Virtual Schools – Cash Cow Dry???

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No tide of cash from virtual schools
Online efforts aren’t the big revenue source many had foreseen
By AMY HETZNER, Milwaukee Journal Sentinel
Posted: Dec. 4, 2005
With a contract to open the first statewide virtual high school before them, the mood of the members of the Waukesha School Board at their January 2004 monthly meeting was effusive.
A cost simulation showed that the school – called iQ Academies at Wisconsin – could start generating as much as $1 million for the school district by the 2006-’07 school year.
School Board members gushed.
“Pretty sweet,” board member Daniel Warren said about the numbers.
A little more than a year into the iQ’s operation, however, the school has yet to come close to matching the board’s high hopes.

Expected to run $1.2 million in the red by next summer, the school faces possible closure unless administrators show they can stop the financial bleeding.
“There are not a lot of options,” Warren said in a recent interview. “One option is to not proceed in the third year, to shut the program down because it’s not working financially for us.”
What has happened with the Waukesha school caught not only its board members but other school officials in the state off-guard.
And it raises questions about a previously uncontested notion about virtual schools – that they save money.
“I think the assumption was everybody saw it as a quick way to make a dollar. And it’s not,” said William Harbron, superintendent of the Northern Ozaukee School District, which runs the Wisconsin Virtual Academy.
Grandiose expectations
When the idea of virtual schools with students attending from home via computer first emerged, it seemed a sure-fire way for a savvy school district to make some extra cash.
Without the physical facilities of traditional school systems and the related transportation concerns, the schools could lure students from around the state, bringing more than $5,000 each under the state’s open enrollment system, while still operating below the cost of a regular school.
The Appleton Area School District was the first to jump on board in 2002 when it signed an agreement with Sylvan Ventures to open Wisconsin Connections Academy to elementary-age students statewide. The Northern Ozaukee School District followed in 2003 with another virtual elementary school before Waukesha launched its new high school in 2004.
Finances in Connections Academy’s first year were not picture perfect, Appleton Assistant Superintendent Todd Gray said.
That year, the school had to fend off a lawsuit filed by the state’s largest teachers union, the Wisconsin Education Association Council. In addition, the school had planned for a larger staff than was necessary after receiving applications from 1,000 students, only 400 of whom ended the 2002-’03 school year enrolled in the Appleton charter school, Gray said.
Even today, with a formula in place to account for the large student attrition rate common to virtual schools, the district is fortunate to break even at the end of the year, Gray said.
“I’ll be honest with you, our margin’s pretty close,” he said. “I mean, we didn’t go into this to make money. If we make 30 to 40 thousand a year net, that’s fine.”
Northern Ozaukee’s Harbron also said that money was not his district’s motivation when it opened Wisconsin Virtual Academy two years ago. Since then, however, the school has provided an extra $120,000 annually for the district’s operating fund, which Harbron said offsets funding losses caused by declining enrollment in the district’s brick-and-mortar schools.
Any savings the school has comes from its large student-teacher ratio, he said, which could be threatened by a lawsuit filed by WEAC that contends the school violates state law because it relies too much on parents to fill the role of certified teachers.
While Northern Ozaukee isn’t losing money, the same can’t be said for K12 Inc., the educational company once headed by former education secretary William Bennett that is contracted to run Wisconsin Virtual Academy.
As it has expanded to become the country’s largest operator of online public schools, K12 has yet to turn a profit, said Jeff Kwitowski, the company’s director of public relations.
But much of that is because the company is still developing its product, a full K-12 online curriculum with associated materials, he said.
“We’re not looking to make profit off the management side,” Kwitowski said. “Our product is where we’re going to eventually be successful. . . . Then we’re going to, I think, see our product kind of take off and sell itself as districts are saying, ‘Hey, this is great stuff.’ ”
Careful contractual agreements have protected the Appleton and Northern Ozaukee school districts from major losses in the first years operating their virtual schools.
Waukesha school defended
Waukesha School Board member Kurt O’Bryan thinks his district’s contract with KC Distance Learning does the same. So far he’s in a minority in his district.
Splitting its losses with KC Distance Learning, the private company that the Waukesha School District contracted with to start iQ Academies last year, the district is on pace to lose $716,720 by the end of the school year because of iQ, according to a November report by the district’s business office.
A number of factors are at work. Revenue has been below expectations, with fewer students bringing fewer dollars to the school than originally predicted. In addition, the state’s open enrollment reimbursement amount, which had been increasing by between $125 and $231 a year, rose only $50 per pupil last school year.
Costs also have been running higher than expected, with more teachers on staff than can be justified by the number of students who eventually enroll.
iQ Principal Kristine Diener suggested that the school could increase its pupil-teacher ratios and start writing its own curriculum instead of purchasing it from outside vendors as cost-saving measures.
Closing is not an option to Diener.
“I think everyone feels that we’re meeting some very important needs,” she said. “The main thing is we want to have this available for our students internally.”
Waukesha’s virtual school is vitally important to students such as Sammuel Kimball, a former home-schooler who enrolled at iQ this year so he could have access to upper-level math teachers, said Sammuel’s father, Arthur Kimball.
“I would say the Waukesha School Board should be applauded at every corner,” he said. “To take the risk to open the school up and to allow this educational opportunity, it’s totally amazing, and it’s above and beyond the call of duty.”
Aggressive recruiting of more students like Sammuel who would not be as well served by traditional schools would be a better answer than closing iQ, Kimball said.
Sixteen-year-old Sammuel agreed.
“It is a really good opportunity for a lot of people,” the high school junior said. “It’s just not known enough.”

3 thoughts on “Virtual Schools – Cash Cow Dry???”

  1. I don’t know that Virtual Schools will ever be a source of significant cash flow. That’s not, in my view, the point. Rather virtual technology can be applied to enhance or supplant existing curriculum in a cost effective way (this is not without controversy, of course). I don’t believe virtual tools are the right answer for all students. However, given a choice between reducing or eliminating classes or programs, I would certainly advocate giving it a try.
    Parents and students are exposed to more and more options every day, like, among others.
    These initiatives often lead to some interesting opportunities.

  2. As many of you know, I have been working with district staff to expedite their offering of on-line curricula to the MMSD student body. I recently had a great meeting with Pam Nash, Mary Ramberg, Welda Simousek, Joan Peebles and Kelly (who’s last name I’ve forgotten but currently teaches the on-line curriculum). They hope to have an on-line pilot with some students next fall and offer some courses that are not currently being taught in the MMSD. The thoughts to select students would be to work with some guidance counselors but also to some parent groups like “TAG parents.” Of course, there is much to be done such as identifying staff to teach, CBA issues, learning environments etc., however, I think this is a positive step. While it might not be a “money maker” it could generate some revenue if it can attract some home schoolers and offset costs of the youth options program. Obviously, on-line curriculum is not for every student, however, it will be an attractive option for those who would like it. I am excited for the possibilities!

  3. The virtual school serves a wide spectrum of students that the State of Wisconsin is legally obligated to educate. Many educators, administrators, counselors yet alone Special Education Directors and Gifted & Talented Directors are unaware of the school or what it has to offer, even school personnel in nearby communities seem uninformed. As with any business, it may take time but as its services become more commonly known, more will partake and its’ budget will then be in the black with perhaps some left over for the District’s other needs. Perhaps the State of Wisconsin could assume some of IQA’s costs in these growing years as IQA serves kids who have fallen through the cracks in their local home districts. Just as school districts can impose truancy laws, can’t families impose means by which to educate children not well served by traditional methods. There are many children & families who have been threatened with truancy laws when unrecognized/undiagnosed illness were the problem. Those children deserve a school like IQA instead of threats about truancy laws. Other school Districts & perhaps the State of Wisconsin should help sponser such a start-up school as they are as legally required to provide an education to these kids as they are to serve them with truancy notices.

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