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whereby 12 sets up and manages the "virtual public’ school. 12 offers an Internet-based curriculum (providing the computer hardware and all necessary materials) outside of the conventional brick-and- mortar setting of traditional public and charter schools. Where legislation has enabled such schools, state education dollars pay for children who enroll in them. Virtual schools generally generate substantially larger profits than conventional for-profit charter schools because they receive the same amount of per- student funding as their traditional public schoc! counterparts despite not having to support a physical structure. Virtual schools enable students to receive a comprehensive curriculum along with technical assistance, teacher involvement, computer equipment, Internet access, and instructional materials, without leaving the public education system. Virtual academies are serving a diverse mix of students. With the same curriculum, A12 is serving both highly gifted children and children with disabilities. The self-paced nature of k12’s curriculum and its interactivity allow k12 to serve a broad array of students. 412's students, currently in virtual schools, come from public or private schooling backgrounds, as well as home schooling backgrounds. A summary of k12's virtual schoo! business is as follows: B «12 manages virtual schools for students in grades K-9 in 11 states (Arizona, Arkansas, California, Colorado, Florida, Idaho, Minnesota, Ohio, Pennsylvania, Texas and Wisconsin) plus the District of Columbia. In the 2006 fiscal year, these schools had a combined enrollment of approximately 18,000 children. «12 managed schools typically produce test score results which exceed or are equal to state averages at a cost to the taxpayer that is approximately 70% less than what they would pay for traditional school. & Virtual schocls are funded primarily through local, state, and federal sources, which k12 expects to receive approximately $5,300 per student per school year on average. Therefore, the virtual schools provide access to k12’s world-ciass service and curriculum as well as certified teachers at no cost to the family. EB While many of 412’s virtual academies are charter schools, 412 has virtual schools that are not charter schools but are programs of school districts or other authorized schocl agencies, such as public universities and federal and state agencies. District-Managed Schools, kti2’s district-managed virtual programs operate under the contract schools model. Although somewhat similar to the virtual public schools, contract schools are public schools operated by private organizations based on management agreements with local school boards. Unlike charter schools, contract schools do not require specific statutory authority but are created through a contract between a school management company and a schoo! board in accordance with existing authority. k12 typically employs the district-managed virtual programs in states where the reimbursement rate is low. Two states where 412 currently has district-managed virtual programs are Kansas and Utah. The district-managed virtual programs unit is expected to grow revenue from $3 million in FY 2006 to $11 million in FY 2008. The Pennsylvania Department of Education commissioned KPMG Consulting to study virtual education in that state. The October 2001 study stated that the Pennsylvania Virtual Charter School (which uses the k12 curriculum and management services) “was considered to be the highest quality program based on the curriculum analysis.” 12 believes that the virtual school market has powerful growth prospects which are outlined below: H Strong reenroilment rates. 412 benefits from stable demand for its curriculum and services which is reflected by current reenrollment rates of approximately 70%. H Increasing existing school enrollment rates. Existing school enrollments continue to increase at double digit rates. BR Expansion into new states. 412 is currently evaluating opportunities to start new virtual schools in several additional states. 108 HOUSE_OVERSIGHT_024541