TO: 9-R School Board

FROM: Finance Accountability Committee

DATE: October 9, 2007

SUBJECT: Verbal Report to the Board: October 9, 2007-Review of Animas High School Charter Application – October 2007

The Finance Advisory Committee (FAC) has spent September reviewing the Animas High School Charter Application and makes the following comments. These comments will also be delivered to Dr. Joel Jones:

Enrollment, Facilities, Staffing, and certain Budget/Finance area are the topics we reviewed extensively as we felt these were the areas of highest financial risk. We evaluated the application from a purely economic/financial perspective and as such, the committee makes no specific comments on curriculum or other items outside of economic or financial parameters.

ENROLLMENT

In reviewing of the enrollment projections, the FAC has concerns about the assumptions used and the ability to achieve targeted enrollment estimates.

· As of the date of the application, there are 39 of 125-targeted students under Letters of Intent. We are unclear after reviewing the application that there is a clear marketing/recruiting strategy that would ensure that the budgeted enrollment in 2008 of 125 students can be met. It is also important to note that this is considered a capped enrollment.

· Although charter applicant cites strong population growth in Durango and La Plata County, that growth has not necessarily been seen in secondary schools. Currently, the growth is trending toward elementary schools and will take some time to catch up to secondary level.

· AHS estimates an 8-percent attrition rate as students matriculate to next grade level. Historically, charter school turnover in student population has been up to 40 percent per year. Durango charter students tended to try out charter schools for a year, and then seek to return to the high school.

· Durango has a significant transient population. New student population at the high school has ranged from 7 to 13 percent of enrollment during the past six years. If AHS experiences historical attrition rate or turnover, and if entry is limited to ninth-graders only, it may see a much lower enrollment in 11th and 12th grades than currently estimated.

· There are three areas of economic considerations that may impact recruitment at AHS: There is no funding for transportation, textbooks, or lunch anticipated in the application. This has the potential to limit the pool of students they can recruit from.

· Overall, enrollment is the primary driver of revenues. The budget assumes 125 students in year one growing to 440+/- by year four with little room for error. We believe that the enrollment assumptions within the charter application contain several risks which must be planned for and adequately mitigated through additional contingency planning.

FACILITIES:

· As of the date of the application there is no facility secured.

· The budget provides for rent in the amount of $120,000. It is our opinion that this amount is not sufficient to provide a facility that is appropriate for this size of educational program, or that a facility at this cost will necessarily meet the stringent health and safety laws for educational facilities.

· Given that there is not a specific facility identified, the budget for utilities, maintenance and repair, custodial, insurance, and other fixed costs cannot be financially analyzed.

· The requirements of the American with Disabilities Act (ADA) school facilities almost certainly will require a higher level of funding than what is contained in this application unless a facility is found that already meets these requirements.

· Without a location identified at this time, it does not appear there is sufficient time to identify a location, negotiate purchase or lease, retrofit as necessary and be ready for a Fall 2008 opening. It is likely that this facility would need to be open and operational by June or July 2008 to allow for break in of the facility, training, move in of faculty, etc.

· More desirable locations may cost in excess of $16.00 a square foot.

· The application has a conflict within the narrative (pg 91) that references the need for 80 square feet per student, and page 162, budget assumptions which references 60 square feet per student. If 80 square feet per student is accurate, then only $12 per square foot for rent can be assumed in the budget.

STAFFING:

· The Committee is concerned with the strategy for hiring initial staff, for replacing unexpected departures of staff and the ability to accomplish the initial training for a fall 2008 opening with an unclear enrollment. It does not appear that unexpected departures of critical staff have been considered and/or planned for. For example, how does AHS anticipate replacing a specially trained teacher mid-year and what implications would it have on the budget?

BUDGET/FINANCE:

· The written control policies need to be more specific. For example, who is the author, what is their experience and when will they be completed. Will there be an independent review (ie by an auditor or other professional) to insure adequacy of internal control policies and procedures).

· A 3% reserve is required by TABOR and is included in the application. We assume this is a minimum and should be increased to account for the inherent risks of a start up operation.

· The application is not clear as to how a budget of $130,000 for professional development over the first four years was developed. It is our belief that professional development in a specialized curriculum will be critical to success. We would like to see further information on the $130,000 assumption to determine adequacy.

· The budget does not provide for expenses that would be incurred prior to the start of the 2008 school year, ie., rent, salaries and benefits, capital technology costs, audit, etc. It is not clear what funding and expenditures will be necessary over the next 10 months and where the funding will come from.

· While the application assumes $1,100 per student in revenue from the mill levy override, the committee has been advised that the district is may not be required to provide mill levy override dollars to the charter school The FAC would not recommend giving any additional revenue other than that which is required given the direct financial implications of the Charter school to 9R (ie, the loss of PPOR revenue per student leaving 9R). Further, it is our opinion that was not the voter’s intended use of this revenue source.

Recommendations:

While the committee certainly appreciates the dedication and effort put forth in the AHS application, we believe there is significant work to be done to further develop the information provided in the application before 9R can decide on its level of participation. This includes further refinement of targeted recruitment and how it is to be achieved, further analysis on the targeted facility, documentation of the steps that will be taken to secure this facility and a continuing review of budget assumptions for adequacy under various scenarios.

On an overall financial basis, there still appears to be substantial risk in assuming the program will automatically succeed.

Further the FAC is concerned there is no prepared exit strategy for a significant failure of the program. While we understand that this is a painful question to address, it must be considered given the historical performance of Charter schools within this community. Animas High School, 9-R and as necessary CSI, need a clear understanding of the procedure for withdrawals and transfers from the school and the financial ramifications to all parties that would insure an orderly transition for exiting students assuming a worst case scenario.