Colorado Charter School Finance Snapshot
Since becoming the 3rd state in the nation to authorize charter schools in 1993, Colorado’s charter school sector has developed rapidly, now comprising about 260 schools. Using data from the School Improvement Partnership Database, we identified the following characteristics of Colorado’s charter schools:
The 102 schools that belong to charter management organizations (CMOs) are organized into 28 CMOs comprising 2–14 schools each. Despite several new schools opening in the last few years, Colorado’s charter school sector is very mature, sporting an average of 17–20 years in operation.
Robust Municipal Market Access
A large number of Colorado charter school entities have accessed the municipal securities market, generally for school buildings. These 70+ entities include both freestanding schools and CMOs, and account for 42% of the charter schools in the state. Colorado charter schools that access the municipal securities market tend to be significantly larger than those that don’t — 1,021 average enrollment for the securities market participants compared to 521 for those that aren’t market participants. However, size alone is not a barrier to market access, as evidenced by the 7 Colorado charter schools with enrollment less than 250 that have successfully entered the market.
Financial strength
Colorado charter schools generally performed well in fiscal 2023. School Improvement Partnership analyzed the audited financial statements for the 67 Colorado charter school borrowers that have released their fiscal 2023 financial statements. We digitize and standardize approximately 100 data points from each audited financial statement.
About two-thirds of the Colorado charter school borrowers maintained balanced or better operating results, meaning total revenues equaled or exceeded total expenses, while one-third operated at a loss.
Charter school balance sheets are generally quite strong in Colorado, which is not surprising given the long operating history of many schools, meaning they had many years to accumulate equity and cash reserves as a cushion against challenging times. Days’ cash on hand, a measure of the ability to withstand periods of operating stress or disrupted cash flow, averages 156 days across the securities market participants in the state. However, it varies significantly, with 4 entities holding critically low levels of cash below 20 days, while 5 entities have very strong days’ cash in excess of 300.
Defined Benefit Pension Plans Contribute to Financial Volatility
For those schools in Colorado with operating losses, often the cause is an unusually large change in the school’s pension expense. Most Colorado charter schools participate in a statewide defined benefit pension plan, the School Division Trust Fund. Pension expenses are determined at the state level, then allocated to the participating schools, and can vary significantly due to changes in investment market returns, funding levels, and actuarial assumptions.
Year-to-year swings in pension expense can be significant. Pension expense can even be negative — meaning it reduces rather than adds to total expenses. Pension expense is different from cash contributions to the pension plan, which are generally more stable, but it’s pension expense, not contributions, which are reflected on the school’s Statement of Activities, which contributes to expense volatility, and in turn, earnings volatility.
Analysts who follow the charter school sector dig into revenues and expenses to understand the underlying causes of trends. By breaking out pension expense, pension contributions, and plan type, along with OPEB expenses and contributions, if relevant, the School Improvement Partnership database seeks to enhance data analytics for the user community.
In general, charter schools that participate in defined benefit pension plans report more volatile earnings than those that don’t. For example, Academy for Advanced Learning, a charter school in Aurora, reported a sizable net loss in the year ended June 30, 2023 of $4.4 million, a negative 22.8% margin. This was a big change from the $734,000 profit they reported in the prior year. However, a $4.7 million swing in pension expense — to $3.7 million in 2023 from a negative $1 million in 2022 — accounts for the entire difference in net income between the two years.
Liz Sweeney is Director of Strategic Partnership and Business Intelligence for School Improvement Partnership
