Good News: U.S. Dept. of Ed. Strengthens Needed Regulation of Federal Charter Schools Program

Quietly on Friday afternoon before the July 4th holiday weekend, the U.S. Department of Education announced it has finalized rules to strengthen oversight of the federal Charter Schools Program (CSP). The new rules are just the sort of sensible regulation that ought to have been part of the program when it was established back in 1994.

For Education Week, Libby Stanford reports: “Incoming charter schools will have to gather community input and prove they aren’t managed by a for-profit company to receive federal funding under the Biden administration’s finalized Charter Schools Program rules published Friday. The U.S. Department of Education’s final notice on the new regulations is the latest development in the controversy surrounding charter school rules… The administration’s goal in issuing the new rules is to prevent private companies from using federal dollars to open charter schools and to curb premature closures.  Fifteen percent of the charter schools that receive funding from the program either never open or close before the three-year grant period is over, department officials told Education Week.”

In a Fact Sheet about its new rules, the Department declares that it will no longer award our federal tax dollars to supposedly nonprofit charter schools which are operated under sweeps contracts by huge for-profit charter management organizations (CMOs): “Given the significant risks to public funds that fall under the purview of for-profit charter school operators, the Department’s rulemaking is in alignment with federal statute that expressly prohibits for-profit organizations from applying for grants or subgrants under CSP.”

The Department also now requires that charter school authorizers applying for grants to start up new schools must explore and document the impact of the new school on the traditional public schools and the community. The Fact Sheet explains: “Supporting high-quality charter school options in the interest of students and families requires CSP applicants to demonstrate the need for the school and the benefits to the community—for example, increasing the number of high-quality seats available to students. It also means that school plans, including enrollment projections, inclusive practices and academic goals, are well-conceived and evidence-based.” The Department adds that new charter schools must “not be used to increase racial or socio-economic segregation and isolation.”

The Network for Public Education reports some of the details of the new regulations. Charter schools operated by for-profit CMOs need not apply. White flight charter schools will not qualify for Charter Schools Program (CSP) grants.  The new rules bar the use of CSP implementation funds until the school has not only a charter but has also acquired a building in which it will operate. Applicants for CSP grants must hold or participate in a public hearing on the proposed charter school’s expected impact. The new rules require added transparency: within 120 days, all schools with CSP funds, CMOs and states with charter school state grants must post on a website detailed information about all grantees, including peer reviews and management contracts.


In March, the U.S. Department  of Education posted the proposed rules in the Federal Register and requested public comments. Supporters of the new rules and opponents of charter school regulation submitted over 5,000 unique comments including many readers of this blog who submitted comments supporting the proposed regulations. The charter school lobby, led by the National Alliance of Public Charter Schools, also mounted an enormous effort including a D.C. rally and TV ads to oppose stronger oversight of this federal grant program.

Some History and Context

Those of us who follow the news about charter schools know there is a need for better oversight of this education sector. The Network for Public Education tracks the myriad financial and educational charter school scandals reported in the local news across the states. Just in the month of June three of the most sensational and most expensive charter school scandals once again popped up:

  • Oklahoma’s Epic Charter School Scandal — On June 23, The Oklahoman reported: “The co-founders of Epic Charter Schools have been arrested on charges of financial crimes… Ben Harris, David Chaney and the chief financial officer for their company, Josh Brock were…. booked into the Oklahoma County jail on a $250,000 bond. Harris, Chaney and Brock were arrested on charges of embezzlement of state funds, racketeering, obtaining money by false pretense, conspiracy to commit a felony, violations of the state computer crimes act, submitting false documents to the state and unlawful proceeds… The charges stem from a nine-year investigation into the defendants’ management of Epic Charter Schools, a public virtual charter school system. On top of establishing Epic, Harris… and Chaney… founded a private company that operated the school system and earned 10% of its yearly education funding.  Epic severed all ties with the co-founders, Brock and their business in May 2021.”
  • California’s A3 Charter School Scandal — In early June, the San Diego Union Tribune reported California’s collection of additional restitution as part of the punishment for perpetrators of an enormous online charter school fraud: “An additional $18.8 million has been paid to San Diego County as restitution for the statewide A3 charter school scam in which the state was defrauded of hundreds of millions of school dollars…. Sean McManus of Australia, along with Jason Schrock of Long Beach, led a statewide charter school scheme from 2016 to 2019 in which they used a network of mostly online charter schools to defraud the state of approximately $400 million and used $50 million of that amount for personal use. They did so by falsely enrolling students and manipulating enrollment and attendance reporting across their schools to get more money per student than schools are supposed to, prosecutors said. In total, about $240 million of the $400 million has been recovered.”
  • Ohio’s ECOT (Electronic Classroom of Tomorrow) Scandal — The Columbus Dispatch’s Laura Bischoff reported on Tuesday of last week that the state of Ohio is still owed $117 million by the operators of ECOT, which was shut down over four years ago for charging the state for students who were never enrolled: “The Electronic Classroom of Tomorrow—an online charter school that abruptly closed in January 2018—owes the state more than $117 million, a newly released state audit found.  Ohio Auditor Keith Faber on Tuesday said the school owes $106.6 million to the state Department of Education and another $10.6 million to the Attorney General’s office. Faber’s auditors found that ECOT wasn’t entitled to some of the state money it received in 2016 and 2017 and none of the cash it received in 2018.  William Lager founded ECOT in 2000 and built it into the largest online charter school in Ohio. Lager also operated Altair Learning Management Inc. and IQ Innovations LLC, which contracted with ECOT to provide support services.”  The two companies were the source of enormous profits collected by Bill Lager.

In June, we also had an opportunity to read an updated assessment of the years-long impact of the 2005 experiment which radically expanded charter schools in New Orleans following Hurricane Katrina. New Orleans educator, Michael Deshotels describes what happened during 2005 and 2006 and the condition of education in New Orleans today:

“In 2005, as Hurricane Katrina physically destroyed much of the Orleans public school system, the Louisiana legislature passed a law allowing the State Department of Education to take over approximately three-fourths of New Orleans public schools. According to the new state law, school takeover (only in New Orleans) became automatic for any school producing less than the state average score on state tests… The (Louisiana) Department of Education was authorized to turn such schools over to charter school management organizations in an agreement that removed many state requirements and standards in exchange for greatly improved academic results… The majority of charter management organizations came into the Orleans system starting with the 2006-07 school year.  State officials had fired almost 7,000 experienced teachers and staff as a way of cleaning house and allowing the new managers a fresh start, unhampered by previous teacher contracts.  Most charter groups began by hiring new—mostly younger teachers…. Most new teachers were provided by Teach for America. Also, many of the charter school managers had no education credentials.”

Deshotels updates the story, based on a new (2022) report from the Louisiana Pelican Policy Institute. “The recent study shows that taken as a whole, the New Orleans all charter system is still ranking in the bottom quartile of all public-school systems in the state. This is in a state that performs near the bottom of all states on national testing and college preparedness… In the key subjects of math and reading, Orleans performs at the 24th percentile compared to all other state school systems.  This is approximately the same as the Orleans school system performed before Katrina! … Did the increased funding allow the reformed Orleans school system to hire a better quality of teachers? The state auditor recently found that more than half of Orleans teachers are not certified as teachers. In addition, most of the teachers now employed in Orleans are Caucasian, while 90% of the students are African American.”

The New Federal Rules Won’t Entirely Clean Up Charter School Abuses.

After examining the new rules, the Network for Public Education’s Carol Burris concludes: “These new regulations are an essential first step in making sure that fewer tax dollars go to schools that never open, schools that quickly close, and for-profit operators. Unscrupulous individuals who used the program for their enrichment will find it more difficult to do so. State Entities that have pushed money out the door will now be forced to provide more oversight and supervision. And so they should. State Entities get 10 percent of every grant, representing millions of federal dollars, to use for such supervision.”

The new federal  regulations cannot themselves prevent many of the fraudulent schemes like the ones described in Oklahoma, California and Ohio.  Neither will the new regulations prevent state legislators from introducing wild experiments exemplified by the 2005 New Orleans state takeover and transformation to charter schools. Charter schools are established by law in 45 of the states and the District of Columbia, and they are regulated largely by state law. If the new regulations are well enforced, they will ensure that unscrupulous charter school operators can no longer qualify for federal grants under the Charter Schools Program.

The federal Charter Schools Program, begun in 1994, was envisioned by promoters who sold charter schools as an innovative alternative to traditional public schools operating in a bureaucratic straight jacket of regulations. Ironically the experiment has instead proven the urgent need for careful government oversight. The federal Charter Schools Program rules adopted last Friday will better protect our federal tax dollars and set an example of the kind of regulations state legislators should themselves begin to undertake. Charter school operators like those described in the examples here have flagrantly demonstrated the urgent need for better stewardship of tax dollars flowing to charter schools.