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.

Ohio Charter Regulation Goes On Life Support, Will Likely Die

Benjamin Barber is a political philosopher, and his observations are usually pretty abstract, which is why is it so fascinating to observe what his words mean in the real life drama of everyday politics—a drama that turned to tragedy this week in the Ohio legislature as the bill to regulate charter schools and their sponsor-authorizers collapsed and went on life support, though it hasn’t quite died.

Consider Barber’s reflection on the way privatization undermines the common good: “Privatization is a kind of reverse social contract: it dissolves the bonds that tie us together into free communities and democratic republics.  It puts us back in the state of nature where we possess a natural right to get whatever we can on our own, but at the same time lose any real ability to secure that to which we have a right.  Private choices rest on individual power…. Public choices rest on civic rights and common responsibilities and presume equal rights for all.  Public liberty is what the power of common endeavor establishes, and hence presupposes that we have constituted ourselves as public citizens by opting into the social contract.  With privatization, we are seduced back into the state of nature by the lure of private liberty and particular interest; but what we experience in the end is an environment in which the strong dominate the weak….” (Consumed, pp. 143-144)

Here is what happened earlier this week as Ohio’s public governing body left on break before reigning in the for-profit, privatized charter management sector, according to Patrick O’Donnell, the Plain Dealer‘s education reporter: “The Ohio House will head off on summer break without voting on the new accountability and financial reporting rules for Ohio’s $1 billion charter school industry that have been in the works for months.  House leaders skipped a vote on the package late last week and have left it off the schedule for Tuesday, the last session before leaving for recess.  Brittany Warner, spokesperson for Ohio House Speaker Cliff Rosenberger, confirmed today that there will be no vote before break… Warner said that leaders want more time to study some of the changes and that differences between the House and Senate versions should be sorted out in a conference between leaders of both houses.” O’Donnell concludes: “Republican leaders say the delay is to clear up some issues with the just-revised bill.  Others call it an attempt to buy time to water down the bill to please charter school operators who donate to Republican candidates.”

Here is the meaning of the delay, according to an e-mail on Monday afternoon from Stephen Dyer, former member of the Ohio House and former reporter for the Akron Beacon Journal:  “It looks like the Ohio House won’t take up the charter reform package that cleared the Ohio Senate last week before the end of business tomorrow (Tuesday).  So now, it’s being slow walked, which means at best we wait until mid-July…. We know that the powerful Ohio poor performing charter operator lobby would love for both chambers to bog this bill down so nothing changes.”

The Plain Dealer’s report quotes the ranking Democrat on the House Education Committee, Rep. Teresa Fedor, who is more blunt: “They never will call a vote, which means the tax dollars will continue on the ripoff train.”

Charter schools have always been conceptualized, to use Benjamin Barber’s language, around “the lure of private liberty and particular interest.”  They were designed to be free of the regulations (described as the constraints of bureaucracy) that, some believe, limit innovation in the traditional public schools that are held to particular standards and required to provide sufficient and appropriate services for all kinds of children.  The idea was to free up charters, and Ohio did just that, so much so that even charter advocacy organizations have condemned the academic malpractice and financial malfeasance that have been documented again and again.

Last December the Stanford Center for Research on Education Outcomes (CREDO) released a study of the academic effectiveness of Ohio’s charters (as measured by standardized test scores). CREDO has been a charter supporter, but its Ohio report is scathing: “First, recent efforts across Ohio to improve the quality of charter school performance are only dimly discernible in the analysis.  Overall performance trends are marginally positive, but the gains that Ohio charter school students receive even in the most recent periods studied still lag the progress of their traditional public school peers… Despite exemplars of strong results, over 40 percent of Ohio charter schools are in urgent need of improvement: they both post smaller student academic gains each year and their overall achievement levels are below the average for the state.  If their current performance is permitted to continue, the students enrolled in these schools will fall even further behind over time.”  “Compared to the educational gains that charter students would have had in a traditional public school, the analysis shows on average that the students in Ohio charter schools perform worse in both reading and mathematics.”

Margaret Raymond, director of the Stanford Center for Research on Education Outcomes (CREDO), followed up by coming to speak  at the Cleveland City Club, where she announced that it has become pretty clear that markets don’t work in what she calls the education sector: “This is one of the big insights for me because I actually am a kind of pro-market kind of girl, but the marketplace doesn’t seem to work in a choice environment for education… I’ve studied competitive markets for much of my career… Education is the only industry/sector where the market mechanism just doesn’t work… I think it’s not helpful to expect parents to be the agents of quality assurance throughout the state.”

The legislation that the Ohio House declined to vote on this week was already so watered down that it would have addressed only a few of the most serious academic and financial problems across Ohio’s charter sector.  Jim Siegel of the Columbus Dispatch explains that last week the Senate did add provisions to strengthen transparency and oversight: “Key Senate additions… include giving the Department of Education more effective authority to oversee charter school sponsors, more transparency of operator spending, and a stronger provision aimed at preventing sponsor hopping, where a poor-performing school quickly seeks to re-open under a new sponsor to avoid being closed… The bill also seeks to improve the way the state evaluates charter sponsors, nix the potential conflicts of interest that exist between schools and sponsors, and provide more assurance that sponsors are actually spending state money on their school oversight role.  New additions also would require online e-schools to keep more accurate attendance records, implement annual sponsor ratings with consequences for low scores, and establish stronger contracts between the state and the sponsors.”

Here, however, is some of what Ohio’s legislature entirely neglected to address—even in the proposed legislation that has now been hopelessly delayed.  Doug Livingston, in the Akron Beacon Journal, reported last week that the state, “has removed all test scores for online and computer-based dropout recovery high schools when grading sponsors.  These are the lowest-performing types of charter schools… Though there are only 24 online schools among the more than 380 charter schools in Ohio, they receive nearly one in three state dollars set aside for charter schools, or $267 million… The two largest—the Electronic Classroom of Tomorrow (ECOT) and Ohio Virtual Academy—received $185 million in state funding… Two are run by influential for-profit companies: White Hat Management, which operates Ohio Distance and Electronic Learning Academy founded by Akron industrialist David Brennan; and Altair Learning, which operates ECOT and is owned by Bill Lager.  Brennan and Lager have given more than $1.4 million in political contributions to state lawmakers since 2009…. In addition to his online school, Brennan’s Life Skills dropout recovery schools also are not included—at least this year—in sponsor ratings.”

It is worth noting that Ohio House Speaker William Batchelder—when he was term-limited out in January of this year and revolved directly into a lobbying job—took on a very powerful and influential client: William Lager and the Electronic Classroom of Tomorrow.

Ohio is the exemplar of Benjamin Barber’s critique: “Privatization is a kind of reverse social contract: it dissolves the bonds that tie us together into free communities and democratic republics.  It puts us back in the state of nature where we possess a natural right to get whatever we can on our own, but at the same time lose any real ability to secure that to which we have a right.  Private choices rest on individual power…. Public choices rest on civic rights and common responsibilities and presume equal rights for all.  Public liberty is what the power of common endeavor establishes, and hence presupposes that we have constituted ourselves as public citizens by opting into the social contract.  With privatization, we are seduced back into the state of nature by the lure of private liberty and particular interest; but what we experience in the end is an environment in which the strong dominate the weak….”