Indiana lawmakers are sending a warning signal to low-performing virtual charter schools.

Under sharp scrutiny for enrolling thousands of students who don’t earn credits and graduating few students, virtual charter schools will lose a chunk of state funding in the next two years.

In the final budget approved late Wednesday night, lawmakers dropped funding levels for online students to 85 percent of what students at brick-and-mortar public schools receive — a reduction from the 90 percent of funding that online schools had been receiving.

“We’re not entirely satisfied with some of the results we’re seeing with the virtuals,” said Sen. Eric Bassler, R-Washington, chair of the school funding subcommittee. “Maybe in some ways, it’s a shot across the bow.”

The cuts come as two of Indiana’s virtual charter schools, Indiana Virtual School and Indiana Virtual Pathways Academy, are under the threat of closure. The school district that oversees them, Daleville Community Schools, contends that the schools enrolled thousands of students who never earned any credits — including many who never even signed up for any classes.

Across the board, Indiana’s virtual schools post lower graduation rates than the state average. Virtual schools say that’s because they largely serve students with significant challenges, including those who have struggled at other schools, have disabilities, or are raising children.

But a Chalkbeat investigation showed nearly 2,000 students never earned a single credit last year across Indiana’s six virtual charter schools — an approximately $10 million drain on state funding.

Officials from Indiana Virtual School, Indiana Connections Academy, and Insight School of Indiana did not return requests for comment.

The largest of the virtual charter schools, Indiana Virtual Pathways Academy, drew about $35 million in state funding this year, according to the budget. Still, even with the funding decrease, most of these schools could see an overall increase in state dollars as their enrollments are projected to rise.

In the past, some virtual schools have protested potential funding cuts, saying they have made some academic improvements, and it would be difficult to produce better academic results with less support. Bassler said lawmakers will continue to examine how to fund virtual schools, particularly since online education is such a fast-growing sector serving highly mobile and high-needs student populations.

The state could consider funding virtual schools based on academic results, rather than providing the money up-front.

Higher graduation rates “should be a requirement,” said Sen. Eddie Melton, D-Merrillville, “and it should be tied to funding. We should expect a greater outcome.”

The reduction would also apply to students enrolled in online programs through public schools, such as those at Union School Corporation, which has recently added thousands of students through an online program. Also taking a funding hit in the budget projections: Indiana Agriculture and Technology School, a new charter school that switched to offering half its instruction online and half in person after originally planning to open as a full-time virtual school.

This year, lawmakers also passed legislation aimed at making sure more students across the state’s virtual schools stick with classes. They also moved to take a closer look at schools that lose a significant number of students throughout the year as well as  at virtual schools’ finances. The legislation, like the budget, will be sent to the governor for final approval.