Charter School Sector Swindles the Public, Burns Tax Dollars, and Cheats Children—Part 1

Many of us have been aware of problems with charter schools for a long, long time.  For over two years now, the Network for Public Education has been logging reports in local newspapers when an entrepreneur is caught stealing tax dollars; or when a state, a school district or charter authorizer finally shuts down a charter school for academic malpractice; or when a charter school goes broke mid-school year leaving children without a school mid-semester.

But the past month has produced an uptick in reports of large scale charter school ripoffs and charter school failure.

At the federal level: In late March, the Network for Public Education published Asleep at the Wheel, an explosive report documenting the waste of billions of federal charter school startup dollars on schools that that never opened or opened and then shut down.  The researchers conclude that if you want to start a charter school with seed money from the federal Charter Schools Program, you ought to hire a grant writer skilled at creating a compelling fictional narrative, because the Department of Education makes its grants almost exclusively based on the story spun in the grant application.  And the Department of Education rarely follows up to monitor the schools it has funded—neither to prevent conflicts of interest and profiteering, nor to ensure equitable open enrollment practices nor to oversee academic services for students.  (This blog covered NPE’s report here.)

But the federal Charter Schools Program is only a part of the problem.  Charters schools are enabled in state law—in 44 states, and each state’s authorization and oversight laws are different. Most of the recent exposure of widespread problems with charter schools involves deficient regulation by state government.

Here is the big question: Can an education sector freed from regulation for the purpose—its founders claimed—of promoting innovation be effectively regulated to protect the public’s investment and children’s rights? Remember that millions of public dollars are flowing to for-profit management companies which operate many of the nonprofit schools, and lots of money is continually being invested back into political contributions for the legislators who must create the regulation.

New Jersey: In an exhaustive five part investigation for the North Jersey Record and USA Today, Jean Rimbach and Abbott Koloff examine a long-running, convoluted charter schools facilities scandal involving the expenditure of public dollars to help charter schools acquire, build and renovate buildings whose eventual owners are private companies.  Some of the charter schools profiled in this investigation have been eventually shut down, but public dollars are still being used by the charter management companies to pay off bonds for schools that the private companies will own and rent out once the bonds are paid off.  The abuses described by Rimbach and Koloff involve federal school construction dollars and federal economic development money flowing through Governor Chris Christie’s pro-charter school administration.

Here is the story of one New Jersey charter school profiled by Rimbach and Koloff, a story involving money that had been federally allocated to Governor Chris Christie’s Economic Development Authority: “By 2010, four years after it opened, the Central Jersey Arts Charter School in Plainfield was in trouble. The state had just put it on probation for a host of deficiencies, ordering it to limit spending, develop a curriculum and address problems with its board and student achievement. Yet little more than three weeks later, a state agency voted to issue bonds that allowed a fledgling nonprofit called the Friends of Central Jersey Arts Charter School to borrow $8.2 million to buy and renovate a building for the school to rent and, one day, potentially own… The Friends quickly ran out of cash, and about six months later approached a different state agency seeking millions of dollars in additional financing to finish the project without explaining why they had come up short.  The next year, another $1.7 million in bonds were issued, this time with the federal government picking up most of the interest. While the Friends were permitted to borrow nearly $10 million, the school itself was floundering.  A financial report covering the 2010-11 school year stated that Central Jersey Arts was ‘not in good financial condition’ and raised ‘substantial doubt’ about its survival.  The building opened with fanfare as contractors went unpaid. The next year, the school was back on probation, where it stayed until the state shut it down in 2015 for weak finances and ‘dismal’ academic performance—but not before dumping more taxpayer cash into a now-defunct for-profit management company in the hope of turning it around.  This is the story of a charter school that failed, and a building that used up millions in public dollars and continued to receive federal aid long after it was left vacant. It’s a story about dubious decisions by multiple state agencies, one that raises questions about the use of public money and the oversight of private groups that own real estate for public charter schools… Ultimately, the education of hundreds of students was disrupted.  The public lost its investment in the school and the building.  And although another charter school is now leasing part of the space, the rent payments aren’t high enough to cover the debt on the property, leaving bondholders with the possibility of significant losses. Today, real estate entrepreneurs from Newark sit on the Friends group’s board, and the building has been considered for use as a storage facility and an assisted-living center. It was listed for sale at $7.95 million at one point… Today the Friends still own the building… Real estate entrepreneurs now fill the void.”

In another of Rimbach and Koloff’s examples, the state steered millions of dollars in federal development aid created to support construction of public schools to two of the state’s biggest Charter School Management Organizations—KIPP New Jersey and Uncommon Schools for schools that remain privately owned: “More than three-quarters of that money was awarded to the state’s two largest charter school operators, KIPP New Jersey and Uncommon Schools, which used it in ways that strayed far from the intent of the aid programs. The companies fashioned complex financial structures that allow them to exploit the bonds by tapping into the aid as a steady stream of income over decades, using methods that in some cases have drawn the scrutiny of federal investigators. The result is a string of school buildings that were built with taxpayer money but remain in private hands. The companies that own them were created to purchase real estate and renovate buildings for charter schools, but they are kept legally separate form the charter schools that send millions of dollars their way each year in rent. Charter schools lease these buildings indefinitely. Leases do not contemplate a time when rent payments would end or when the buildings would be turned over to the public charter schools, even after the debt is paid.  The deals involve related companies that are created to lend money to one another—an arrangement that is not uncommon in the world of private finance.  But in this case the arrangements steer tax dollars—federal aid that subsidizes the projects by covering the interest on the loans—to private groups that don’t have to share details with the public or the state about how they use the cash.  Charter schools operators have said they resort to unusual, complex financial arrangements because the state doesn’t provide funding for their facilities and because they are barred from using public money other than federal dollars for construction.”

In the last of their five reports, Rimbach and Koloff suggest ways to clean up the mess. I am skeptical about their conclusion that the kind of questionable practices described in this series of articles can be regulated by a state legislature beholden for campaign contributions to the very entrepreneurs who are taking advantage of the current system. And in some cases, their so-called solutions would further undermine public education by promoting the expansion of charter schools. Rimbach and Koloff suggest that the state could provide money to construct charter school facilities and change the law to make sure that publicly funded buildings would eventually be owned by the public, not by private corporations.  The state could require that unused space in public schools be offered to charters or create an authority to issue bonds for school facilities or loan money directly to charter schools.  Or finally, the state could make the morass of financial transactions more transparent.

In his personal blog, the noted retired public education reporter for the Newark Star Ledger, Bob Braun condemns Rimbach and Koloff not for their reporting, but instead for their suggested solutions.  He blames them for swallowing the charter school kool-aid, even as they expose years of shady financial entanglements: “The series, far from calling for an end to the theft of public school funds to finance charter expansion, promotes so-called ‘reforms’ that would make it easier for charters to expand—and further degrade public schools… The articles… frequently cite the views of… charter proponents who blame corruption on faulty legislation, poorly drafted regulations—on anything but greed and contempt for urban children… Privately-operated charters take away money (construction and operating funds) from public schools—especially in New Jersey’s largest cities where resources are scarce. They are replacing public schools, using public money to do it—public money that should be used to repair public schools, not replace them.”

Braun’s overall assessment is correct: “In the end, the story of charter schools in New Jersey isn’t really about education.  It isn’t about a few real estate developers making a buck on charter schools.  It’s about power.  And race.  It’s about ignoring the needs of poor black and brown children.  Tweaking the laws so the financing system doesn’t quite smell so bad won’t change that—it will just make it smell better in the suburbs so that legislators can go back to ignoring what is really happening.”

Despite my own and Braun’s suspicion Rimbach and Koloff’s recommendations for reform (part 5 of their massive report), their work is important.  The reporters trace the details of a story largely hidden from the public by its complexity and the power of unscrupulous people who have been able to obscure their practices from a naive public.

Tomorrow, a second post will examine recent coverage of charter school abuses in California, Florida, and Pennsylvania.

Meryl Johnson, who represents District 11 on the Ohio State Board of Education, will interview Diane Ravitch on Johnson’s weekly radio show, It’s About Justice (WRUW 91.1 FM) next Saturday, April 13, 2019 at from 1:00 PM until 2:00 PM.  The program will be live-streamed at  https://wruw.org/.

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