Private Equity Partnership with Ron Packard’s Accel Charter Schools Supercharges the Profit Motive

Charter school management in Ohio was, for a long time, a flamboyant affair.  For nearly two decades, until the state finally put him out of business, William Lager ran the Electronic Classroom of Tomorrow—charging the state, year-after-year, for students who were not really enrolled and making contributions to the legislators who then neglected to regulate online charter schools.

Even more notorious was David Brennan, who wore a ten gallon hat and dubbed his charter company White Hat Management. He had an empire of Life Skills and Hope Academy charter schools and an online virtual school, the Ohio Distance and Electronic Learning Academy (OHDELA).

In 2018, the same year that Bill Lager’s ECOT was shut down, Brennan sold off his charter school holdings and later died. Charter school management quieted down after that, but the quality didn’t improve, and the profits continued to flow to the man (and his partner investors) who bought off much of David Brennan’s empire—Ron Packard. Packard was the founder of the for-profit online giant, K-12, but he left K-12, when it was under a cloud for misleading investors and poorly educating its students. By 2014, Packard had founded Accel Schools, another for-profit chain of charter schools, which was owned and operated by something called Pansophic Learning.

In a stunning new Alternet report, Jeff Bryant traces how Packard and Pansophic Learning expanded rapidly—27 charter schools across Colorado, Illinois, Michigan,  Minnesota and Ohio.  Pansophic Learning bought up not only Brennan’s charter schools but also the financially struggling Mosaica network of charters and a small local chain of I Can schools in Cleveland, along with Brennan’s statewide electronic school, OHDELA.

Packard’s finances are complicated by private equity investment intended quickly to produce significant profit. Investors in Accel and Pansophic Learning include a Saudi private equity firm, Safanad, whose CEO Kamal Bahamdan, leads Bahamdan Investment Group.

Bryant explores the role of private equity ownership not only of charter schools but also of private prisons and nursing homes.  He cites a study which “distinguished private equity for-profit ownership from ‘generic’ for-profit ownership because ‘private equity ownership confers distinct incentives to quickly and substantially increase the value of their portfolio firms.’  It is this form of intense, high-powered profit-maximizing incentives, the authors asserted, ‘that characterizes private equity… and could lead to detrimental implications for consumer welfare.'”

Bryant describes Accel’s use of a sweeps contract to operate the Broadway Academy charter school in Cleveland.  With a sweeps contract, an Accel charter school collects per-pupil charter school funding from the state of Ohio and then turns over more than 90 percent of the funding to Pansophic which then manages the school with virtually no oversight from the appointed charter school board but with a strong incentive to maximize profit by reducing services for students.

Bryant identifies an additional source of profit for Packard and his partners: “While Accel’s contract with Broadway Academy doesn’t include real estate, the authors of (a recent) Network for Public Education report searched the database of Ohio charter school contracts… and found that ‘Global School Properties Ohio, LLC holds the leases for many Accel charter schools. The… landlord is at the same 1650 Tysons Blvd. address in McLean, Virginia, as Pansophic Learning.'” Hence we learn that Pansophic not only collects virtually all the state per-pupil charter school funding, but it also very likely makes a profit by charging inflated rent to lease the building that it secretly owns back to its own school.

Bryant unearths the complicated financial dealings of Pansophic Learning, Safanad, and the Bahamdan Investment Group. His report details the troubling financial web underneath Accel and the Ohio Distance and Electronic Learning Academy (OHDELA).  For the Washington Post, Steve Yoder describes how all this affects a Conneaut, Ohio mother and her children. Amanda Nemergut wanted to move her children to online learning as an alternative to in-person schooling during COVID-19.  Wooed by fancy online advertising, Nemergut enrolled her children in OHDELA: “Soon Nemergut and her kids… noticed problems. OHDELA’s model relies on parents to help supervise their children’s instruction, and Nemergut did, stepping in throughout the day to aid with technical glitches and questions on assignments. But there were issues she couldn’t fix.  The homework didn’t match the material teachers covered in class. When teachers gave live instruction—no more than 20 minutes per class… students couldn’t ask questions because chats were blocked. When her daughters sent questions by email, they got no answer. Teachers didn’t give credit for work her kids had turned in and marked them absent for classes they attended.”

One must acknowledge that the test-score-based Ohio state school report cards are flawed measurements of school quality, but even recognizing the inadequacy of the report cards, Jeff Bryant writes that Ron Packard’s Accel Schools in Cleveland area are not breaking any records for academic quality: “Accel Schools in the Cleveland area, where the management company has its highest density of schools, has no schools with A or B ratings from the 2018-2019 school year, the last one measured due to the pandemic. There are three C rated schools, including Broadway Academy.  Eleven others are D and F rated schools.”

Ohio’s Failure to Oversee Online and Dropout Recovery Schools Is Even Bigger Than ECOT Scandal

ECOT, the Electronic Classroom of Tomorrow, is the symbol of a much bigger problem in Ohio and across a number of states: an out-of-control sector of cyber schools and so-called “dropout recovery schools” whose savvy operators and owners have learned how to skirt and manipulate state laws that merely assumed entrepreneurs would run schools for the purpose of benefiting their students instead of lining their own pockets.  That was an incredibly naive assumption.

In her new expose of EdisonLearning’s Capital High School in Columbus, Ohio, For-Profit Schools Get State Dollars for Dropouts Who Rarely Drop In, Heather Vogell demonstrates that Ohio’s problem is much bigger than ECOT, and explores the outrageous scandal across several states of dropout recovery schools sucking profits from the scarce dollars in state education budgets: “Such schools aggressively recruit as many students as possible, and sometimes count them even after they stop showing up, a practice that can generate hundreds of thousands of dollars in taxpayer-paid revenue for empty desks. Auditors have accused for-profit dropout recovery schools in Ohio, Illinois and Florida of improperly collecting public money for vanished students… So-called ‘dropout recovery’ schools are increasingly popular, with many setting up shop in poverty-stricken city neighborhoods. In Chicago this past year, about 8,000 students attended such schools. In Ohio in the 2014-2015 school year, more than 16,000 students did, including some who attended online-only programs.”

Vogell examines the Ohio dropout recovery schools being sponsored by EdisonLearning—Capital High School in Columbus and a chain of 8 EdisonLearning dropout recovery schools across the state, the Magic Johnson Bridgescape Academies: “For-profit school management companies like Capital’s parent, EdisonLearning, have rushed into this niche, taking advantage of the combination of public funding, an available population of students and lax oversight… For EdisonLearning, the move to dropout recovery schools signaled a remarkable downshift in ambition. When launching the Edison Project 25 years before, media executive Chris Whittle and former Yale University President Benno Schmidt held out privatization as a fix for urban schools’ ills…. At its height, Edison managed dozens of schools in cities across the country, including Philadelphia and Baltimore. Whittle and Schmidt left their administrative roles in December 2006. Money troubles and controversies over test scores, staffing and safety forced the company to scale back… By 2013, the Bridgescape program had expanded to 17 schools in six states.”  Eventually Magic Johnson severed his ties with the schools: “In the summer of 2016, EdisonLearning ended its partnership with Magic Johnson and removed his name from schools’ signs… EdisonLearning—which sold off a chunk of its business in 2013—posted a significant loss in the 2016 fiscal year and has closed Bridgscapes in Illinois, Ohio and Virginia. But it is still bullish on dropout education.”

Capital High School, the dropout recovery school featured by Vogell, occupies a storefront in Columbus, Ohio, and although its student attendance ought to be able to be documented more easily than at an online school like ECOT, confirming students’ attendance has been a huge problem for the state of Ohio which pays the tuition: “Last school year, Ohio’s cash-strapped education department paid Capital High $1.4 million in taxpayer dollars to teach students on the verge of dropping out. But on a Thursday in May, students’ workstations in the storefront charter school… resembled place settings for a dinner party where most guests never arrived. In one room, empty chairs faced 25 blank computer monitors. Just three students sat in a science lab down the hall, and nine more in an unlit classroom, including one youth who sprawled out, head down, sleeping.  Only three of the more than 170 students on Capital’s rolls attended class the required five hours that day, records obtained by ProPublica show. Almost two-thirds of the school’s students never showed up; others left early.  Nearly a third of the roster failed to attend class all week. Some stay away even longer.  ProPublica reviewed 38 days of Capital High’s records from late March to late May and found six students skipped 22 or more days with no excused absences… Though the school is largely funded on a per-student basis, the no-shows didn’t hurt the school’s revenue stream. Capital billed and received payment from the state for teaching the equivalent of 171 students full time in May.”

Vogell describes aggressive efforts to recruit students. Some states provide an incentive for high school counselors to recommend that students move to a dropout recovery school: the students no longer count against the public high schools’ graduation rate if the students drop out into an alternative “dropout recovery” school. In other cases recruiters from the for-profit dropout recovery schools take coffee and donuts to meetings with high school counselors from whom they seek referrals. Vogell describes one Midwestern city where the dropout recovery schools engaged church pastors to help with recruitment. Vogell interviewed students’ probation officers who complained that dropout recovery programs with little structure are not helpful to the students they monitor.

This blog has been tracking the scandal at Ohio’s Electronic Classroom of Tomorrow.  Now suddenly in a new development, ECOT will become a new chapter in the story Vogell exposes: Ohio has now initially approved ECOT’s changing its designation to a “dropout recovery school.”

To review: ECOT’s best known problem is that the state has accused it of theft of tax dollars for students the school claims but who are not regularly participating.  We’ll see if the Ohio Supreme Court will uphold a lower court’s demand that ECOT return enormous overpayments, money ECOT has already turned over to the two privately held, for-profit companies that provide curriculum and management services. ECOT’s founder, William Lager, owns both companies and has been collecting sizeable profits which he has shared with Ohio legislators as political campaign contributions. ECOT sued to prevent the state’s clawing back $60 million overpaid to ECOT during the 2015-16 school year, when ECOT charged the state for educating 15,300 students. The state has been able to document only 6,300 students in school at ECOT that school year. Now the state is demanding that ECOT repay $19 million for the 2016-2017 school year.  Although ECOT claimed 14,200 students last school year, the state can document only 11,600.

In the newest development, ECOT has now been initially approved by the Ohio Department of Education as a dropout recovery school.  For years ECOT has been earning an F rating from the state for its students’ test scores and deplorable graduation rate—an F rating which, under a 2015 law, now threatens the survival of its nonprofit sponsor, the Educational Service Center of Lake Erie West. In late September, the Ohio Department of Education agreed to accommodate ECOT’s request that it be declared a “dropout recovery school” instead of a regular online school.  The new designation will automatically change the school’s overall grade from F to C without any added responsibility for ECOT to better serve its students. Ohio, we learn, has lower expectations for the students at dropout recovery schools and will change the school’s overall score, even if the students’ academic performance and graduation rate remain deplorable. All ECOT has to do is prove that the majority of its students are between the ages of 16 and 21 and are in need of special services for students at-risk. The Plain Dealer‘s Patrick O’Donnell adds: “The Ohio Department of Education…. does not audit that claim and leaves it to schools and their oversight organizations known as ‘sponsors’ to make that determination.”

Forbes Article Deplores Private Profits at Expense of Public Good

Writing for Forbes Magazine, Addison Wiggin writes ostensibly to advise potential investors about charter schools as an opportunity for profit.  But his research for Charter School Gravy Train Runs Express to Fat City seems to have led Wiggin in a very different direction.

Maybe Wiggin once took a class in the philosophy of education or maybe he just remembers his high school civics class. Somewhere he learned the importance of public ownership and public oversight of public schools.

The article begins: “On Thursday, July 25, dozens of bankers, hedge fund types and private equity investors gathered in New York to hear about the latest and greatest opportunities to collect a cut of your property taxes.”

The rest of the article is the composite of all sorts of research about charter schools and for-profit education providers across several states.  Here are some examples:

  • “In Ohio, two firms…  are collecting 38% of the state’s charter school funding increase this year.  The operators of both firms donate generously to elected Republicans.”
  • “The Arizona Republic found that charters ‘bought a variety of goods and services from the companies of board members or administrators, including textbooks, air conditioning repairs and transportation services,’ Most charters were exempt from a requirement to seek competitive bids on contracts over $5,000.”
  • “In Florida, the for-profit school industry flooded legislative candidates with $1.8 million in donations last year.”
  • “Researchers from Michigan State and the University of Utah studied charters in Michigan, finding they spent $774 more per student on administration, and $1,140 less on instruction,” than traditional public schools.

Wiggin’s conclusion is for the potential investor: “The history of publicly traded charter school firms is limited and ugly…  For now, the big money in charter schools is confined to those on the inside.  In late 2010, Goldman Sachs announced it would lend $25 million to develop 16 charter schools in New York and New Jersey.  The news release said the loans would be ‘credit-enhanced by funds awarded by the U.S. Department of Education.’ Of course.”