Payroll woes dog charter school

Ongoing financial troubles at a Big Island charter school could soon trigger consequences under a new state law that requires a school to surrender its charter contract with the state if it fails to make payroll.

Last summer, routine monitoring of Na Wai Ola Public Charter School’s quarterly financials revealed cash flow challenges that prompted officials to impose monthly checks of the school’s finances.

Staff for the state Public Charter School Commission warned in December that the school was struggling to cover expenses and had been advised to cut costs. The school reworked its budget, reduced its payroll and assured officials that it would be able to sustain operations through the end of the school year.

But on Thursday commission staff again warned commissioners that the school is facing serious money problems.

“Commission staff has serious concerns with the financial sustainability of the school through the July 5 payroll and possibly beyond,” Yvonne Lau, the commission’s acting executive director, told members of the Performance and Accountability Committee.

Of particular concern is a revised law — passed in the wake of last year’s closure of another debt-ridden charter school — that requires a school to automatically surrender its charter contract if it cannot meet payroll.

The law change was intended to avoid a drawn-out closure for insolvent schools, as was seen with Halau Lokahi, which lost its charter in March 2015 after struggling for months to stay afloat despite having no money. (The attorney general’s office has been investigating alleged misuse of public funds and theft by the school’s former co-founder and director.)

Na Wai Ola’s reported financials as of March 31 show a projected cash balance of $4,941 on June 30, about a month before the school can expect to get an infusion of per-pupil funding for the new school year. The school’s salaries and wages are estimated at $99,612 a month for the next three months.

“It was a shock to us that the numbers looked as bad as it was because just the month prior, the budget showed that they would have enough money to make it through,” Lau said. “The accounts payables went up dramatically, which is telling us that they’re not paying their bills. But we don’t have an explanation from the school.”

Representatives for the school were not at Thursday’s meeting and did not tie in by phone. Na Wai Ola Principal Daniel Caluya did not immediately return calls seeking comment Friday. In December, Caluya said in an interview that payroll costs had increased with the addition of two new grades.

“We’re not frivolous with our money,” he said at the time. “It all goes toward the children. There’s no hidden agenda.”

With approximately 200 students enrolled, Na Wai Ola, in Mountain View, south of Hilo, will receive about $1.43 million this school year in per-pupil funds from the state. Under state law, charter schools receive 60 percent of per-pupil funding based on projected enrollment at the start of the school year, and an additional 30 percent by Dec. 1, based on actual enrollment. The last 10 percent, which has to be allocated before the end of the school year, hasn’t been sent to schools yet.

Budget documents show Na Wai Ola anticipates receiving approximately $143,000 next month for its final per-pupil payment this year, while monthly expenses are projected at roughly $135,400 for May and June.

“This school is in jeopardy of running out of money before the end of the year. And the consequences of running out of money are the school closes,” said commission Chairwoman Catherine Payne. “I didn’t think we’d be testing the law this fast.”

The committee members highly recommended that commission staff perform a site visit.

“We just want to make sure if they do run out of money, and they have to surrender their charter, that no one can look and say we didn’t give them every bit of attention we could before that happened,” Payne said.

A recent state auditor’s report faulted the commission for failing to recognize and act on early signs of financial distress at Halau Lokahi.