The Search for Funding

The winds of change are sweeping online schools across the K-12 vista—and shaking the foundation of public school funding.

By Denise Jarrett Weeks

The question of funding online schools is all about how you define school. Systems for funding public schools are built around the traditional notion of the brick-and-mortar schoolhouse. Children gather together in one place to study discrete subjects with certified teachers in blocks of time, with students progressing in their learning at more or less the same pace (and those who can't keep apace, drop out).

But a "perfect storm" of circumstances has given rise to the phenomenon of online education. And this new mode of schooling not only dismantles the confines of bricks and mortar—time, space, and pace—it's rattling the foundation on which public school funding is built.

The expanding capabilities of telecommunication technologies have combined with strong movements favoring public school choice, charter schools, and homeschools, along with the stimulus of technology-funding initiatives and the No Child Left Behind Act (NCLB). Responding to these forces, enterprising people in the public and private spheres are developing online education programs to supplement and, in some cases, provide alternatives to traditional schooling.

Across the country, online schools and programs are popping up all over the place. This school year, 41 percent of all K-12 schools will offer some sort of online learning option for students—10 percent more than last year, say market researchers at Quality Education Data Inc. States are grappling with how—even whether—to pay for them with public school funds.

There are a few states with groundbreaking legislation to look to as models, (notably Florida, Minnesota, Ohio, and Pennsylvania) but states are at their most idiosyncratic when it comes to their laws and regulations surrounding public education. To even begin crafting policies and laws that address online education, each state is having to grapple with the bedeviling complexity of its individual statutes. With its rugged vastness and its penchant for innovative technologies, the Northwest would seem fertile territory for online distance education. And it is. Online K-12 education programs are being readily developed in the region by states, school districts and educational service districts, colleges and universities, and charter schools.

Determining how to fund this new mode of public education involves interpreting different sets of laws governing school funding formulas, homeschools, charter schools, conventional distance education and, in the rare cases where there are actually laws on the books for it, online education. Add to that mix the legal requirements of NCLB, and you have a gathering front—for opportunity or calamity.

Breaking With Convention

For seven years, the federal E-Rate initiative pumped some $8 billion into educational technology nationwide, helping states to create robust telecommunications infrastructures. For the past three years, the NCLB initiative Enhancing Education Through Technology (E2T2) has directed $1.8 billion toward technology infrastructure, professional development, and online education—Northwest states received about $72.5 million. (However, neither initiative's future is assured. This fall, the federal government temporarily froze $3.28 billion in E-Rate requests from school districts and Congress cut $200 million from the E2T2 program.)

This massive infusion of funding has created desire, willingness, and the capability to use the full power of technology to educate children, even if that means breaking with convention. But while start-up money to launch online education programs often comes from federal and state grants, the search for funding thereafter becomes much less straightforward. Sustained funding models such as those for brick-and-mortar schools are lacking.

Schools and districts typically look to their regular state education funding to pay for online programs. But that can be an iffy proposition if the online program serves students in multiple districts. Generally, education funding is distributed by states to school districts based on the number of full-time students being served in the district. In calculating this, states look at how many hours students are receiving instruction—"seat time"—to determine how many students are participating in school full time. In bureaucratic parlance, this means the number of students who are "full-time equivalent" (FTE).

And this is where things can get tricky for online schools and programs.

Some states have no adequate mechanism for funding anything more or less than 100 percent FTE. Yet, many students who enroll in online courses do so on a part-time basis to supplement their educational program. So, how does the state per-student apportionment for that student get divvied up between the student's home district and the online provider who may well be in another district or even another state? If a student who is enrolled full time in her regular school also enrolls part time in an online program, must the state pay more than 100 percent FTE for that student?

What if a district launches an online school that draws a large number of previously homeschooled students? It's not uncommon that a state's education budget for a fiscal period is finite. Large, unanticipated enrollments of new students into the public school system can draw down that budget, meaning every district would receive less per pupil than it would have otherwise.

Alternatively, some states have systems in which the level of per-pupil funding to school districts is guaranteed, so that a surge in new enrollments in one district doesn't dilute funding to other districts. Nevertheless, if District A suddenly draws a significant number of public school students away from District B, District B is going to feel a sharp pinch in its purse.

All these issues and more have to be addressed as states evaluate whether online programs qualify for funding under existing laws. If not, lawmakers are finding they must roll up their sleeves and start rewriting.

'This Is Too Important'

Oregon is in the midst of sorting out its own tangle of questions. Though forward-thinking in its development of a statewide Internet and videoconferencing network, it was still caught off guard by some aspects of the online education phenomenon.

This fall, for example, two school districts in Oregon had hoped to launch online public charter schools, only to find that their innovations overreached the flexibility of the state's charter school law and funding system. The tiny Coquille School District, near the Oregon coast, applied for a charter to open the Coquille, Oregon, Independent Distance Education Academy (COR-IDEA). Based on a model that originated in the sub-Arctic community of Galena, Alaska (see "Crossing the Public School-Homeschool Divide"), COR-IDEA would have targeted homeschool families across the state.

Following Alaska's model, COR-IDEA would have given a portion of its per-student funding to parents, who are the instructors, so that they could purchase curricular materials and supplementary services of their choosing. While, at present, this falls far outside Oregon's legal definition of the kind of "comprehensive instructional program" required of public schools, the case of COR-IDEA—which, in fact, is being heard in Marion County Circuit Court—is raising some important questions.

Watching the Coquille situation closely, another online school, Oregon Web Academy, was also poised for a fall launch to serve students statewide. But when its founders saw the clouds gathering over Coquille, they sought the aegis of the North Clackamas School District, renaming their program Clackamas Web Academy and reshaping it as a more conventional alternative program for district students only.

Oregon's funding formula was "built on a set of assumptions that was true even 10 years ago," says Randy Harnisch, who is the Oregon Department of Education's executive officer to the State Board of Education. "The world is very different today." There are parts of the funding system that are "anachronistic," he says, "just not quite right if you're looking at some of these technological methods of delivering instruction.

"It's one of those things that sounds like we should've taken care of a long time ago, but every time you turn around, there's another issue that complicates the question," he says.

To help sort through it all, Oregon hired the Education Commission of the States, a policy research agency in Denver, to examine which of the state's education policies and practices are helping or hindering innovation in e-learning. In October, the commission gave a draft of its policy brief, "PK-20 Virtual e-Learning/Distance Education," to the state board of education. In just two years, the report said, Oregon has moved to the leading edge of online distance education, but much remains to be done.

"This is one of those areas that would be really easy to screw up. And you could do that by being too aggressive or you could do that by being completely head-in-the-sand," Harnisch says. "This is too important to get wrong. It's coming whether we like it or not—and we like it—so we want to do the absolute best possible thinking in advance so that when we get to the point of making some policy-level decisions, we'll be comfortable that we're making the right ones."

Spiking Enrollments

Idaho is one of the few states that has amended its charter school law to include online delivery of instruction. In 2002, the Idaho Virtual Academy was launched as a K-5 public charter school, enrolling 1,000 students from around the state (www.idahova.org). In 2003, the school expanded to grades K-7, and enrollment in the charter school nearly doubled to 1,900 students.

In January 2004, Idaho State Superintendent Marilyn Howard warned the state legislature that Idaho's student enrollment was surging. The state's total student enrollment for that school year had increased by 3,500 from the year before.

"Roughly half of this is due to anticipated growth in charter schools, including Idaho Virtual Academy... " she told them. And it appeared that many, if not most, of the students enrolling in the Idaho Virtual Academy were previously homeschooled. She worried that budget estimates were going to fall short. Even so, Howard said she is in favor of welcoming homeschool students into the public school realm.

"Even if these students were previously homeschooled, they have just as much right to attend a public school—charter or regular—at state expense as any other student has," she said. "I'm simply noting that bringing these students into the public system has a cost to it... "

(This school year, the Idaho Virtual Academy expanded again, serving grades K-8, though enrollment dropped somewhat, to 1,800 students.)

Idaho law allows students to enroll in more than one public school, but as online charter schools emerged, students began enrolling in more than one district. That raised the inevitable quandary: Which school district gets the FTE per-student funding? As it now stands, schools and programs must negotiate between themselves how to divide up the FTE funding for those students who are dually enrolled. Tim Hill, chief of finance for the Idaho Department of Education, thinks it's likely that legislators will be asked to provide more clarity on this issue at the next legislative session in January.

"The unintended consequence of passing new laws, such as those that increase school choice, is that there is always one more thing to think through," he says. "Sometimes you have to go through that first year of a new law to see what still needs to be taken care of. The state legislature has been very good about revising or writing new laws to deal with unanticipated consequences. We're doing pretty well at making the necessary changes as we go."

Authority over charter schools in Idaho has shifted sharply away from school districts. Last spring, the legislature created the Idaho Charter School Commission to authorize and oversee charter schools, previously the province of school districts. And the Idaho State Board of Education ruled that charter schools could apply to the commission to become their own local education agency (LEA), meaning, in part, that federal funds can be sent directly to the charter school rather than having to pass through a sponsoring school district.

Market Drives

Alaska vigorously supports parental choice within the public school system. Since 1939, it has operated a public correspondence school. In 1995, it was among the first states to pass a charter school law, and in 1997 it passed legislation creating an exemption from the state's Compulsory School Attendance Act that allowed for homeschooling. Instructional philosophy and method, as well as curricular choices, are left entirely up to the homeschooling parents.

Enterprising public school districts began launching statewide correspondence schools to serve this growing market of homeschooled students. They commonly passed on a portion of state per-student funding to parents so that they could purchase curricular materials and other instructional supplies. As competition for this segment of students heated up, districts began offering alluring extracurricular courses in such things as private scuba diving lessons, whole-family memberships in health clubs, and family trips to the nation's capital. Families happily signed up, all at the state's expense. But parents and educators at brick-and-mortar schools complained that that was unfair. Public school students should have equal access to the same learning opportunities, they said.

The Alaska State Board of Education agreed and, last summer, led by Chairman Rich Mauer, it amended the regulations governing correspondence schools. The new rules institute accountability measures and clarify how Alaska's correspondence schools and parents can spend state school funds.

"We found what we felt was a good middle ground where we could stop or abate the misuses and yet still provide the programs, allow those parents the opportunity for choice within the public education system," says Mauer.

Separation Of Home And State

Montana also strongly supports school choice, but some are deeply ambivalent about blurring the line between public schools and homeschools. Last summer when a proposal was put together by a university professor and a couple of legislators to develop an online distance education program that would serve both homeschool and public school students across the state, it raised some eyebrows. Claudette Morton, executive director of the Montana Small Schools Alliance and an influential proponent of educational technology, had mixed feelings about the initial proposal. "We didn't feel that any money, based on our constitution, should be going toward homeschooling directly," she says.

Granted, she says, Montana allows homeschool students to supplement their homeschool program by taking courses at brick-and-mortar public schools. Providing they take a minimum of two courses at a time, the state will direct partial FTE funding to the school district for each of those students, she says.

But the idea of the state creating and funding an online program that would serve homeschool students in their homes wasn't a road Morton and like-minded educators in the state wanted to go down. That's because Montana has no way to supervise them, test them, or determine the quality of the instruction, she says. Parents simply tell the county superintendent that they are homeschooling their children, "and that's it," she says.

"When we've tried to amend [the homeschool law], we've had a thousand people up at the legislature with all the kids in nice, fluffy dresses and neckties and so forth saying, 'We don't want any state oversight,'" Morton says with a laugh. And when county superintendents have tried to visit some of the homeschools to check on the quality of the programs, she says only half-jokingly, "They were met with shotguns at the gate."

Last summer, Montana's governor at the time, Judy Martz, directed about $250,000 in federal money to the University of Montana in Missoula to create the Montana K12 Online Distance Learning Initiative. This school year, the university is piloting the program in which certified K-12 teachers teach courses that are available for dual high school and college credit. In the end, after hearing input from Montana's Office of Public Instruction and people like Morton, the dean of education at the university, Paul Rowland, crafted a plan that limited the program to students who are already in the public school system. (See "Moving Ahead With Distance Education in Montana".)

Says Morton, "Public education is very clearly spelled out in our constitution, and it doesn't say that any money goes to homeschools."

Testing And Making 'AYP'

Alaska's homeschooling families can be as fiercely independent as those in Montana. For many homeschooling families, Alaska represents freedom from overregulation and government interference. To them, it is not a contradiction to expect the state to be hands-off while handing over public funding to pay for homeschooling. And many can't or don't want to make sure their children travel to a testing site once or twice a year to take the standardized achievement tests that are required of public school students.

"We're certainly not trying to interfere [in] those home programs," says Harry Gamble of the state's department of education. "The Alaska legislature has spoken on that one and has said that that's a valid option for parents, and we believe that. But once they step across and enroll in a public school, whether that's a brick-and-mortar or one of these correspondence programs, then they are subject to the [same] kinds of rules and regulations that public school students are subject to, including testing.

"It's a distinction that's hard to make."

And in this NCLB era in which schools are required to show "adequate yearly progress" (AYP), it's important that all students take the standardized tests. A minimum of 95 percent of a school's students must participate in testing or the school automatically fails to meet AYP.

"Delta Cyber School did not make AYP, not for test results but because they didn't have 95 percent in testing," says Board Chairman Rich Mauer, who lives in the Delta/Greely School District, which launched one of Alaska's first statewide online schools (www.dcs.k12.ak.us). The students who did take the tests performed very well, he says, but, in the end, that didn't matter when it came to receiving the dreaded label of not having made AYP.

"I would love to see us go to online testing as much as possible," he says.

Idaho and Oregon have online testing systems in place. It not only facilitates testing, it can also ease resistance to online instruction, says Oregon's Randy Harnisch.

"The fact that we have online testing is very significant," he says. "It kind of primes us for accepting an online instructional program, given the fact that we are... implementing very successfully an online assessment system. It's kind of like: 'We've done that. It's working. There have been problems, but we've fixed them. OK, we can do this, too.'"

Who Gets The Funding—Who Gets The "Ding"?

In last November's election, Washington voters rejected charter school legislation for the third time in a decade, so all public online K-12 programs must be sponsored by a school district. (Although some colleges and universities offer dual-credit online courses to public high school students.)

While the state's K-20 Educational Telecommunications Network links every school district to high-speed Internet and videoconferencing, and the newly minted Digital Learning Commons (www.learningcommons.org) is being piloted as a portal to online learning options, policymaking is lagging behind the advanced technology infrastructure. At present, Washington doesn't have statewide policies regulating online education programs. Some districts use the State Office of the Superintendent of Public Instruction's criteria for providing "alternative learning experiences" to help guide their development of online programs, says David Walddon, who oversees the K-20 Network for the state (www.dis.wa.gov/K20/).

Rules addressing "alternative learning experiences" allow a student to receive instruction outside the traditional classroom setting, but beyond that, the criteria break down when applied to online programs. The criteria require each student to have an individual learning plan, and a teacher to manage the plan, including meeting face to face with the student at least weekly, says Martin Mueller, director of learning and teaching support for the Washington Office of the Superintendent of Public Instruction.

The criteria don't clarify how state apportionment funds should be distributed when a student is enrolled in multiple districts. "No one really wants to give up the money for the FTE," observes Walddon, adding, "and what about accountability?" For example, if a student who's enrolled in his local district takes math courses from an online program in another district, then does poorly on the math portions of standardized tests, which school district should be responsible? By law, the school district in which the student lives is accountable for that student's learning. But should that student's low test score count against his local school or the online program when it comes to federal reporting of AYP? "Who should get the ding?" asks Walddon.

In 2002, former Governor Gary Locke appointed a task force to help the state become "a magnet of innovation in digital learning." The group reported its findings in the "Washington State Digital Education Initiative Task Force Report" and urged the state to develop a policy allowing students to transfer their state funding apportionment to online providers of accredited courses (www.governor.wa.gov/econo/report.pdf).

"Funding for the costs of student enrollment in courses was one of the harder issues that the task force addressed," the group reported. "after lengthy discussion, the task force was of the unanimous opinion that the student's interests should prevail... districts should be obligated to pay the provider of the online course, up to the amount of the state apportionment."

In last spring's legislative session, the state legislature took up the matter and directed the Joint Legislative Audit and Review Committee to review policies addressing "alternative learning experiences" and to study what additional policies are needed to address online learning, says Mueller. The committee is expected to recommend to the legislature in June 2005 what the state's role in online learning should be.

"The Digital Learning Commons and the Digital Education Initiative got ahead of the funding model," says Mueller. "Now we've got to get caught up to the reality in the schools."

Thoughtful Manner

Not long ago, the prospect of introducing online schools into public education stirred a Jurassic Park kind of response in educators, says Martin Mueller: "The fact that you can do it, doesn't mean that you should do it." Like the dinosaurs' destruction of paradise in Michael Crichton's novel, would this technological advance bring ruin to the education environment, some wondered.

"We're past that now," he says. "We are moving into an era in which education practitioners have thought about educational technology and how to get kids the knowledge and skills that they need with the help of technology. We'd be remiss in not making online learning a vital part of our system. We have to do that. There isn't any choice, but we need to be thoughtful about it, too."

Walddon agrees. "This needs to succeed. This is clearly, clearly the way education is going. It's going to reach populations that we haven't been able to successfully reach before, but it has to be done in a thoughtful manner or it will fail drastically."