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Picking Up the Pieces: When Nonprofits Close Up Shop

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Jorene Jameson
April 29, 2016

In the brave new world of public administration, many critical public services are now provided via nonprofit organizations, especially in the human services arena. This trend has accelerated since the early 1990s when Osborne and Gaebler published their popular treatise, Reinventing Government. But after 25 years of accelerated proxy government, we see trends of significant fallout. When critical public services rely on third-party contractors, what happens when nonprofit providers close up shop?

Full disclosure here: I’m a huge fan of nonprofit organizations. When run correctly, coupled with excellent board leadership, nonprofits can supplement and/or deliver public services more efficiently and effectively than government. Nonprofits have many of the advantages of private, for-profit organizations but with a public mission at their core. They also have public support in a way government cannot realize. By soliciting donations and volunteer time from the public, nonprofits engage citizens as full partners in their mission.

But like many recipes for fixing government, the third-party contract business has a dark side. One dimension of this dark side is that unlike government, nonprofits can simply close their doors and walk away from the contractual obligations they have incurred. Nonprofits depend on a revenue stream to survive. Typically, this revenue stream is a mix of government and private funding. When nonprofits fail to thrive financially, government may be left “holding the bag.”

pencil-878695_640One newsworthy example in my home state of Florida is the charter school industry. Charter schools are privately run, nonprofit organizations that are chartered by their local school district to deliver public education. While some charters are “hybrid” in structure—nonprofits managed by for-profit organizations—the charter industry is largely dominated by nonprofits. The charter school movement was fueled by the “privatization” tenants of New Public Management, coupled with greater demands for “parent choice” in education.

While many charter schools deliver a good education product, there has been growing attention to the number of charter school failures. The Center of Education Reform, a D.C.-based advocacy organization, places the national closure rate of charter schools at 15 percent (2011), with more than 87 percent nationally classified as “nonprofit” (Some states allow for-profits to establish charter schools).

Back in Florida, with one of the largest charter school populations nationally, charter school closures have been in the news. Florida began approving charter schools in the late 1990s and since their inception, charter schools have now grown to 646 schools statewide. Also during that time period, 300 charter schools have shut their doors or been absorbed by other organizations. These closures are especially problematic from two perspectives. First, the impact on the children and the school district that must “pick up the pieces.” Second, the loss of taxpayer investment in these nonprofits that fail to thrive. In Florida, charter schools not only receive a per child allocation to provide education services, but also they are eligible for capital funds to support facility needs. When a nonprofit, charter school shuts its doors and walks away from property (usually leased), the taxpayer investment in those facilities is never recouped. The Miami Herald reported in December 2015 that as much as $70 million in 30 Florida districts went to fund capital expenses of closed charter schools, but only about $130,000 had been recouped by the state.

When charter school closures are “abrupt” and not planned, the children enrolled are virtually “out in the street” with their parents frantically looking for a new school home, usually back to the public schools. Just contemplate the trauma to these students, their parents and the public school teachers. They must adjust quickly with no planning and typically mid-year. Just think: when most students are becoming comfortable with their fellow students and teachers, a wave of newcomers abruptly spills in from a closed charter school.

There’s a price for nonprofit failure in the charter school industry. Who’s picking up the pieces?  We are. Parents and taxpayers who expect more from public education and the nonprofits pledged to serve us. State legislators need to take a careful look at their charter school closures and assess the lessons to be learned from this costly experiment in public education.

I suspect the real problem is many charter schools are “nonprofit” only in a technical sense. Those of us in the field know that “high performing” nonprofits have diverse income sources and this is just one of the “red flags” in the charter school arena where very few charters are supplementing their income sources beyond the government trough. No wonder the No. 1 reason for charter school closure is financial (Center for Education Reform, 2011). It’s time to take greater steps to ensure charter schools have the financial wherewithal and fundraising strategies to survive and thrive, preventing shutdowns that leave everyone scrambling to pick up the pieces.

Author: Jorene Jameson, MPA, is a doctoral student and graduate teaching assistant at Florida Atlantic University, School of Public Administration. Before embarking on a Ph.D., Jameson held a variety of positions in the nonprofit and governmental sectors. Her most recent position was as chief executive officer for the Broward Education Foundation in Ft. Lauderdale, Florida. Email: [email protected].

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