Charter schools are public schools that operate under charters (or contracts) specifying the terms by which they may operate. In general, they are established under state law, charge no tuition, and are nonsectarian. State charter school laws and policies vary widely regarding the degree of autonomy the schools have, the number of charter schools that may be established, the qualifications of charter school applicants and teachers, and the accountability criteria that charter schools must meet. As of September 1997, 29 states and the District of Columbia had enacted laws authorizing charter schools, according to the Center for Education Reform. In school year 1996-97, over 100,000 students were enrolled in nearly 500 charter schools in 16 states and the District of Columbia. Most charter schools are newly created; about 33 percent were converted from existing public schools, and about 11 percent were converted from existing private schools, according to the Department of Education.Figure 1 shows the states with charter school laws as of September 1997 and the number of charter schools operating in the 1996-97 school year by state. Both the Congress and the administration have supported charter schools. For example, in amending ESEA in 1994, the Congress established a grant program to support the design and implementation of charter schools. In addition, under the Goals 2000: Educate America Act, states may use federal funds to promote charter schools. The administration proposed doubling the roughly $50 million made available under the new ESEA charter school grant program in fiscal year 1997 to $100 million for fiscal year 1998; the Congress ultimately increased funding for the program to $80 million. Finally, in his 1997 State of the Union Address, the President called for the establishment of 3,000 charter schools nationwide by the next century. To explore the effects of education reform efforts, in January 1997, the Congress began holding hearings in Washington, D.C., and around the country. The Congress has focused on developing charter schools, among other reform efforts. Charter school operators and others at the hearings raised concerns about charter schools’ receiving the share of federal title I and IDEA grant funds for which they are eligible. Recent research conducted by the Department of Education and the Hudson Institute raised similar concerns. Although dozens of financial aid programs exist for public elementary and secondary schools, two programs, title I and IDEA, are by far the largest federal programs. Title I is the largest federal elementary and secondary education aid program. The Department of Education administers title I, which received about $7.4 billion in federal funding in fiscal year 1998. The program provides grants to school districts—or LEAs, as defined in federal statute and regulations—to help them educate disadvantaged children—those with low academic achievement attending schools serving high-poverty areas. Nationwide, the Department makes about $800 available on average to LEAs for each child counted in the title I allocation formula. Under title I, the federal government awards grants to LEAs through state educational agencies (SEA), which administer the grants and distribute the funds to LEAs. About 90 percent of the funds the Congress appropriates are distributed as basic grants; about 10 percent are distributed as concentration grants, awarded to LEAs serving relatively higher numbers or percentages of children from low-income families. To receive title I funds, SEAs must submit title I plans to the Department of Education. SEAs may submit these plans to Education separately or as part of a consolidated plan incorporating several federal education programs. Title I plans must explain how a SEA will operate its title I programs and demonstrate that a state has established or is developing state content and student performance standards as well as describe assessment systems used to measure schools’ progress in meeting state standards. Moreover, state plans must describe how the SEA will help each LEA and school affected by the title I plan develop the capacity to comply with state standards. Once the plan is approved, the SEA is eligible to receive title I funds, and the plan remains in effect as long as a state participates in the program. SEAs must periodically update plans, however, to reflect substantive changes or as required by the Department of Education. To be eligible for title I funds received by the state, federal statutory and regulatory guidelines require LEAs to meet minimum poverty thresholds. To be eligible for basic grants, an LEA generally must have enrolled at least 10 children from low-income families, and low-income children must constitute more than 2 percent of its school-aged population. To be eligible for concentration grants, LEAs generally must have enrolled more than 6,500 children from low-income families, or more than 15 percent of their students must be from low-income families. LEAs that receive title I funds and have more than one school in their district have some discretion in allocating these funds to individual schools. LEAs must rank their schools according to the percentage of children from low-income families enrolled in each school. LEAs must use the same poverty measure in ranking all their schools, but the title I statute provides four measures from which LEAs may choose. LEAs must serve, in order of poverty, their schools that have more than 75 percent of their students from low-income families. After serving these schools, LEAs may then serve additional title I-eligible schools, in order of poverty, with remaining funds. LEAs do not have to allocate the same per poverty student amount to each school in the district. LEAs must allocate, however, a higher or equal per poverty student amount to schools with higher poverty rates than they allocate to schools with lower poverty rates. (See app. II for more details about the title I program.) The IDEA part B program is a federal grant program for helping states pay the costs of providing a free appropriate public education to all eligible children with disabilities between the ages of 3 and 21 living in the state, depending on state law or practice. The act requires, among other things, that states make such education available to all eligible children with disabilities in the least restrictive environment. The Congress appropriated approximately $4.2 billion for the program for fiscal year 1998. According to Department of Education officials, these funds are expected to provide, on average, about $639 per student for services provided to the nearly 5,951,000 eligible students aged 3 through 21, plus an additional $650 per student to provide services for approximately 575,800 eligible preschool children aged 3 through 5. Under the current formula, the Department of Education annually allocates funds to SEAs on the basis of their reported numbers of eligible children receiving special education and related services for the preceding fiscal year, the national average per pupil expenditure, and the amount the Congress appropriates for the program. The most funding that a state may receive for any fiscal year is capped at 40 percent of the national average per pupil expenditure multiplied by the number of eligible children with disabilities in the state who receive special education and related services. The IDEA Amendments of 1997 provide that each state will receive its prior fiscal year allocation when the Congress appropriates more than $4,924,672,200 for IDEA part B; 85 percent of the remaining funds will be allocated to states on the basis of each state’s relative population of children aged 3 through 21 who are the same age as children with disabilities for whom the state ensures the availability of a free appropriate public education; the remaining 15 percent of these funds will be allocated on the basis of each state’s relative population of these children living in poverty. To receive funds, a state must demonstrate to the satisfaction of the Secretary of Education that it has in effect policies and procedures to ensure that it meets certain specified conditions. The conditions that states must meet include, among others, the availability of a free appropriate public education to all children with disabilities living in the state. In reauthorizing IDEA, the Congress added additional provisions specifically for charter schools. In particular, LEAs must now demonstrate to their SEAs that they serve children with disabilities attending charter schools in the same way they serve children with disabilities in their other schools and that they provide IDEA part B funds to charter schools in the same way they do to their other schools. Under the current formula, states must distribute at least 75 percent of the IDEA funds they receive from the Department to LEAs and may reserve the rest for state-level activities. In general, SEAs allocate IDEA funds to eligible LEAs on the basis of their relative share of their state’s total number of eligible children receiving special education and related services. When the Congress appropriates more than $4,924,672,200 for IDEA part B, allocations to LEAs are modified as allocations to states are modified according to the 1997 IDEA amendments. States may allocate IDEA funds to LEAs or other agencies included in the act’s definition of LEAs. These other agencies include, for example, regional educational service agencies authorized by state law to develop, manage, and provide services or programs to LEAs. Some states allocate IDEA funds to regional educational service agencies for providing special education and related services to children with disabilities enrolled in the schools of one or more LEAs, including charter schools. Other states allocate IDEA funds directly to school districts, which then develop, manage, and provide their own such services to children with disabilities. (See app. II for more details on the IDEA program.) States use several arrangements to provide funds to charter schools. In general, states allocate title I and IDEA funds or IDEA-funded special education services to charter schools using one of three approaches. The seven states in our review used all three. The first approach involves states allocating title I and IDEA funds directly to charter schools; Massachusetts and Minnesota use this approach. The second approach involves states allocating title I and IDEA funds to charter schools through existing parent LEAs; California and Colorado use this approach. Charter schools, along with other public schools in the district, then receive their share of funds or services from their parent LEAs. The third approach for allocating funds to charter schools involves a mixture of the first and second approaches.