U.S. Dept. of Ed. Proposes Rules to Stop Flow of Federal Charter School Grants into Management Company Profits

Despite that during his presidential campaign, candidate Biden promised to end funding for the federal Charter Schools Program, the President and Congress funded the Charter Schools Program in the  FY 2022 federal budget at $440 million. And in the President’s FY 2023 federal budget proposal, released just yesterday, the President flat-funds the Charter Schools Program at $440 million.

However, last week the U.S. Department of Education did propose new rules to strengthen oversight of this poorly managed program. The proposed new rules would prevent the granting of federal funds to charter schools operated for profit. The proposed rules are open for public comment before their proposed formal adoption on April 14.

Current rules already specify that to receive a grant from the federal Charter Schools Program a charter school must be a nonprofit, but for years federal rules have failed to prohibit the practice by which for-profit charter management organizations (CMOs) hide behind the nonprofit status of the individual charter schools they operate in order to collect federal dollars. While virtually all the states require charter schools to be nonprofit entities, many nonprofit boards bring in for-profit CMOs to run their schools. The CMO may even have been involved in recruiting the board which establishes the nonprofit charter school to be part of the CMO network. The new rules would prohibit federal grants to charter schools whose overall operations are handled by one of the many for-profit CMOs.

The Washington Post‘s Laura Meckler explains: “Nonprofits could outsource particular tasks—such as payroll, for instance—to for-profit companies. But arrangements in which for-profit companies run the entire operation under contracts known as ‘sweeps’ would be ineligible for the start-up grants. The proposal specifically bars arrangements under which a for-profit management company ‘exercises full or substantial administrative control over the charter school… or over programmatic decisions.'”

Despite the requirement that recipients of federal Charter Schools Program grants be non-profit entities, in a 2021 report, Chartered for Profit, the Network for Public Education found lots of for-profit management companies profiting from our federal tax dollars: “Despite strict regulations against the disbursement of funds from the federal Charter Schools Program (CSP) to charter schools operated by for-profit entities, we identified over 440 charter schools operated for profit that received grants… between 2006 and 2017, including CSP grants to schools managed with for-profit sweeps contracts.”  Sweeps contracts are arrangements in which the nonprofit charter school board hires a charter management organization and turns over virtually all of the school’s federal, state, and local tax dollars to the company to operate the school without oversight by the nonprofit school’s board of trustees.

Here are examples demonstrating why the Charter Schools Program rules need strengthening. Early in 2020, the executive director of the Network for Public Education, Carol Burris reported that the IDEA “charter chain, which according to its audit had more than $1.13 billion in assets, has received since 2010 more than $200 million from the federal Charter Schools Program…. IDEA is receiving one huge grant after another, even before the prior grant is spent, from Education Secretary Betsy DeVos, who awarded the chain a grant worth $116,775,848 in 2018.”  A Network for Public Education (NPE) brief adds: “In 2019, the Houston Chronicle reported the IDEA Charter Schools Board voted to lease a private jet at an annual cost of $1.92 million. Two months earlier, the Texas Monitor revealed the use of first-class airfare for IDEA top employees along with their families, and tickets to professional sports events.”

Profiteering is frequently also embedded in the real estate leasing arrangements charter management organizations impose on their schools. The CMO frequently owns school buildings and leases them to the charter schools it operates, often at exorbitant rents. As reported in NPE’s brief, “Another (CSP) grant was awarded to the Somerset network, founded by the owner of a for-profit, Academica charter management organization. Academica also manages its schools including Somerset, which make rent payments to real estate companies tied to Academica executives. The lucrative tax-funded real estate deals afford the organization to have a ‘leadership retreat’ at a Bahamas resort.”

Despite that Congress ignored Biden’s campaign promise to end or reduce funding for the long mismanaged Charter Schools Program, it would appear that staff at the U.S. Department are proposing to tighten oversight by adopting some of the recommendations from the Network for Public Education’s 2021 report: “The U.S. Department of Education should enforce its own regulations… (which) require that CSP grant administration be independent of a for-profit board… The U.S. Department of Education should conduct an extensive audit of present and former grantees to ascertain compliance with all regulations that define the for-profit relationship… The Department (should) update its non-regulatory guidance that determines whether a Charter School Program applicant is in fact, ‘independent from the for-profit CMO or EMO (education management organization) hired to manage the day-to-day operations of the charter school’ so that for-profit organizations that use nonprofits as a facade are ineligible to receive federal, taxpayer-funded grants… (W)e suggest the federal government define a for-profit charter school as a school in which more the 30 percent of all revenue flows directly or indirectly to the for-profit vendors.”

In her article last week, Meckler adds that the Department of Education’s new proposed rules would also require charter schools applying for start-up grants to document the impact the new charter school would have on the neighborhood or in the community where the school is to be located: “Applicants must submit a community impact analysis demonstrating there is ‘sufficient demand’ for the new school and that the project would meet the needs of students and families in the community. They would also have to detail how the applicant would create racially and socioeconomically diverse student and staff populations… To show ‘unmet demand,’ applicants are asked to cite data about any over-enrolled existing public schools.”

Charter startups are known to have destabilized public schools In a number of cities—most recently in Oakland, but also in Chicago and Detroit, for example, where competing charter start-ups have wooed families with lavish advertising, driving down enrollment in neighborhood schools. In Chicago, 88 percent of students in the 50 neighborhood public schools that were closed in 2013  were African American. Neighborhoods across Chicago’s South and West sides were subsequently left without a neighborhood-anchor public elementary or high school.

One can only hope that, if a community impact rule is established, it will be enforced.  Even the Department of Education’s own Office of Inspector General has released a long series of reports exposing the Department’s poor oversight of the federal Charter Schools Program in past years under already existing rules.


2 thoughts on “U.S. Dept. of Ed. Proposes Rules to Stop Flow of Federal Charter School Grants into Management Company Profits

  1. Pingback: Jan Resseger: Feds Propose New Rules to Bar Profiteers | Diane Ravitch's blog

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