers students and their families additional choices in planning their K-12 education. For example, a third grade student who enters a K-5 charter school, operated by a governing board who has a charter agreement with SUNY may want, when s/he reaches sixth grade, attend a school with the same type of program, operated by the same board members under a separate charter with SUNY. Currently, that student must enter a lottery with the inherent risk of not getting admitted to the 6-8 school that continues the program s/he attended in elementary school. This is the case with Harlem Prep. The SUNY Trustees voted in 2011 to allow Harlem Prep’s restructuring renewal to go forward. Early indications are that the school’s K-4 parents and students are happy with the program and it is posting early qualitative success. Under a separate charter, in a separate building, the continuation of the Harlem Prep program called Democracy Prep is offered to grades 5-8. Fourth grade students at Harlem Prep may not automatically enroll in 5th grade at Democracy Prep, but must enter a lottery where approximately 100 students out of 1500 applicants are admitted. (That is one of the reasons why the Institute recommended a grade expansion for Harlem Prep.) Merging or consolidating charter school also allows education corporations to provide additional programming. Three of the schools who have reached out to the Institute to express interest in merging assert they would like to offer additional special education settings (collaborative team teaching or 12:1:1 class (twelve students – one special education teacher-one special education aide)). For example, each of the three schools may have 4 students whose IEPs call for the 12:1:1 setting. Rather than ask the district to educate those students, the charter schools could retain all of them in a class sited at any one of the schools if they merge. Others have indicated merger would allow schools to create stronger music programs across the education corporation. As individual charter schools tend to have smaller enrollments, what pre-merger a school with less than 100 students per grade could not do in terms of creating a robust chorus or orchestra, a merged education corporation could offer. The Institute would require all existing schools seeking to merge to complete a number of procedural tasks as set forth in the Education Law and Not-for-Profit Corporation Law (NPCL) as part of a charter revision process for each school. Notably, the schools would have to call a public meeting specifically for the purpose of voting on the merger agreement. The NPCL requires the merger agreement to address a number of elements including the transfer of all assets and liabilities of each education corporation being merger into the surviving education corporation. Again, no liabilities are avoided and no assets are removed by merging existing education corporations. All contracts, including collective bargaining agreements must be honored by the merged entity. Once these procedural steps are taken, all education corporations seeking to merge would apply to SUNY (and, if authorized by another authorizer to that authorizer) for a charter revision. The revision request would include the merger agreement, revised corporate bylaws, as well new budgets and all school policies impacted by the revision. Based on the existing policies of the SUNY Trustees, as well each school’s charter agreement, such a revision request would be deemed a material change in program, triggering formal notice to the school district of location of each merging education corporation and a public hearing in each such school district. All merger revisions would require the approval of the Education, College Readiness and Success Committee. If the merger is approved by the Education, College Readiness and Success Committee, the Institute would enter into a new proposed multi-school charter agreement with the resultant or surviving corporation. As required by the Act for all material charter revisions, the multi-school charter agreement and attachments would be forwarded on to the Board of Regents for review and approval. In a merged or consolidated education corporation, the corporate oversight of the charter schools would be centralized. However, the underlying charter schools would retain their separate character. As set forth in the SUNY Replication Policies, each charter school would continue to operate pursuant to separate accountability plans and periods, enrollment and retention targets, etc. Most importantly, the high-stakes renewal determinations would continue to be made on a school-by-school basis without regard to the overall corporate structure. The Institute has met with the State Education Department, and all parties are in agreement that charter schools authorized by different charter entities are permitted to merge under the Act. In such a scenario, the SUNY Trustees may gain the oversight of a school that had previously been chartered by a different authorizer, or they may lose the oversight of a school it had approved in the past. Both the Board of Regents and the SUNY Trustees have authorized one or more schools that offer the same or similar programs (Uncommon School, Knowledge Is Power Program, Success Academies, Manhattan Charter Schools and others). In some instances schools with these same programs, and common board members, have a few schools authorized by one authorizer, and one or more schools authorized by a different authorizer. Some of these schools would like to merge schools together into one education corporation, operating the same number of schools as before the merger (no new charters are created when existing schools merge), under one authorizer. The Institute believes that the prospect of charter merger will greatly benefit New York charter schools. While the creation of a viable path to merger and consolidation has been difficult, the Institute has been able to utilize the work already being done with respect to replication to develop thoughtful, legally sound process to implement the changes to the Act. Ultimately, merger will permit charter schools to place even greater emphasis on the needs of the children they are entrusted to educate. Attachment Copy: Senior Vice Chancellor Johanna Duncan-Poitier