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State Virtual Schools

State virtual schools are created either by legislation or policy action at the state level and often policies related to funding are included in the legislation or policy action. As a result the specifics of funding vary from state to state. This section will provide information on the different funding approaches as well as the pros and cons of these different approaches for policy makers to consider.

Policy Considerations

There are several policy issues that states must address in regards to students taking courses through their state virtual school. While these issues are most relevant to a formula-based funding approach, they can have implication for other funding approaches as well.

  1. Division of Funding: Since state virtual schools are generally supplemental programs, most students taking courses through the state virtual school will also be taking courses through a traditional school. When determining the funding mechanism, the state must determine if the student’s local school will continue to receive 100% of the funding associated with that student or if some of that funding will be re-directed to the state virtual school.
  2. Location of Student: In order to generate state funding for a traditional school, students generally must be physically present and under the supervision of a school staff member. For online learning, students are able to take their class from a variety of locations including their home. However in some states, the student must still be physically present at the school in order to be counted in the funding formula.

Fixed Appropriation

Some state virtual schools are funded primarily on a fixed appropriation from the state legislature or sometimes as a line item in the state department of education budget. In the planning and initial implementation phases of a state virtual school this is a reasonable way to fund a program because the majority of the costs at this stage are infrastructure and program development costs. However, as a program moves into full implementation, a fixed-appropriation can be problematic as it may limit the number of students that can be served.

When funding issues aren’t a barrier, state virtual schools tend to experience significant growth. For example, during the 2008-2009 school year, six of the seven largest state virtual schools experienced a 25%-50% increase in enrollments and the seventh school enrollments grew by more than 50%.1 Unless, the state legislature is willing to increase the appropriation to support the anticipated growth level, a fixed appropriation will result in states not being able to accommodate all students that wish to enroll in online courses.

Formula-Based Funding

An alternative to a fixed-appropriation is to fund programs based on a formula that takes into account the number of students served. This is the same conceptual approach that is used in funding brick-and-mortar schools. It is a logical funding approach because the vast majority of the costs of running either a traditional or online schools are directly related to the number of students served. Unfortunately, the approach is not used frequently in the funding of state virtual schools.

It is important to note that using formula-based funding is not the same thing as funding traditional school districts and state virtual schools exactly the same. States that have used this approach have a funding formula for their state school that is separate from the general school funding formula. For example in Florida, the state virtual school only receives funding when a student successfully passes a course while this competency-based approach to funding is not included in the funding formula for traditional school districts.

Some states have also combined fixed and formula-based funding approaches. With this approach, the state virtual school receives a base funding amount to cover the costs that are fixed in nature and additional formula-based funding to cover the costs that scale directly with the number of students served.

Performance-Based Funding

Some online learning programs are funded through performance-based funding, which is a school finance model that links funding for public education programs with measurable student performance outcomes. By tieing funding to an outcome, such as degree completion in higher education and course completion in K-12 education, funding rewards positive student outcomes and performance. Performance-based funding emerged first as an education finance policy to fund online course providers, but it is quickly spreading. For more information, review Performance-Based Funding and Online Learning: Maximizing Resources for Student Success.

Course Fees

For both fixed-appropriation and formula-based funding, some state virtual schools augment their funding through course enrollment fees. Depending on the state regulations these fees may be paid by the student’s local school or directly by the student. In some states the fee is specified in legislation while in other states the program governance and leadership determine the fee. Some states with fixed-appropriations will provide a certain number of course enrollments with no course fee (until their budget is spent) and then charge a course fee that reflects the full cost of offering the course for any additional enrollments.

A variation of charging course enrollment fees is to create an environment to support blended learning for schools within the state. The state virtual school then charges a fee to the school for use of their learning management system and course content.

Other Revenue Sources

Some state virtual schools license their course content or charge fees for out-of-state students as a way of generating revenue which can then be used to offset the cost of offering the program to students in-state. While this can be an effective approach, sometimes the structures and regulations of state government may make it difficult to engage in activities that are similar to running a business.

References for footnotes can be found on the resources page or click on the footnote number for a direct link.