Testimony of Dr. Michelle J. Walker-Davis, Executive Director and Shantelle Wright, Chair DC Public Charter School Board

Hearing on Eagle Academy PCS Closure

Committee of the Whole 

December 05, 2024

Good afternoon, Chairman Mendelson and members of the Committee of the Whole. I am Dr. Michelle Walker-Davis, the Executive Director of the DC Public Charter School Board. Today, I am joined by Board Chair Shantelle Wright and Chief Operating Officer Will Henderson. Thank you for the opportunity to testify at today’s hearing on the closure of Eagle Academy Public Charter School (Eagle).

I want to begin by acknowledging the significant responsibility we hold as an authorizer in Washington, DC, and how seriously we approach the important work we do, which we will delve into shortly. Our agency's authority is set forth in the School Reform Act and includes the opening of new schools, the monitoring of each school against its goals set forth in its contract, which we call a charter, and the closing of schools that do not meet the goals set forth in that charter.

Our public charter schools educate nearly half of the students in the District. Each is governed by a board made up of volunteers, a majority of which are DC residents. That board manages the school’s leadership team, and the leadership team, in turn, manages the day-to-day operations, including the teachers and staff, and communicates with the families who attend that school.

Today we are here to discuss Eagle Academy Public Charter School (Eagle), which operated two campuses in Wards 6 and 8. Now that Eagle has closed, there are 68 public charter schools in the District. I would like to say something at the onset. What brings us here today is how Eagle closed. Under normal circumstances, DC PCSB follows a clear process - used many times before - that allows public communication, public hearings, and much more. Eagle closed much more quickly because its Board decided to relinquish its charter, effective immediately. That action resulted in a closing without any advance notice to the students, families, or employees. Frankly, it caused a great deal of pain and uncertainty. When we learned of the news - at the same time as the Eagle community - we moved quickly to help students and families find new schools and staff find new jobs. It was a heavy blow, and we know it disrupted the lives of so many—former students, families, and staff who poured their hearts into Eagle.

Today, we will focus on DC PCSB’s financial oversight, Eagle’s financial decline, ways we are strengthening our oversight practices, and key reflections.

* * *

Our primary responsibility is to monitor, evaluate, report, and analyze certain aspects of public charter schools to ensure they achieve a critical overarching mission - that DC public charter schools are environments where all students, especially those in historically marginalized groups, thrive. Our oversight of schools falls into three buckets: academic; financial; and organizational. While our focus today is on our financial oversight process, it is crucial to understand that all three components of our oversight function work in concert with one another to give us a complete picture of a school.

The National Association of Charter School Authorizers, or NACSA, is an independent voice for charter school policy. Their recommended best practices are foundational to DC PCSB’s financial oversight work. This is based on their Principles & Standards for Quality Charter School Authorizing derived from NACSA’s vast experience, research, and work supporting charter authorizers across the country. And, some of the best practices they recommend and we follow include requiring schools to conduct financial audits through an independent auditor, reviewing contracts over a certain dollar amount, and weaving financial oversight into annual reports and review or renewal decisions.

As a reminder, DC PCSB’s financial oversight work is also informed and guided by local laws, and we update our work as new laws and regulations are enacted. We want to emphasize a couple of aspects of the laws to shed light on our priorities. First, a school’s annual financial statements must comply with generally accepted accounting principles (GAAP) and be audited by an approved CPA firm. Moreover, the school’s annual budgets, at-risk funding reports by campus, and draft budgets for the next school year should adhere to DC’s Common Financial Reporting Standards (CFRS) allowing for better financial comparability across all public charters and DCPS.

Now, I will dive into how our different partners play a role in monitoring the financial health of our schools and ensuring their economic viability. It is important to note that while there are different players, each has an important but unique role. We, DC PCSB, are responsible for setting sector-wide financial targets, publicly reporting on finances at our Board meetings and as part of reviews and renewals of public charter schools, posting financial materials on our website, conducting routine monitoring of all schools, and working with schools on financial interventions when necessary.

For each school, its Board has the ultimate fiduciary responsibility for that public charter school. School Boards also set financial goals for the school, frequently discuss and report on finances at their open, public board meetings, and vote on school budgets. It is also expected that school board members and the school’s leadership will frequently communicate and engage with each other about finances.

School Leaders are the ones who interact with a school’s finances on a day-to-day basis. Leaders are responsible for accounting, including developing and maintaining internal accounting controls, which should also be transparent to their board members. They are responsible for drafting an annual budget which will ultimately be reviewed, approved, or denied by their school’s board. In addition, they must comply with financial reporting requirements from OSSE and grant holders. DC PCSB also requires schools to post various financial documents on their website. And, we strongly believe that families and community members have a role too. That’s why we post a lot of pertinent information on the DC PCSB website about each public charter school, including its finances. It can be found both on our Transparency Hub and in the profile we publish for each school.

There are five main elements of our financial oversight process that include document review, reporting, metrics, risk assessment, and engagement.

This is a snapshot of the routine document and data review that PCSB’s School Finance Team conducts for all public charter schools. And there are six items that are critical to our oversight of public charter schools. The first is a submission of a school’s annual budget, which they must submit each July. Our School Finance Team reviews the budgets for all schools. Following our reviews, we may require revisions to a budget for reasons such as the following:

● When a school’s enrollment is substantially less than budgeted, 

● When a school is not reporting an adequate amount of cash on hand; and, 

● When we notice that there are significant inaccuracies or incomplete items in the school’s budget based on our analyses.

We also post school budgets on our website each year in compliance with DC’s Common Financial Reporting Standards (CFRS). The second is our review of unaudited quarterly financial statements. As we review these statements, we will go back to schools for clarification if they contain concerning or confusing information. In addition to these routine financial reviews, we have the Annual Enrollment Projections, five-year GAAP-based budgets for new charter applicants, and schools requesting to change their charters. Lastly, we have Annual Audited Financial Statements per our Audit Guidelines. These audits are conducted by independent CPA firms on the DC PCSB-approved list of auditors and are due to the DC PCSB in December. The approved auditors list is developed by the Audit Review Committee, which consists of DC PCSB, the Office of the State Superintendent of Education, and the Office of the Chief Financial Officer.

In addition to the six items critical to our oversight, we require public charter schools to report additional information to our staff so we can review and assess their financial health. This includes annual audit engagement letters, quarterly School Board meeting minutes, procurement contracts > $25K, facility leases, school annual reports, IRS Form 990s, management organization, and related party templates (if applicable), and management agreements (if applicable). When reviewed together, these items create a comprehensive financial and operational narrative for each school. They allow us to monitor schools closely and identify concerns before requiring serious escalation.

Moreover, our Financial Analysis Report (often referred to as the FAR), which we post in the fall of each year, which we use to assess the financial health of each school. The FAR includes one Financial Report Card for each school, regardless of how many campuses or facilities it operates. The primary focus of the Financial Report Card is Key Financial Indicators. Each school’s performance on these indicators is compared to its prior year results and the charter sector median.

Internally, the Key Financial Indicators can be thought of in three different categories. First is the present-term metrics. These are metrics that help us understand what is happening in the present, what is going on in the current fiscal year, or the next fiscal year. These include Days of Cash on Hand which tells us how much money a school has readily available in the bank to pay expenses. DC PCSB expects schools to budget at least 45 days of cash on hand. Fewer than 30 days of cash on hand may be cause for concern. The Working Capital indicator measures all the school’s short-term assets and liabilities to meet day-to-day operations. Other indicators we look at are the Current Ratio and Cash Flow to Operations Margin, which compares the cash they have to the cash they intend to spend. DC PCSB expects the school's Current Ratios to be above 1.0, while Current Ratios below 0.9 may be cause for concern. There are also items that help us assess a school’s sustainability and project its financial health into the future. To make these projections, we look at the Change in Net Assets Margin, Aggregate Three-Year Margin, Primary Reserve Ratio, and Debt Ratio. Lastly, we have a few indicators that are less time-bound, such as audited-budget enrollment variances and ceilings, making this quite complex with lots of nuance and detail that varies with the size of the school.

DC PCSB takes a comprehensive approach to our financial oversight work. We do not believe plugging numbers into a spreadsheet to get a calculation that says yes or no if a school is healthy is the best approach. This means while we believe our review work must be consistent, we also must take into account the context of what is happening in the school, in the charter sector, public education, and in the city. We use a holistic evaluation that considers multiple indicators to thoroughly understand a school’s financial health. It is important to remember that each school has a unique mission and instructional methods, and creates their financial management approach to align with state and federal laws. Our financial oversight uses diverse indicators and data, and we take into account their operating histories and financial positions. This allows us to balance the flexibility public charter schools need and our judgment to assess their financial health and identify potential risks.

Our engagement with schools includes updates on submission deadlines, training webinars, and open communication about quarterly financial reviews. We work hard to ensure schools are tracking when information is due to us and we work with a school when we have questions about the information submitted. If a school is struggling to meet our expectations, we have escalation notices that communicate concerns or create an opportunity for communication with the school’s board. We may also hold Effective Organization Meetings, which bring together the school board and their staff and DC PCSB Board and staff. DC PCSB’s Board will take action, if necessary.

We review a variety of targets, indicators, and documents to analyze the operations and health of each school. Based on this data, we evaluate the likelihood or risk of the school encountering challenges - such as financial instability. Most of our schools meet our desired targets, and our analysis highlights these outcomes. It is important for us to not only recognize when a school is struggling but to also elevate strong fiscal performance. There are instances when schools might not meet our desired targets and only meet our minimum targets. This can be a short-term occurrence or a longer-term scenario. Regardless, we use this information to help us understand whether there is a low to medium risk of financial distress and to monitor schools at the bottom of our targets. Lastly, there are the circumstances when a school fails to meet our minimum targets. This obviously raises concerns for our team and can indicate financial distress. We would use this information to escalate our engagement with the school.

In addition to our extensive engagement with schools, we regularly engage with our partner agencies and committees. We support the DME with enrollment projections, which play an important role in helping schools create their annual budgets. We work with OSSE to compile the budgeted CFRS and actual expenditures at the school level. We convene and lead the Auditor Review Committee which has representatives from the OCFO and OSSE. The committee determines the accounting firms that are acceptable.auditors for schools to use to conduct their annual independent audits. And lastly, we have our DC PCSB Finance Committee, a subcommittee of the Board which includes the Chair, Treasurer, and another board member as well as senior staff. This committee meets quarterly to discuss school status, including those on our Monitoring List. Schools are included on this list when they fail to meet specific targets. This committee reports its findings to the DC PCSB Board and is included as a report in the Board meeting materials.

* * *

To fully understand the circumstances surrounding the closure of Eagle, it is essential to share the facts leading up to it.

We review every public charter school at least once every five years. For Eagle, that last review took place in 2023 which covered the 2017-18 school year through the 2021-22 school year. Most of the school’s key performance indicators at fiscal year-end 2021 were above the target, but there are a few things to highlight that took place during this time period. In November 2019, DC PCSB placed Eagle on the Monitoring List because the school had inadequate cash on hand - and its enrollment decreased. In May 2021, DC PCSB removed Eagle from our Monitoring List because the school at that time met its liquidity targets. In December 2021, schools like Eagle received money from the Mayor’s stabilization fund. This allowed schools to operate despite decreased enrollment due to COVID-19.

As stated earlier, our financial oversight uses diverse indicators and data, and we take into account a school’s operating histories and financial positions. Because of this oversight, we placed Eagle on our Financial Monitoring List in June 2023 due to several concerning metrics. Their enrollment dropped compared to the school’s expense model, and anticipated grant funding failed to materialize. We also began conducting monthly reviews of Eagle’s financials.

In December 2023, monthly monitoring showed that Eagle’s financial position declined at a moderate pace for several reasons throughout the fall of 2023. The school’s enrollment continued to decline over time. On Count Day, it was about 40 students below the budgeted amount. DC PCSB made recommendations that the school should consider, including downsizing staff and reducing major expenses. The school did not heed our guidance.

In January 2024, Eagle PCS submitted their audited financials late. When they finally submitted their financial information, we recommended the school decrease the size of its staff. Although Eagle’s leadership agreed to reduce its staff size, we have no evidence that they actually did so. Beginning in February 2024, we requested a revised budget and financial statement each month. We reviewed them closely and asked detailed follow-up questions.

In May 2024, we held an Effective Organization Meeting to discuss our concerns over the declining financial situation. We learned that Eagle’s Board was largely unaware of most of the financial problems occurring in the school. As a result of this meeting and following our recommendations, Eagle’s board made several leadership changes. This included hiring a new CEO and a CFO and replacing the bookkeeping firm. This led to better engagement with the new leadership team. Additionally, we increased our review of Eagle’s budgets, monitoring them on a weekly basis. In June 2024, DC PCSB’s School Finance Team recommended that Eagle be placed on an FCAP - or Financial Corrective Action Plan -- which would give DC PCSB more visibility into and control over Eagle’s finances while allowing us to build a record to revoke the school’s charter if it ultimately became necessary. This is the process we take for any school in financial trouble. In July 2024, DC PCSB approved the FCAP at a special board meeting. The FCAP made clear to Eagle that our oversight of, and investigation into their financial situation was ongoing, and outlined aggressive measures, deadlines, and expectations for the school to improve its internal controls and management practices, while also immediately improving its solvency. The FCAP was not created in isolation, rather, the targets were agreed upon between DC PCSB’s School Finance Team and Eagle’s Leadership Team. Eagle followed our recommendation that the school’s leadership share information about their financial situation with families. We have always believed that transparency is very important and the DC PCSB Board explicitly stated that at our July Board Meeting.

At about the same time, Eagle’s Board informed us that they were in talks with two or more schools interested in acquiring and operating the school in SY 2024-25. Friendship PCS’s Board voted on July 12 to extend an offer to acquire Eagle. Likewise, Eagle’s Board approved Friendship’s proposal on July 18. From the onset, DC PCSB made it clear to both schools that the request would have to be reviewed by DC PCSB staff and approved by the DC PCSB Board before it could proceed and be announced to families and the community.

On August 19, DC PCSB held a public hearing on Friendship’s request to acquire Eagle and the DC PCSB Board voted down the request. On the next day - August 20 - without any advance notice to DC PCSB, the Eagle Board voted to relinquish the school’s charter. At this point, there was no action DC PCSB could take to stop this vote or reverse Eagle’s action. I want to acknowledge that the way the school was closed was not ideal or what we intended.

* * *

Testimony of Chair Wright

As you all on the Council know, our board voted 4-3 against the acquisition on August 19. This was not an easy decision made by the Board and the options were weighted because we knew that children were involved. The DC PCSB board believed that accountability for Eagle’s financial decline and Eagle and Friendship’s desires to merge, were two distinct issues and not our board's role to handle them at the same time. Eagle demonstrated significant signs of fiscal mismanagement. We believed then - as we do today - that the Board needed to consider the case for revocation prior to considering the merger between the two schools. This was explained clearly at the August 19 DC PCSB board meeting. Instead of waiting for further action from the DC PCSB Board, within 24 hours of that August 19 meeting, the Eagle Board decided it would relinquish its charter. Once Eagle’s Board took this step, it limited the options for DC PCSB and for the school itself. At this point, with Eagle’s Board relinquishment, DC PCSB undertook a number of steps to help Eagle students and families find a new school - and staff find a new job. Dr. Walker-Davis will tell you about our actions in just a moment. Since the relinquishing of the charter and closure of Eagle, our Board and staff have reflected on the situation and ways in which our practices and policies could be improved. We consider this an ongoing conversation that will continue to take place at future board meetings.

* * *

DC PCSB staff immediately took action to support affected students and staff following the Eagle’s board’s vote to relinquish its charter. On Thursday, Friday, and Saturday, August 21, 22, and 23, we brought together a large group to participate in three enrollment fairs and two job fairs for Eagle families and staff. This included PCSB staff and Board members, My School DC staff, and representatives from DCPS and public charter schools, as well as early childhood providers. We also hired four Enrollment Specialists who contacted every Eagle family to determine if their student needed help to enroll in a new school. We are also working to digitize student and employee records, which will be available if needed in the future.

Turning to where former Eagle students and staff are today. 224 students have been enrolled in public charter schools, 114 in DCPS, and a handful are enrolled in home school programs. We are taking every measure possible to ultimately account for all 362 students. We reported 24 students to CFSA, of which 5 are not of compulsory attendance age. CFSA has identified multiple students who have been enrolled in a public school in DC. We are continuing to track the placements of the additional students we reported to CFSA. As of October 5, 2024, 44 of Eagle's 146 total staff members are employed by a public charter school, and 7 are employed by DCPS.

We recognize that this was a challenging and fast-moving situation. While the outcome was less than ideal, we worked diligently to address the demands within the constraints of the time and information available. We take our oversight responsibilities seriously and fully understand the critical importance of ensuring the prudent use of public funds by public charter schools. Our robust oversight systems are designed to uphold this commitment, and events like the closure of Eagle provide valuable opportunities to further evaluate and strengthen these systems and processes. Here are some of the improvements we plan to make regarding our financial oversight:

● We will adjust our criteria for when schools get placed on an FCAP. 

● Increase visibility of the FAR which is an important financial monitoring and assessment tool. 

● Communicate with school board members in addition to the school staff when a school is added to the Monitoring List to ensure full transparency of the financial health of the school to all relevant parties. 

● And, we will publish our Financial Oversight Overview, a resource that encompasses what we do and how we do it. Publishing it will provide complete transparency at every step of the process.

In addition to the financial oversight work, we are working to improve transparency. Our goal is to make sure that everyone - DC PCSB, the school, the public, families, and community leaders - are all operating from the same set of facts. This includes:

● When appropriate, DC PCSB will publish the FCAP on the School’s Profile Page on our website 

● Publish and regularly update the Financial Monitoring list; and, 

● Request the school share the FCAP at its next School Board Meeting.

We will require that all schools publish various financial documents on their websites per the Public Information Policy.

In addition, we want to ensure that all school board members know what it means to be on a board and have access to the information they need to provide adequate oversight. This includes:

● Providing training, support, and resources for board members on various important topics; and, 

● Ensuring schools include information on the FCAP on their Board of Trustees agenda when we conduct our quarterly board meeting minutes review.

I would now like to reflect on the insights gained from this closure. First, Closing a school is never easy, and the circumstances surrounding Eagle’s closure made it particularly hard. Closing a school is also hard on families, students, teachers, staff, school leadership, and school communities. When closures must happen with virtually no advance notice, the challenges become even more acute. There are both logistical and emotional connections that are attached to one’s school community and it is important to not only hold space for those connections but also consider their weightiness as decisions occur. We observed this when Eagle’s Board voted to close the school on a Monday. By Tuesday, we had to move aggressively to help Eagle families find unanticipated alternatives. As a result of the immediate relinquishment, families had little time to grieve and process.

Another reflection is that solvency cannot be viewed in isolation. We also must take into account the context of what is happening in the school - and how fast a school’s financial health can change in a dynamic environment like COVID-19 and less demand for the program. As shared, we strive to take a comprehensive view of a school’s financial oversight because multiple factors can determine and impact it. But in Eagle’s case, things moved really fast. Moving forward, we want to ensure we’re keying into indicators that may not necessarily trigger hyper-intervention but allow us to support a school sooner. We will also continue to enhance strong board engagement. Schools operate better when they have boards that are trained, knowledgeable, and have access to information. This is why we plan to provide board members with training, support, and resources on various important topics. Finally, we are committed to having ongoing conversations about financial oversight at future DC PCSB board meetings, to make our work and expectations for schools more visible to the public. We have changed our approach to board meetings to not only include DC PCSB's ongoing business, but we now include public discussion of timely topics pertaining to aspects of our academic, financial, and organizational oversight. There is much to do and we look forward to working with you - and leaders in education - to continue to improve our practices and procedures.

Thank you for the opportunity to speak. We are here to answer any questions you may have.