From 2000 to 2020, the charter school movement boomed. In 20 years, the number of charter schools multiplied from 1,989 to 7,821 (NAPCS). During that same period, enrollment leaped from 448,362 to 3,695,769 students. What accounts for the 293% increase in new charter schools and 793% increase in new students over that period? What allowed the charter school sector to sustain such extraordinary national expansion, and is that trajectory likely to continue?
One leading factor is the growth of centrally managed charter networks. In 2000, there were less than 30 such established multi-site operators. Today, there are 2,045 schools run by non-profit charter management organizations (CMO’s) and 680 schools run by for-profit education management organizations (EMO’s). Collectively, these operators educate 35% of all charter school students, a total of 1.44 million students. The other 65% of students are enrolled in freestanding charter schools, some of which have reached enrollments as high as 4,000 students in grades K-12. See the bar chart to the right.
Arcadia’s team has spent the past 25+ years working deep in the trenches of some of the highest quality, fastest growing charter school networks in the nation as principals, operators, advocates, grant-makers, and rising educators. In our firsthand experience, the reasons for such a proliferation among network operators are fivefold:
- School Startup. CMO’s and EMO’s have proven adept in taking a systematic approach to navigating the many complexities associated with new school development. These capabilities run the gamut from growth fundraising, authorization, and facilities development to startup staffing and marketing for enrollment. Charter school networks leverage centralized operations, resources, and enterprise-level efficiencies to avoid ‘remaking the wheel’ with every school opened, which allows them to grow faster.
- Talent Pool. As the pool of entrepreneurial founders willing to take the leap to start freestanding schools diminishes, charter networks have continued to attract talented leadership by recruiting upwardly mobile professionals from many backgrounds. By leveraging their specialization and scale, CMO’s and EMO’s can hire qualified professionals at three levels – onto their central support teams, into key school management positions, and onto departmental, program, and teaching roles across classrooms and grade levels. While many districts are struggling with teachers exiting the profession, CMO’s and EMO’s are sourcing career-changing professionals from a variety of sectors and recent graduates with degrees well beyond general education.
- Competitive Agility. As the market becomes more competitive, CMO’s and EMO’s are increasingly leveraging their operating autonomy and large scale. This has positioned them to allocate more resources towards such vital priorities as compensation and talent sourcing, marketing and public relations, and all facets of facilities acquisition, financing, and buildout. These advantages enable charter networks to readily adjust to changing market dynamics and better differentiate themselves from competitors who are slower, more bureaucratic, or more resource-constrained.
- Capitalization. Over the past 20 years, capital sources for charter school growth have shifted from the U.S. DOE and institutional grant-makers to the tax-exempt bond markets, specialized venture philanthropies, and sophisticated donors seeking lasting market impact. Top charter school networks bring a track record of proven executive leadership, financial acumen, operational execution, and academic performance. As such, CMOs and EMOs frequently find it less challenging to access startup and growth financing than freestanding charters, which are often viewed as risky prospects for funding.
- Branding. As the market segment of CMO’s and EMO’s matures, brand recognition, goodwill, and loyalty are becoming an increasingly clear advantage. Before charter schools, very few public and private schools had powerful, memorable brands that resonated with families and commanded a loyal following. Today, dozens of leading CMO’s and EMO’s have become widely trusted and popular among charter school authorizers, funders, civic leaders, networks of educators, and most importantly, satisfied parents. Where a single year of poor academic performance can stigmatize a small freestanding school – and where political decision-making is undermining many school districts – the reputation and integrity of quality charter school networks is not so quickly tarnished.
Which operating platforms are proving most advantageous? Although the 20-year storyline may sound bullish, the picture is far messier. Since the first state charter laws were passed in 1991 and 1992, there have been several distinct phases of charter network scaling, and not all of those phases played out well. Even now, the landscape looks quite different for non-profit CMO’s than for-profit EMO’s.
As the chart on the next page illustrates, private companies that ran charter schools (EMO’s) experienced double-digit declines from 2017 to 2021. During that same period, non-profit corporations that managed charter schools (CMO’s) experienced 27-30 percent growth. Although enrollment in existing freestanding charter schools grew 31 percent, the overall number of such new school openings declined sharply.
There are at least two reasons why EMO’s struggled while CMO’s thrived from 1997 to 2021. First, the national education unions are vehemently opposed to EMO’s, and have worked hard to stigmatize them among policymakers, authorizers, and the public at large. Under such heavy opposition, a few state legislatures have even prohibited new EMO entry and growth. Second, as a market segment, EMO’s have struggled with mixed performance. Some companies have built a strong reputation for quality while others have failed to get consistent results across their school networks.
Moving forward, three key drivers may positively affect the trajectory of EMO growth. While non-profit CMO’s often rely on philanthropic generosity to startup new schools and expand, strong EMO’s can draw heavily upon the capital markets including venture capital, investment banks, retail banks, and bond financing. Whereas non-profit CMO’s tend to be risk adverse, expensive, and slow to grow, EMO’s are typically efficient and driven to expand so that they can achieve economies of scale and realize investment returns. Thirdly, EMO’s are becoming increasingly adept at building hybrid non-profit/for-profit corporate structures, which allow them to access capital from a range of sources while giving appropriate priority to student learning outcomes and parent satisfaction levels.
As a market segment, non-profit CMO’s will continue to grow with the support of significant philanthropic backing. But the path forward will not be easy. Many CMO’s run schools in urban low-income communities where families need specialized supports and where union opposition is both staunch and active. As they mature, non-profit CMO’s will confront new complexities that challenge
their success. Such complexities include how to finance continued growth, how to navigate cultural and ideological differences, how to acquire freestanding schools, how to maintain strong authorizer relations, and how to build development programs that can raise money from diversified donor networks to subsize the ongoing management of schools. As school-age populations contract in many urban centers, there will be more competition for a shrinking pool of students.
What’s the outlook for charter school network growth? One thing is for sure – the growth of charter school networks from 2020 to 2040 will not be as rapid, straightforward, or easy as what the U.S. experienced from 2000 to 2020. (NAPCS 2023 Federal Charter Schools Impact Report)
According to federal sources, total U.S. K-12 enrollment is projected to decrease by 4.4 percent by 2030. Consequently, over 40 states will adjust into static or declining enrollment realities while only a handful of states will continue to see a growing school-age population. With the passage of new school choice laws and growth in micro-schools and other options, competition is heating up. Charter schools are not bright and shiny anymore, and increasingly, are being distracted with withering political battles and hamstrung by over-regulation.
Most importantly, a broader cross-section of parents is actively exercising school choice than ever before. In urban centers, suburbs, cities, towns, and rural communities all across America, parents are becoming tough-minded, discriminating customers, in large part because of negative experiences that they had with school shutdowns and student neglect and learning losses suffered through the Pandemic.
These and other factors point to a national environment where agile, intelligent, well-resourced charter school networks will continue to expand, especially those equipped with astute business plans that enable them to navigate dynamic market realities. While they succeed, school systems that are bureaucratic and complacent will contract and 100’s of freestanding charters will either shutter or get consolidated into networks.