If an LEA's enrollment drops mid-year, does it still have to pass full per-pupil funding to charter schools whose enrollment grew?

Subject

Opinion No. 13-34, Distribution of Basic Education Program Funds to Charter Schools, April 24, 2013

Plain-English summary

Tennessee's Basic Education Program (BEP) is the formula by which the state distributes K-12 funding to local education agencies (LEAs). Funding is generally based on the LEA's prior-year Average Daily Membership (ADM). If the LEA's enrollment grew more than 2% from the prior year, the LEA can apply for additional "growth funds" mid-year. If enrollment fell, the LEA still receives the full prior-year-based amount (the BEP isn't clawed back during the school year).

Charter schools within an LEA are funded out of the LEA's BEP allocation. Under Tenn. Code Ann. § 49-13-112, the LEA must pass through per-pupil amounts to charter schools, with the amount equal to the per-student state and local funds the LEA received.

The question put to the AG: if an LEA's overall enrollment dropped but its charter schools' enrollment grew, must the LEA pass through funds to the charter schools based on the charter schools' current-year enrollment (which would result in the LEA passing through more than the per-pupil math would suggest if applied to the LEA's current-year overall enrollment)?

The AG said yes. The statute, § 49-13-112, is clear. Subsection (a) says the LEA "shall allocate to the charter school an amount equal to the per student state and local funds received by the LEA." Subsection (b)(1) says "[a]llocations shall be based on one hundred percent (100%) of state and local funds received by the LEA." The text doesn't track the LEA's current-year ADM; it tracks the funds the LEA actually received. So if the LEA received funds for 1,000 students (its prior-year ADM), and the LEA's charter schools enrolled 300 students this year, the charter schools get 300/1,000 of the total BEP allocation, even if the LEA's actual current-year enrollment (counting both LEA-run schools and charters) dropped to 900.

Tenn. Comp. R. & Regs. 0520-14-01-.03(1)(e) made the same point: when new students enroll in charter schools, the LEA's growth funds reflect that growth in subsequent distributions, and the LEA must allocate those growth funds to the charter schools where the new students enrolled.

The principle is full pass-through. Garrison v. Bickford, 377 S.W.3d 659 (Tenn. 2012), confirms the basic rule of statutory construction: courts give effect to the plain meaning of statutory text. § 49-13-112's text required full pass-through of all BEP funds the LEA received, on a current-year per-pupil basis, regardless of whether the LEA's overall enrollment fell.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Tennessee's school funding framework changed substantially after 2013. The BEP formula was replaced by the Tennessee Investment in Student Achievement (TISA) formula in 2022 (effective in the 2023-24 school year). Anyone advising on charter school funding pass-throughs today should look at TISA, not the BEP, and check the current versions of §§ 49-3-301 et seq., 49-13-112, and the related State Board regulations.

Background and statutory framework

The BEP framework. Tenn. Code Ann. § 49-3-351 governed BEP funding distribution. Subsection (d) used a complex formula based on Average Daily Membership (ADM), defined at § 49-3-301(2) as "the sum of the total number of days enrolled divided by the number of days school is in session during this period."

The default rule was that BEP funding for the current year was calculated on prior-year ADM. But if current-year ADM (combined with related metrics FTEADM and identified-and-served special education students I&S) exceeded the prior year by more than 2%, the LEA could get additional "growth funds" calculated on current-year ADM (less the first 2%). The growth funds were distributed at two points: roughly 50% by February 1, with the remainder by June 30.

If enrollment fell, the LEA still received its full prior-year-ADM allocation. The BEP formula didn't shrink the LEA's funding mid-year for enrollment declines.

The charter school pass-through. Tenn. Code Ann. § 49-13-112:

(a) A local board of education shall allocate to the charter school an amount equal to the per student state and local funds received by the LEA.

(b)(1) Allocations shall be based on one hundred percent (100%) of state and local funds received by the LEA.

(b)(2) Student enrollments used in funding allocations for charter schools are to be for the same period used in allocating State funds to the LEA under the BEP.

Tenn. Comp. R. & Regs. 0520-14-01-.03(1)(e) added: when students new to the LEA enroll first in a public charter school, their enrollment isn't reflected in the initial BEP distribution to the LEA. But the growth funds distributed in February and June would reflect that growth, and the LEA "must allocate the funds for those students to the public charter schools they attend."

The factual scenario in the opinion. LEA receives prior-year-based BEP funding for 1,000 students. Current-year enrollment drops to 900. The drop happens in the LEA-run schools, while the charter schools within the LEA hold steady or grow. The question: must the LEA pass through to the charter schools the per-pupil amount based on the charter schools' actual current-year enrollment (and the actual BEP funds the LEA received, which were based on the prior year's 1,000 students)?

The AG's answer. Yes. Two strands:

1. The text. § 49-13-112(a) says "per student state and local funds received by the LEA." Subsection (b)(1) says "one hundred percent (100%) of state and local funds received by the LEA." The text tracks funds received, not current enrollment. If the LEA received funds for 1,000 students and the charters have 300 of them, the charters get 30%.

2. Legislative intent. The General Assembly intended full pass-through of all BEP funds the LEA actually received, on a per-pupil basis. Garrison v. Bickford applies the plain-meaning rule of statutory construction. The text supports full pass-through.

Common questions

Why does the LEA get prior-year funding for students who left?

That's how the BEP formula worked. Tenn. Code Ann. § 49-3-351(d) used prior-year ADM as the baseline. The legislature presumably built in this lag to give LEAs budget stability; if the LEA's enrollment dropped late in the year, the LEA wasn't suddenly cut off from funding. If enrollment grew, the LEA could apply for growth funds to make up the difference.

What if the charter school's enrollment also dropped?

Per § 49-13-112(b)(2), enrollment for charter funding allocations matches the period used for the LEA's BEP funding. If the LEA was being funded on prior-year ADM, the charter would be too. The pass-through reflects per-pupil amounts based on the actual count for the relevant period.

What if the LEA didn't actually receive the growth funds?

The pass-through is based on funds the LEA received. If growth funds were appropriated but never distributed (because the funds appropriated weren't enough to cover statewide growth), then the LEA can't pass through what it didn't get.

What if a charter school disagrees with how the LEA calculated the per-pupil amount?

The opinion didn't address this dispute resolution question. As a practical matter, the State Department of Education and the State Board of Education had regulatory roles, and disagreements could be raised through administrative review or, ultimately, litigation under § 49-13-112.

Does this opinion still control charter funding in Tennessee?

The BEP formula was replaced by TISA in 2022. The basic principle of charter pass-through likely survives in the new framework, but the specific mechanics (when, how much, what counts as "received") changed substantially. Verify current law before relying on this opinion's specifics.

Citations

Tenn. Code Ann. § 49-3-301 (definitions, including ADM); § 49-3-351 (BEP funding, especially subsection (d)); § 49-3-354 (related provisions); § 49-13-112 (charter school pass-through). Tenn. Comp. R. & Regs. 0520-14-01-.03 (charter funding implementation). Case: Garrison v. Bickford, 377 S.W.3d 659 (Tenn. 2012).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2013/op13-034.pdf

Original opinion text

S T A T E O F T E N N E S S E E
OFFICE OF THE
ATTORNEY GENERAL
PO BOX 20207
NASHVILLE, TENNESSEE 37202

April 24, 2013

Opinion No. 13-34

Distribution of Basic Education Program Funds to Charter Schools

QUESTION

Under Tennessee law, a local education agency ("LEA") receives Basic Education Program ("BEP") funding for the current year based on the LEA's prior year total student enrollment, with the opportunity to receive additional BEP funding if the LEA has a certain growth in its total student enrollment in the current year. If an LEA experiences a drop in total enrollment for the current year, must the LEA pass through funds on a per-pupil basis to charter schools within the LEA based on the number of students that are attending the charter schools during the current year?

OPINION

Yes. The LEA must pass through funds on a per-pupil basis to charter schools within the LEA based on the students that attend the charter schools during the year the LEA funds are distributed.

ANALYSIS

The Department of Education provides BEP funds to school districts pursuant to a formula devised by the Tennessee Board of Education and in accordance with the funding procedure set forth in Tenn. Code Ann. § 49-3-351. This procedure takes into consideration a school's Average Daily Membership, or ADM, which term is defined at Tenn. Code Ann. § 49-3-301(2) as "the sum of the total number of days enrolled divided by the number of days school is in session during this period as provided in the rules and regulations of the state board." See Tenn. Code Ann. § 49-3-351(d).

The intent of Tenn. Code Ann. § 49-3-351(d), which governs the calculation of the amount of BEP funding distributed annually to each LEA, is to provide funding for the current year to the LEA based primarily on the LEA's prior year ADM with the opportunity for additional funds for an LEA if the LEA experiences a defined level of growth in ADM during the current year. This provision, however, evidences no intent or process whereby an LEA would forfeit any BEP funding for the current year if the current year ADM is less than the prior year ADM on which current year funding is based. See Tenn. Code Ann. § 49-3-351(d). As Tenn. Code Ann. § 49-3-351(d) specifically states:

Notwithstanding any other section or law to the contrary, the BEP of every LEA will be calculated on the basis of prior year ADM, or FTEADM, or identified and served special education students (I&S), with the following exceptions: if the LEA's current year ADM, FTEADM, and I&S, taken as a whole, exceeds by more than two percent (2%) the prior year's ADM, FTEADM, and I&S, taken as a whole, then that LEA's allocation of state funds shall be calculated on the basis of the current year's ADM, FTEADM, and I&S less the first two percent (2%) by which it exceeds the prior year's ADM, FTEADM, and I&S. The increased amount so calculated shall be distributed to the extent funds are appropriated for that specific purpose. If the funds appropriated for that purpose are insufficient to provide for the LEA's increased allocations, the commissioner shall apply a pro rata reduction to the increased amount each LEA is otherwise eligible to receive. If the funds appropriated for that purpose exceed the amount required to fund growth in excess of two percent (2%), then that percentage may be lowered to a percentage that may ensure that all funds appropriated are allocated and disbursed to LEAs. An estimated fifty percent (50%) of the appropriated amount shall be distributed to such an eligible LEA by February 1, with the remainder, subject to any adjustment of numbers by the department of education that may affect the remaining amount, to be distributed by the following June 30. In calculating the allocations under the BEP formula, the commissioner, with the approval of the state board of education and the commissioner of finance and administration, shall establish definitions of ADM, FTEADM, and I&S, which will be used to determine each LEA's BEP funding. It is the legislative intent that the definitions so established approximate as closely as possible full year ADM, FTEADM, and I&S.

Annual funding allocations for the current year for charter schools within an LEA are based on 100% of State and local funds received by the LEA. Tenn. Code Ann. § 49-13-112(b)(1). Student enrollments used in funding allocations for charter schools are to be for the same period used in allocating State funds to the LEA under the BEP. Tenn. Code Ann. § 49-13-112(b)(2). Initial BEP allocations to charter schools are based on the prior year's ADM, Tenn. Comp. R. & Regs. 0520-14-01-.03(1), and, for new charter schools or charter schools adding a new grade, projected enrollment. Tenn. Comp. R. & Regs. 0520-14-01-.03(1)(g).

As previously mentioned, the Department of Education makes adjustments to BEP allocations to an LEA based on current-year enrollment to recognize enrollment growth. See Tenn. Code Ann. §§ 49-3-351(d), -354(o). Under certain circumstances the funds allocated may be upwardly adjusted (referred to as "growth funds") to ensure that the appropriate BEP payment was made to the LEA. Tenn. Code Ann. § 49-3-351(d). These growth funds are distributed on February 1 and June 30, based on enrollment information provided to the Department of Education by the LEA. Id. Thus, by the end of the school year, an LEA receives BEP funds for all students enrolled to the extent that funds have been appropriated by the General Assembly for that purpose. Id. This includes students new to the LEA, whether they are enrolled in a school managed by the LEA or in a charter school authorized by the LEA. Tenn. Comp. R. & Regs. 0520-14-01.03(1)(e).

The question posed concerns the following factual scenario. An LEA receives BEP funding based on the prior year's ADM but experiences a total decrease in enrollment during the current year, resulting in an actual ADM lower than the prior year's ADM. While such an LEA would not receive growth funds due to its declining enrollment, the LEA would receive BEP funding for the total number of students enrolled in the prior year and, because of the actual decrease in enrollment for the current year, would receive funding for students in excess of the amount that would have been received if BEP funding were adjusted based on ADM in the current year. See Tenn. Code Ann. § 49-3-351(d). However, unlike the LEA, the student enrollment at the charter schools located within the LEA, whose students are a subset of the LEA's total student population, increased from the prior year to the current year. At issue is whether the LEA must pass through the per-pupil BEP funds to the charter schools to cover all of the students enrolled in those schools during the current year.

Where excess BEP funds are paid to the LEA because the original projected amount was overstated due to the use of forecasted data that did not meet expectations and the excess funds remain with the LEA, Tenn. Code Ann. § 49-13-112 provides that the LEA is obligated to pass through a per-pupil portion of the total BEP funds received for the charter schools for their ADM for the current school year. See Tenn. Code Ann. § 49-13-112 ("(a) A local board of education shall allocate to the charter school an amount equal to the per student state and local funds received by the LEA. . . . (b)(1) Allocations shall be based on one hundred percent (100%) of state and local funds received by the LEA") (emphasis added). The statutory language indicates a clear legislative intent that all funds provided to the LEA must be passed through to charter schools within that LEA on a current per-pupil basis. See, e.g., Garrison v. Bickford, 377 S.W.3d 659, 773 (Tenn. 2012). Thus, the General Assembly intended to require full pass-through of all BEP funds actually received by an LEA to charter schools on a per-pupil basis in the pertinent school year.

Tenn. Comp. R. & Regs. 0520-14-01.03(1)(e) provides:

If students are new to the LEA and enroll first in a public charter school, their enrollment would not be reflected in the BEP formula used to determine the initial distributions to the LEA. But their enrollment would be reflected in the growth funds distributed in February and June. Thus, as the LEA receives increased funding in subsequent distributions to reflect the increased ADM, the LEA must allocate the funds for those students to the public charter schools they attend. LEAs can determine the amount to allocate by determining pro-rata shares of growth money based on the current district-wide ADM, and then divide the growth money by that figure to determine the amount to allocate to the public charter schools for each student.

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

ADAM FUTRELL
Assistant Attorney General

Requested by:
The Honorable Kevin Huffman
Commissioner
Tennessee Department of Education
710 James Robertson Parkway
6th Floor, Andrew Johnson Tower
Nashville, Tennessee 37243-0375