Hawaii Withholding Funds from Charters

Published April 1, 2005

The U.S. Department of Education (DoE) has opened an investigation into the withholding of approximately $1.7 million in federal special education funding by local state education officials from Hawaii’s charter schools.

In at least one case, the withholding caused a local charter school, owed $160,000, to suffer such severe financial trouble that it is in jeopardy of being shut down.

State education officials have attempted to downplay the matter. The information became public on February 7 in a Joint Senate/House Informational Briefing at the state capitol on the Waters of Life charter school audit, during the testimony of Dewey Kim, former director of the state’s Charter School Administrative Office, who is now a charter school consultant.

In his review of the finances of Waters of Life charter school, which was recently criticized in an audit by State Legislative Auditor Marion Higa for financial mismanagement and subsequently is in jeopardy of losing its charter, Kim learned $160,000 in special education funds were withheld from the school by the Hawaii DoE over a two-year period.

Higa confirmed at the hearing that she had discovered the withholding during the state’s audit. Chuck Higgins, director of the Hawaii DoE Charter School Office in charge of administering federal funds, would neither deny nor confirm the charge.

Missing Money Exacerbated Debt

Payment of the $160,000 owed to Waters of Life would be sufficient to cancel a large portion of the school’s debt and would reduce the threat of closure by the state.

The total amount of debt incurred by Waters of Life during the first two years of operation was $257,000, primarily caused by a failed lawsuit filed against the school by the state attorney general to shut it down for alleged back payments on school lunches, substitute teachers, and required centralized services; a lawsuit by a local homeowners association for zoning violations; and by the Hawaii DoE’s failure to provide funding equal to other public schools.

Instead of suing the state, as another Big Island charter school did for money it never received, Waters of Life agreed to a five-year debt repayment plan with the state Board of Education (BoE) in a settlement agreement dated October 17, 2002. Waters of Life made all payments on time until the December 31, 2004 payment was delayed for 20 days due to an internal communications error prior to the three-week winter break.

Board Persisted in Attacks

Although the school’s administrator brought all payments current with a $10,000 payment to the Board of Education at its February 1, 2005 Charter School Committee meeting, the BoE scheduled a decision on whether to revoke Waters of Life’s charter at its February 17 meeting.

Ultimately, the BoE issued a reprieve for the school after the charter school’s attorney, Ted Hong, outlined a convincing case in his testimony that Waters of Life was entitled to due process under the law before its charter could be revoked. Closing the school would have displaced 181 students.

According to Kim, Waters of Life is not the only state school experiencing financial difficulty. He estimates a total of $1.7 million in special education funds were illegally withheld from other charter schools across the state.

By verifying the school’s fiscal and academic viability, Kim’s testimony undermined apparent attempts by the Board of Education, Department of Education, and House and Senate education chairs to expose the “failings” of Waters of Life. State Sen. Bob Hogue (R-Kailua) asked Kim if he felt the audit was part of a larger attack on all charter schools.

Kim replied, “I am apolitical, and I am not aware of any politics involved or any large-scale attempt to undermine charter schools, but I believe racial discrimination could be a factor, because Waters of Life is the only charter school in the state serving primarily African-American students.”

Racial Discrimination Suggested

Kim, who worked as an attorney general for several years and handled many discrimination cases during his tenure, stated that charter schools serve five under-represented groups in the Hawaii DoE system:

  • African-American students;
  • children of military dependents;
  • newcomers from the mainland, especially Caucasian students;
  • Hawaiian children who come primarily from rural areas, and
  • special-needs students.

Kim’s statement on racial discrimination made lawmakers and school officials at the meeting visibly uncomfortable. The DoE is currently reeling from accusations of racism at Radford High School in Honolulu, where the reported harassment of several African-American students culminated in an attack by local students after a basketball game in January 2005.

School Managing Finances Well

Beyond providing an excellent educational opportunity to the Hawaii school system’s five under-served populations, Kim testified that Waters of Life was on solid ground financially.

The charter school’s investment in property resulted in an increase in value from $350,000 to $850,000, based on a recent appraisal. The school is planning to sell its school property and pay off its remaining debt to the state.

“With fair funding, charter schools will fulfill their potential to be incubators for change,” testified Jim Shon, director of the Charter Schools Administrative Office. “Benign neglect of charter schools by the state has led to problems for the charter schools,” he said.

U.S. Congressman Ed Case (D-HI) affirmed in a letter to the Hawaii Reporter dated February 9, 2005 that he had initiated a federal investigation in July 2003 into the Hawaii State Department of Education’s fiscal management practices. Specifically, Case asked the U.S. Department of Education to determine whether Hawaii’s charter schools are receiving the proper amount of federal funds for special-needs students.

The Hawaii DoE is now reaching out to Waters of Life in an attempt to resolve its debt and help the school find permanent facilities.

Laura Brown ([email protected]) is education reporter and researcher for HawaiiReporter.com and education policy analyst for the Grassroot Institute of Hawaii.