Thousands of Charter Schools Close: Rip Off Taxpayers, Steal Students’ Future

Last week I received a press release about a new report: Center for Media and Democracy Publishes Full List of 2,500 Closed Charter Schools.  What to do with this information?  What does it really mean?  Isn’t the threat of possible school closure really the point of school choice driven by the theory of the marketplace?  Good schools will open and stay open but the bad ones will go out of business when parents vote with their feet.  Isn’t this the very mechanism by which the marketplace is supposed to hold schools accountable?

I opened the link to the Center for Media and Democracy’s website to learn the significance of the new report, which announced: “Among other things, this data reveal that millions and millions of federal tax dollars went to ‘ghost’ schools that never even opened to students… (N)early 2,500 charter schools have shuttered between 2001 and 2013, affecting 288,000 American children enrolled in primary and secondary schools…. For example, in the 2011-2012 school year, charter school students ran two and a half times the risk of having their education disrupted by a school closing and suffering academic setbacks as a result of closure.  Dislocated students are less likely to graduate.  In 2014, Matthew F. Larsen with the Department of Economics at Tulane University looked at high school closures in Milwaukee, almost all of which were charter schools, and he concluded that closures decreased ‘high school graduation rates by nearly 10%.  He found that the effects persist ‘even if the students attend a better quality school after closure.'”… Then there are the charter schools that never opened despite tax money from a federal program to help more entities apply to create even more charters.  Drilling down into the data of just one state in just one school year, 25 charter schools (or, really, just prospective charter schools) awarded grants in 2011-12 never opened in Michigan.  The non-profit groups behind these were granted a total of $3.7 million in federal tax money in implementation and planning grants, and they also received at least $1.7 million in state tax dollars.  These charter schools exist only on paper, in this case on grant notification forms and in databases of state expenditures.”

Back in May, the Center for Media and Democracy released another in-depth report that demonstrates the failure of the marketplace as a regulatory mechanism for schools.  In fact CMD’s report in May raises serious concerns about lack of regulation in the charter sector: “CMD’s review of appropriations reveals that the federal government has spent a staggering sum, $3.3 billion, of taxpayer money creating and expanding the charter school industry over the past two decades, but it has done so without requiring the most basic transparency in who ultimately receives the funds and what those tax dollars are being used for, especially in contrast to the public information about truly public schools.  Although some charters have a veneer of being alternative ‘public schools,’ many of them are run by for-profit companies or outsource key operations to for-profit firms, and are exempt from any local democratic control.  These billions have been funneled to charters through a patchwork of state laws often designed to prevent government agencies from exercising control over how that money is spent by charters or to exempt charters from rules that apply to traditional public schools…. This lack of oversight is a recipe for disaster for far too many American school children, and for taxpayers, when large chunks of the money end up either missing in action or in corporate charter school coffers.”

Just last week, as the Center for Media and Democracy was releasing its list of 2,500 closed charters, Doug Livingston, the education reporter for the Akron Beacon Journal, published the story of the disfunction and ultimate closure of the Next Frontier Academy, “an urban agriculture-based charter school” located in West Akron. Livingston’s report explains why this particular school closure wasn’t just an example of the marketplace regulating charters through accountability.

Livingston explains, “As the first day of school drew near this year, Unique Foxworth wondered whether her new school would believe that she had ever attended her old one.  She knew she did.  As a 14-year-old, she awoke at 5 a.m. each morning to catch a bus outside her East Akron home by 6:15 a.m.  At the central transfer station downtown, she would board another shuttle bound for Copley Road in West Akron.  She finished the 90-minute trip with a short walk to the Next Frontier Academy…. ‘It would always be the same three people that were there on time,’ said Foxworth, now 15.  ‘One was a teacher.  The other two were students.  I was one of them.'”

Reporting on Ohio charter schools, Livingston continues: “Now, like 200 other charters, the school has closed, adding to the $1 billion in taxpayer funding given to failed charter schools.  More charter schools closed last year than at any point in the industry’s 17-year history in Ohio.  For Foxworth, the closure meant finding a new school with only a few days notice.  Her mother said teachers—not administrators—told her of the school’s financial woes and likely closure.  As Foxworth searched for a new education, Akron Public Schools sifted through records for more than 60 students who attended the school.  None contained complete attendance counts or test scores, or adequate proof that students ever went there.”

Livingston’s report is thorough, with shocking details categorized by the story’s subtitles:

• Broken promise: “The vocational charter school promised to teach agriculture to city students.  The state provided Next Frontier nearly $2,000 in additional funding per pupil to make it work.”
• Chaotic closing: “The records weren’t easily obtained.  The school’s sponsor, Tri-County Educational Service Center in Wooster, said it sent staff to take them when the charter school refused to hand them over.  But the records were little more than cover letters….”
• A violent place: “A teenage girl told police months later that an older male student ‘sexually assaulted her and held her against the wall’ inside the school.  Police recorded numerous thefts and fights at the school, which employed about five teachers and two administrators… Often parents, not the school, notified the police.”
• Mismanaged money: “The Ohio Attorney General’s Office filed a worker’s compensation lawsuit in June.  Teachers were told to wait days before cashing paychecks as investors deposited money to keep the school’s bank account positive.  Summit County officials say $14,398.83 in taxes is owed on the property.”
• Follow the money: “There’s a complicated paper trail that connects (Cleveland entrepreneur Michael) Hoffman’s company and the private landlord to the publicly funded school…. It starts with $125 in March 2012 when Hoffman paid the state to create the charter school.  A month later, he did the same to launch his company, Blue Lake Educational Management—a ‘limited liability company’ that shields Hoffman or school founder John Hairston from personal liability.”
• Any assets?  “If there were desks or computers or anything of value, the sponsor would be responsible for selling the assets, paying bills and returning the balance to taxpayers.  The management company says the money is gone and no assets remain.”
• Academic shortcomings:  “Ohio Department of Education records indicate staff lacked credentials or taught outside their areas of expertise…. Principal Tarik West, for example, held no administrative license, only a certificate as a substitute gym teacher.”

In June, this blog covered an effort by the national organizations that make up the Alliance to Reclaim Our Schools—American Federation of Teachers, Alliance for Educational Justice, Annenberg Institute for School Reform at Brown University, Center for Popular Democracy, Gamaliel, Journey for Justice Alliance, National Education Association, National Opportunity to Learn Campaign, and Service Employees International Union, the submission of a formal letter to U.S. Secretary of Education Arne Duncan demanding that the federal government begin regulating charter schools.  The alliance cited formal audits from 2010 and 2012 in which the Department of Education’s own Office of Inspector General (OIG), “raised concerns about transparency and competency in the administration of the federal Charter Schools Program.”  The OIG’s 2012 audit, the members of the Alliance explain, discovered that the Department of Education’s Office of Innovation and Improvement, which administers the Charter Schools Program, and the State Education Agencies, which disburse the majority of the federal funds, are ill equipped to keep adequate records or put in place even minimal oversight.  The State Education Agencies that lack capacity to manage the programs are the 50 state departments of education.  In its letter, the Alliance to Reclaim Our Schools demanded that the federal government establish a moratorium on the awarding of federal funds to charter schools until federal oversight is improved.

The Washington Post reporter Lyndsey Layton reported earlier this week, however, that on Monday, the U.S. Department of Education announced grants of $157 million to expand charter schools.  Layton adds, “Asked how taxpayers can be assured that federal dollars will be spent properly, (Arne) Duncan said it was largely up to states and the public agencies that approve charter schools… The department sent a ‘Dear Colleague’ letter to states emphasizing the importance of financial accountability for charter schools receiving federal dollars.  Duncan also said that his agency plans for the first time to publicly report some data, including the names of some schools that have received federal grants and their performance statistics.”

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Ohio Supreme Court Rules Private Charter School Management Firm Owns Public Assets

Yesterday Ohio’s elected, Republican-dominated supreme court ruled that a privately held, for-profit charter management company, White Hat Management, owns the equipment and assets of several White Hat Hope Academies and Life Skills Academies that had sought to sever ties with White Hat and hire a new management company to run the schools. White Hat is owned by Akron entrepreneur and Republican mega-donor David Brennan.  The boards of ten Hope and Life Skills Academies had filed a lawsuit to recover assets purchased with public dollars that White Hat said its contract awarded to the management company.

The Columbus Dispatch describes Justice Judith Ann Lanzinger’s decision for the majority: “that charter school operators perform a governmental function and establish a fiduciary relationship with the schools they manage in purchasing school equipment, contrary to the position taken by White Hat.”  The Dispatch continues: “Current law largely does not address the duties of school operators and does not restrict the provisions of contracts between operators and charter schools, Lanzinger wrote.”

Over ten years, the Dispatch reports, the state paid approximately $100 million to the ten schools in Cleveland and Akron.  All the schools contracted with White Hat in 2005, agreeing to turn over 95 percent of each school’s state funding to pay teacher salaries, building rentals, utilities, and other expenses, an agreement known as a “sweeps contract” in which the management company receives virtually all of the school’s revenue and handles all of its operations with little day-to-day oversight by the school’s board.  The Akron Beacon Journal explains: “The dispute arose when the school boards and White Hat parted ways.  The school boards wanted to change management companies, but White Hat said that by virtue of its contract, it owned the assets of the schools, and the boards would need to move to a new location and acquire their own equipment and supplies, or buy the assets of the schools from White Hat.  The schools argued that the assets, purchased with public money, did not belong to White Hat.”

It is not surprising that the boards of the schools failed to negotiate a careful, tough contract with the management company to protect the schools’ assets for the schools.  It has been known for years that White Hat played an active role in helping recruit members of the boards of its schools—board members whose job was supposedly to oversee the performance of the management company.  In March of 2014, Doug Livingston reported for the Akron Beacon Journal that several board members of White Hat schools admitted openly that they had been recruited by White Hat Management to sit on charter school boards, despite that the IRS expects “a bright line between the charter-school governing board and the management company hired to run the school.  The company should not create the board or recruit its members, and any evidence of boilerplate contracts from one school to the next suggests the company many be in control.”  One board member told the Beacon Journal that White Hat had asked her to serve on the boards of four of its schools.

Stephen Dyer of Innovation Ohio explains that Justice Lanzinger received a $5,000 campaign donation from David Brennan in 2004.  Chief Justice Maureen O’Connor received campaign donations from Brennan in 2002, 2008, and 2010, totaling $11,900.  Justice Judith French received a donation last year from Brennan of $7,200.  Dyer notes that Justice Terrence O’Donnell, who has received $15,000 from Brennan over the years, recused himself.  Justice Paul Pfeiffer has not accepted a campaign donation from Brennan since the early 1990s.

Pfeiffer was the lone Republican dissenter from yesterday’s majority opinion, and he made his independence explicit: “The contracts in this case are plainly and obviously unconscionable.  The contracts require that after the public pays to buy those materials for a public use, the public must then pay the companies if it wants to retain ownership of the materials.  This contract term is not merely unwise as the opinion would have us believe; it is extremely unfair, so unfair, in fact, as to be unconscionable.  The contract term is so one-sided that we should refuse to enforce it.”  Justice William O’Neill, the court’s only Democrat, calls White Hat’s contracts with its charter schools, “a fraudulent conversion of public funds into personal profit.”

Two weeks ago, Brent Larkin, the Plain Dealer‘s editorial director from 1991 until his retirement in 2009, commented on the pending decision of the state supreme court in the White Hat Case: “White Hat is owned by Akron’s David Brennan.  He and William Lager, owner of the Columbus-based Electronic Classroom of Tomorrow, who have made millions by taking our money and not educating kids, have funneled more than $6 million into Republican candidates and causes.” “Operators of Ohio’s growing number of lousy charter schools are one win away from hitting a trifecta.  They’ve got the legislature in their hip pocket and a governor who is an inexplicable and inexcusable no-show on the issue.  Two down, one to go: The payoff for controlling the judiciary won’t be millions.  It’ll be tens, maybe hundreds, of millions. And every single penny of it will come from your pocket.  Only in Ohio could charter school operators come this close to essentially having their way with all three branches of government.”

Yesterday the Ohio Supreme Court confirmed Larkin’s fears.