A Hawaii island charter school that was nearly shut down five years ago amid financial troubles is again struggling to cover expenses, and state officials have serious concerns about its ability to finish out the school year.
With approximately 200 students enrolled, Na Wai Ola Public Charter School — in Mountain View, south of Hilo — will receive about $1.4 million this school year in per-pupil funds from the state. Payroll costs have ballooned with the addition of two new grades, and the school purchased a portable classroom building to accommodate the growth.
“They had some very significant fourth-quarter expenses last year, and so that’s why the radar wasn’t going off last school year. But toward the end of the year, it was a very, very serious situation to get through,” Tom Hutton, executive director of the state Public Charter School Commission, said, citing costs tied to the school’s addition of pre-kindergarten and seventh-grade classes.
“They do have a payroll situation that has been eating at their budget, and it’s not sustainable,” Hutton told the Honolulu Star-Advertiser.
Of particular concern is a revised law — passed in the wake of last year’s closure of another debt-ridden charter school — that requires a school to automatically surrender its charter contract if it cannot meet payroll.
“So, Na Wai Ola has got to make payroll. And what that means is they have got to shrink their payroll to fit within their means to meet it. And we’ve made that very clear to them,” Hutton said.
The law change was intended to avoid a drawn-out closure for insolvent schools, as was seen with Halau Lokahi, which lost its charter in March after struggling for months to stay afloat despite having no money. (The attorney general’s office has been investigating alleged misuse of public funds and theft by the school’s former co-founder and director.)
Over the summer, routine monitoring of Na Wai Ola’s quarterly financials revealed cash flow challenges that prompted the commission staff to impose monthly checks of the school’s finances.
At the commission’s monthly meeting Thursday, the school’s October financial report showed that, based on current spending levels, the school had the equivalent of 12 days’ cash on hand — well below the expected 96 days. Under state law, charter schools receive 60 percent of per-pupil funding based on projected enrollment at the start of the school year, and another 30 percent by Dec. 1, based on actual enrollment. The remaining funds have to be allocated before the end of the school year.
Leila Shar, the commission’s financial performance manager, said the per-pupil allotment for all charter schools increased to $6,846 per student from a projected $6,500, which schools used for budget planning.
“So that’ll help the school, but even after factoring that in, it might be pretty close for the school to make it through the year. The significant cost issue at the school appears to be their salaries, their staffing,” Shar told the commission, adding that the school is spending $110,000 a month on personnel costs. The school also has $13,500 in outstanding employee loans or advances, which the school has since been advised is not allowed.
“Again, even with the higher per-pupil amount, it looks like the school could end the year with a loss as high as $400,000,” Shar said.
The commission was established in 2012 as part of an overhaul of Hawaii’s charter law to tighten oversight and accountability of charters. Schools are independently run under contracts with the commission but report to their own governing boards.
Principal is confident
Daniel Caluya — who was hired as principal in 2009, shortly after state officials threatened to revoke the school’s charter — insists the school will end the year in the black.
“I understand their concerns and we respect that. However, we’re going to be fine financially. And we’re working with the commission to make sure that we stay financially solvent,” Caluya said in an interview. “We’re going to do everything we need to do to make sure we are financially solvent by the end of the year. I’ve been here six years, and I was here when the school closed in 2009. I understand what the stakes are.”
(The state’s charter review panel voted to revoke the school’s charter in 2009, but the school, then known as Waters of Life, sued and prevailed because rules for revocation had not yet been approved.)
Caluya, who didn’t attend Thursday’s meeting, said payroll costs increased with enrollment.
“We have pre-K now; we didn’t have that last year. We have seventh grade; we didn’t have that last year,” he said. “Our enrollment went over 218 kids, which necessitated us to have more folks working on our campus. … When you have 25 to 30 kids in a classroom, you have to have a highly qualified teacher; you have to have a highly qualified educational assistant. That’s where the payroll’s at, right there.”
He added, “We’re not frivolous with our money. It all goes toward the children. There’s no hidden agenda.”
Lessons learned
Halau Lokahi’s money troubles came to light at the end of the 2013-14 school year, when it ran out of money and stopped paying its staff and rent. It ended that year with a $502,000 deficit. Halau Lokahi’s experience had commissioners concerned Thursday.
“This is like Halau Lokahi, Chapter 2,” commissioner Mitch D’Olier said. He suggested it would be helpful, in general, to have a protocol for whether and when the commission should intervene.
“It might help me, say, as a board member of a school to know that the commission was going to drop the hammer at this point,” D’Olier said.
“For me, I’m trying to identify the hammer,” commissioner Kalehua Krug said. “Is the hammer you step in, make the budgetary changes, save the school? Or is the hammer wait, wait, wait, shut the school down? At what point in time do we step in, and how do we step in?”
Shar, the commission’s financial performance manager, said Na Wai Ola has been tasked with revising its budget, which will be reported at the commission’s Jan. 14 meeting.
A recent state auditor’s report faulted the commission for failing to recognize and act on early signs of financial distress at Halau Lokahi.
“The auditor faulted us for not intervening early enough and aggressively enough, and not engaging the governing board directly, and all of those lessons have been learned,” said Hutton, the commission’s executive director. “Part of it is lessons learned, but part of it, too, a lot has to do with the attitude of the school. This is not a school that stonewalls the commission when we’re asking for information. That said, we still have some concerns, and they’ve got a lot of tough decisions to make.”
