In 2011, we recommended KIPP Houston as our top recommendation for donors interested in giving to a United States-focused charity. Our recommendation was based on KIPP’s strong track record and KIPP Houston’s funding gap (caused by education funding cuts passed by the Texas state legislature). We recently checked in with KIPP Houston to update our view of its situation.

Our hypothesis was that KIPP Houston needed more funds than it could raise, and our check-in tried to test that hypothesis by seeing whether cuts had been made over the last 12 months.

One note: KIPP Houston is a “standout organization,” not one of our two top charities. We have not put nearly the effort into understanding KIPP Houston as with our highest rated charities. We continue to put the vast majority of our effort into finding and understanding charities that will receive our highest ratings.

In July 2011, KIPP Houston sent us a list of possible changes it might implement in its 2011-12 school-year to balance its budget. (See our blog post from July 2011.) Collectively, these cuts totaled $4.4 million. In addition, it aimed to save an additional $400,000 by identifying “operational inefficiencies” and to increase revenues by increasing its fundraising goal by $1.7 million and utilizing investment income of $1.2 million for operational purposes instead of capital investment.

In February 2012, KIPP Houston sent us a summary of the changes it did implement for its 2011-12 school year:

• Increased fundraising: KIPP Houston has met its goal of increasing fundraising by $1.7 million for the fiscal year ending June 30, 2012, relative to their original plan. Note that after achieving this goal earlier than anticipated, KIPP’s fundraising team switched to fundraising for the 2012-13 school year, so the document they sent us shows that it exactly met its 2011-12 fundraising goals.
• KIPP Houston saved approximately $5.7 million via spending cuts.
  • $3.7 million of this came via reductions in “KIPP Unique” expenses. Our understanding is that the primary “KIPP unique” changes were: (1) elimination of field lessons, such as trips to Washington, D.C.; (2) reduction of school hours (though KIPP still maintains a higher classroom hour total than the local districts); (3) changes to Saturday school; and (4) summer stipend reduction due to reducing the extended year calendar.
  • $930,000 came from reductions in administrative expenses; $400,000 came from reducing employee compensation (freezing salaries and increasing employee contributions to health plans); $370,000 came from “campus savings” (such as eliminating receptionist positions at schools that could get by without them); and $340,000 came from employing teaching aides as opposed to teaching fellows (our limited understanding is that teaching aides have lower qualifications and experience compared to teaching fellows).

It is not impossible to argue that these cuts should/would have been made regardless of the funding situation. (For example, the cuts to employee compensation may have been driven by the ongoing recession and the state funding reduction causing a reduction in statewide labor costs, rather than being evidence of a KIPP-specific shortfall.) However, overall, we feel that the update on what KIPP Houston has done over the past 12 months supports our earlier hypothesis: that KIPP Houston does face an ongoing funding shortfall, and KIPP Houston has followed through on the plans it shared with us almost a year ago by making significant cuts to its programs.

KIPP Houston has told us that its next update will come during the summer when it approves its 2012-13 school-year budget. We intend to post another update once we’ve reviewed that document.

Update: As of November 2012, we have decided to discontinue the practice of publishing a list of “non-top-rated standout organizations,” so we no longer plan to publish an additional update on KIPP Houston (more here).