False Claims and Fraud Keep on Surfacing in the Charter School Sector

The Trump administration and Education Secretary Betsy DeVos are fans of the marketplace. Privatizing education is their thing.  That is why it is so useful to consult some experts—in this case Jacob Hacker and Paul Pierson, political scientists who, in their newest book American Amnesia, warn about problems with marketplace thinking:

“That markets fall short under certain conditions has been known for at least two centuries. The eighteenth-century Scottish economist Adam Smith wrote enthusiastically about the ‘invisible hand’ of market allocation. Yet he also identified many cases where rational actors pursuing their own self-interest produced bad outcomes…. Economists have been building on these insights ever since to explain when and why markets stumble and how the visible hand of government can make the invisible hand more effective. The visible hand is needed, for example, to provide key collective goods that markets won’t (education, infrastructure, courts, basic scientific research); reduce negative spillover costs that parties to market exchanges don’t bear fully…. encourage positive spillover benefits that such parties don’t take fully into account such as shared knowledge; (and) regulate the market to protect consumers and investors….”  (American Amnesia, pp. 4-5)

Trump and DeVos extol the free hand of the market despite what we learn week after week about negative spillover costs and self-dealing when charter operators are tempted by pots of government money and inadequate oversight. The Washington Post‘s Valerie Strauss introduces a new report from Carol Burris, of the Network for Public Education, with this bit of background: “President Trump’s first federal budget proposal seeks a $168 million increase for charter schools, which is a 50 percent funding increase from the current level set by the previous Obama administration… A 2016 audit by the Education Department’s Inspector General’s Office found that the department—which awards multi-million-dollar grants to states for the creation and expansion of charters—had failed to provide adequate oversight of some of its relationships with charter management organizations.”

Burris’s report, which Strauss then reprints in full, examines a chain of charter schools well-known for its high test scores. But, as we learn, there is something fishy going on: “One of the best illustrations of the ‘non-public’ nature of charters is the much heralded BASIS charter schools that began in Arizona, a state with extremely lax charter laws. A close look at BASIS provides insight into how charter schools can cherry-pick students, despite open enrollment laws. It also shows how through the use of management companies profits can be made—all hidden from public view.”  BASIS schools were started up by two economists in Tucson, expanded to Scottsdale, and later to Texas and Washington, D.C. Boasting a curriculum based on Advanced Placement classes and tests, they have been highly acclaimed for their rigor.

Hacker and Pierson use the economist’s term—negative externalities— for negative spillover costs or negative side-effects which are costs to society that may not be noticed or may be forgotten, whether the charter is launched by the visionary educator or by the crafty profit-maker seeking to educate children privately at public expense. The test scores of the students at a particular charter school are the yardstick society most commonly uses to judge the school, but what about the side-effects on society that may be much broader than the experiences of one group of children inside the school?  As Trump and DeVos seek to privatize more schools, what are some cautions that ought to be considered due to the negative externalities associated with the charter sector as it stands today?

One negative externality at BASIS is that the schools do not serve all children, as public schools are required to do.  BASIS schools have managed to imbalance their student populations to ensure that their students are very high test-scorers: “The proportional over-enrollment of Asian-American students and under-enrollment of Latino students at BASIS charter schools is startling. But differences in the students served do not end with race and ethnicity.  In 2015-16, (in Arizona) only 1.23 percent of the students at BASIS had a learning disability, as compared to 11.3 percent of students in the state. BASIS schools had no English Language Learners.  And in a state in which over 47 percent of all students received free or reduced-priced lunch, BASIS had none…. (I)t chooses not to participate in the free or reduced-priced lunch program… Because BASIS provides no transportation, where it places schools—along with the lack of a free-lunch program—discourages disadvantaged students from applying.”

Another  negative externality  is that the school shapes its student body by failing to admit enrollees after middle school: “The ‘rigorous’ curriculum of BASIS prevents prospective enrollees from transferring in after middle school. Students must take six Advanced Placement exams and pass at least one with a score of 3 or above in order to graduate. However, they are required to take more AP classes than that, beginning in middle school. There are comprehensive tests that must be passed or students are retained (in grade)… Even after getting into BASIS, however, there is less than a 50 percent chance the students will stay to graduate. During each successive year, students leave when they cannot keep up with excessive academic demands. Like the ‘no-excuses’ charter schools found in cities, the attrition rates at BASIS middle and high schools are extraordinarily high. Of a cohort of 85 students who began eighth grade in BASIS Flagstaff during the 2011-12 school year, only 41 percent (35) remained to enter twelfth grade in 2015-16. In the flagship school, BASIS Tucson North, a seventh-grade class of 130 became a class of 54 by senior year. The same pattern exists in every BASIS charter high school in the state.”

Burris also explains a third negative externality—the profits being made (at public expense via the tax dollars BASIS schools collect) by Olga and Michael Block, who started BASIS and then turned management over to the for-profit, limited liability company that they now own and that operates BASIS. Because the company is private, their salaries cannot be discerned, but there is some indication of profits being made. As Burris reports: “According to a 2015 study by the Grand Canyon Institute and Arizonans for Charter School Accountability, BASIS schools spent an average of $2,291 per pupil on administration while the average public district spent just $628 per pupil.”

Beyond correcting for mere side-effects of running separate systems side-by-side for educating children—the public system and then systems of charters and vouchers—there is the danger of fraud and self-dealing when privatized schools operate without adequate oversight and regulation. This week’s example is, finally after years’ of investigation, the arrest of Benford Chavis, who operated a charter chain—the American Indian Model Schools—in Oakland, California. The San Francisco Chronicle reports that Chavis “faces six felony counts of mail fraud and money laundering, according to the U.S. attorney’s office in San Francisco. Chavis allegedly applied for and received more than $1 million in federal grant funding from 2006 to 2012 that he said would be used for the charter schools.  The money was instead used for lease payments on properties Chavis owned… Chavis faces up to 20 years in prison for each of the three counts of mail fraud and 10 years for each count of money laundering.” Chavis has been under investigation since 2013,  is no longer associated with the schools, and now lives in Lumberton, North Carolina. He is said to have been a controversial presence in the schools he operated: “Students were often publicly humiliated and forced to attend Saturday school and detention. Chavis drew both national scorn and praise for his tactics.”

Michelle Rhee coined the attack on public school teachers and administrators—that they prioritize adult interests and fail to put students first. Benford Chavis is an example of a more common phenomenon: charter operators who put profits first. He is said to have engaged in overtly criminal behavior. But in too many cases, self-interested operators stay just inside the law or prevent adequate oversight by investing in contributions to the legislators who would have to enact regulations to prevent both negative externalities and self-dealing.

Unlike Trump and DeVos, the political scientists Hacker and Pierson believe government itself is best suited to educate our society’s children: “(M)ass schooling has never occurred in the absence of government leadership. The most fundamental reason is that education is not merely a private investment but also a social investment: It improves overall economic and civic outcomes at least as much as it benefits individuals. Ultimately, only the public sector has the incentive (attracting residents, responding to voters) and the means (tax financing of public schools, compulsory attendance laws) to make that investment happen… Mass education mobilizes an enormous amount of untapped human talent into the economy; the benefits accrue not only to those who go to school but to society as a whole.” (American Amnesia, p. 65)