No Shame: ECOT Continues to Cheat Ohio Taxpayers Even While Awaiting Final Court Decision

Two prominent and long-experienced national organizations, the NAACP and the National Education Association, have passed resolutions demanding a moratorium on the authorization of new charter schools until some kind of oversight can be put in place to protect students and the investment of tax dollars. Charter schools are being authorized under the laws of 43 states, with an outrageous lack of public oversight in some states.

Ohio and the Electronic Classroom of Tomorrow provide the very definition of the problem. ECOT, as the giant online school is known, awaits a final decision from the Ohio Supreme Court that would permit the state to claw back $60 million in overpayments from the taxpayers to the school for the 2015-16 school year alone. During that school year, ECOT claimed it was serving 15,322 full-time students, but the state has been able to verify only 6,800.

Thanks to Ohio’s major newspapers, the scandal continues to be exposed as each new chapter unfolds.

Here is how the Columbus Dispatch began its editorial on Sunday: “ECOT’s brazen plundering of the Ohio treasury continues to set a new bottom for shameless. The state’s largest online school, told to repay $60.4 million overbilled in a previous school year for students who were MIA, appears to be inflating current enrollment—overcharging the state to raise money to repay its debt. The fear is that Ohio taxpayers will never see a dime of what ECOT owes. The enterprise is employing the time-honored strategy of ‘extend and pretend’: Ignore state orders on how to properly count enrollment for reimbursement.  Appeal the Ohio Department of Education’s orders, upheld by a succession of Ohio courts, while continuing to claim that the state has no right to document that students actually are logging in and getting educated. Drag out the legal fight, a no brainer since the school is paying its legal bills with taxpayer dollars.  And before the Ohio Supreme Court rules, grab as much state cash as possible.”

In Cleveland, the Plain Dealer also editorialized on Sunday: “Ohio Auditor Dave Yost recently sent a letter to the Ohio Department of Education advising it to ‘impound a significant portion of any further funding’ to the Electronic Classroom of Tomorrow until the state can verify the online charter school’s student attendance numbers for the upcoming school year. There are good reasons for this: ECOT has not repaid Ohio the $60 million in reimbursements it owes for what the state determined was ECOT’s 59 percent overstatement of student attendance figures for the 2015-16 school year.  ECOT is arguing its student numbers were correct but, so far, the courts have sided with ODE.  ECOT’s appeal to the Ohio Supreme Court is pending… Yost is right. ECOT claimed 15,300 online students two years ago but could only provide evidence to verify 6,300, according to ODE.  Why take at face value its estimate of 14,000 students this coming academic year?”

On Sunday, the Dispatch also published an extraordinary investigation—by reporters Catherine Candisky and Jim Siegel—of ECOT’s history.  They remind us that besides donating huge political contributions that have endeared ECOT to Ohio’s legislators, William Lager, ECOT’s founder and the owner of the two privately held companies that provide the school’s curriculum and its operations, has featured those with political influence as the school’s annual commencement speakers including Ohio Auditor Dave Yost at three commencements, Governor John Kasich, and even Jeb Bush, a national leader promoting school privatization.

But Yost has now come to understand that Lager and ECOT are trying to cheat Ohio’s taxpayers.  On July 21, Patrick O’Donnell reported for the Plain Dealer: “The state needs to send less money to the Electronic Classroom of Tomorrow… state Auditor Dave Yost says, or it may never recover the $60 million the school already owes.”  In a letter to state education superintendent Paolo DeMaria, Yost asked the state to escrow part of the state’s funding for ECOT for the upcoming school year until ECOT’s enrollment figures can be verified. According to Yost’s request, the state has begun deducting $2.5 million each month from ongoing payments for 2017-18. “Instead of receiving a little over $8.1 million in state tax dollars toward opening the school again this fall, ECOT received just under $5.6 million earlier this month. But that 5.6 million may be too much, Yost said. ECOT is claiming 14,000 students again, Yost noted, so the per-student payments to the school are possibly too high…”  Yost explains: “It is virtually the same number of students ECOT claimed for the 2016-17 school year, and far in excess of the audited number your department found supported for the 2015-16 school year.”  “I am concerned that ECOT is overstating its FTE (attendance) for cash-flow purposes, and the state may not be able to claw back any funds that are improperly distributed to ECOT.”

Yesterday O’Donnell added that the Department of Education has decided to withhold 12 percent of ECOT’s funding for the upcoming school year until the state’s audit of active participation by ECOT’s students is complete: “These cuts would be added to the $2.5 million monthly deductions the state is already taking from the school’s funding to cover the school’s past attendance issues.”

From Candisky and Siegel’s investigation we also learn that ECOT was always envisioned primarily as a money-making scheme, not an experiment in education reform. The idea was not hatched by people with a background in pedagogy, school psychology or educational philosophy: “After making and losing his first fortune in the office supply business, William Lager hatched a plan for Ohio’s first online charter school on the back of napkins over countless cups of coffee at a West Side (Columbus) Waffle House. ‘He was flat busted broke, worse than we were. He would sit there all day long drawing on napkins,’  said Chandra Filichia, a former waitress at the Waffle House on Wilson Road who was tapped to help recruit Electronic Classroom of Tomorrow’s first class of students and worked 16 years for Lager… Lager, Filichia recalled, would photocopy $5 coffee cards—each good for 10 cups of coffee—to save money while working on his business plan with longtime friend and ECOT co-founder Kim Hardy.  The two of them attended state-run classes on how to start a charter school, where they met Coletta Musick.  The former principal brought an actual education background to the team.  Lager already had connections for obtaining computers and office equipment. David Brailsford, a Toledo ticket broker, provided the early financing… But once Lager inked… (the) deal, his financial woes didn’t last long.  ECOT—and his affiliated for-profit companies that provide instructional materials, services and marketing—have brought Lager a fortune.”

Here is what ECOT has amassed—all from tax dollars: “From 2001 to 2016, ECOT took in more than $1 billion from Ohio taxpayers, and of that total paid more than $170 million to Lager’s companies to run the day-to-day operations of the school and provide it with educational software.”

In the fifteen years from 2001-2016, Lager bought a $300,000 condo in downtown Columbus, a $433,500 vacation house on a lake, a $995,000 house in a Columbus suburb, and a $3.7 million house in Key West, Florida. He has also donated $2.1 million in political contributions to Ohio Republicans.

In 2015 the Ohio legislature strengthened the charter school law to prevent conflicts of interest and double dealing, but by that time, ECOT was well established.  In 2001, report Candisky and Siegel, “Lager and Hardy hand-picked the ECOT board that employed their company. In fact, the man who signed the school’s agreement with Lager’s Altair management, ECOT’s board chairman Donald Wihl, was a friend who owned the condo where Lager was staying.  Wihl’s daughter was employed as the ECOT board’s secretary.”  Once then-state auditor Jim Petro began investigating the school back in 2001, three board members resigned along with the director of educational services, and the director of academic affairs. In that same year, Lager’s partner Hardy also resigned.

Petro discovered that the state had, in 2001, paid ECOT $1.9 million during a two month period for students for whom the school could not document any hours of instruction: “An April 2002 audit said the school was overpaid $1.7 million in 2001 after ECOT ‘did not utilize an internal audit function to monitor the hours of educational opportunity. Petro also found the school had no procedures for withdrawing students and no policy on how enrollment would be counted, nor was information available on whether all students got appropriate computer equipment.”

Candisky and Siegel continue: “Petro, who later became a Lager ally and spoke at ECOT’s 2006 commencement, wrote to the Department of Education in March 2000 that… (charter) school boards are made up primarily of employees and board members from management companies and are not representative of the particular community.’… But the legislature wouldn’t take action to significantly limit conflicts of interest and provide stricter oversight of school operations and sponsors for 13 more years.  Meanwhile, two things grew: Ohio’s poor reputation among national education experts as the Wild West of charter schools, and political contributions from for-profit school operators, particularly Lager and David Brennan, founder of another charter school operation, White Hat Management.”

Once a charter school scam is well established—especially an operation where profits are involved and are being strategically invested in campaign contributions to the legislators who would have to do the regulating, it is virtually impossible to protect the taxpayers and the children. Ohio’s ECOT perfectly exemplifies why a national moratorium is needed on the authorization of new charter schools until oversight can be imposed.