New Report Exposes Rip-Off of Tax Dollars by For-Profit Charter Management Companies

On Wednesday, the Network for Public Education released Chartered for Profit: The Hidden World of Charter Schools Operated for Financial Gain, a ground-breaking new report on what has become an old, old problem.

Charter schools have now been around since the early 1990s, and here in Ohio, at least, soon after David Brennan, Ohio’s school choice guy, helped Governor George Voinovich get the Cleveland Voucher Program going, Brennan switched his own business over to launching charter schools. He immediately realized that running for-profit charter schools would be far more lucrative. In 1998, Brennan launched White Hat Management, his for-profit charter management company.  He and his company helped launch charter schools and even choose board members to oversee them—to ensure that his company profited at public expense.  His network included the Hope Academy elementary schools and Life Skills Academy high schools, all of which White Hat managed under sweeps contracts, by which the schools turned over to White Hat more than 95 percent of their state funding, without any transparent reporting about spending for staff and equipment or the profits Brennan was raking off the top.

David Brennan died in 2018, but his for-profit empire did not die. The Network for Public Education’s new report shows how another entrepreneur acquired Brennan’s charter empire and expanded it. The new report also examines the operation of for-profit education management organizations across many states and explains why they are a serious threat: “We are in a time when our public schools are struggling to provide all children with the services they deserve during a national pandemic… Now more than ever, it is imperative that every tax dollar be directed to delivering those services. It is time to end chartering for profit and to ensure that children, not corporations, profit from our tax dollars.”

The new report locates where the for-profit charter school management companies are operating: “Based on our match of school names to federal 2018-2019 school year data, over 600,000 students are educated in charters run for profit that we identified, approximately eighteen percent of all students enrolled in charter schools. Twenty-six states and the District of Columbia presently have charter schools operated by for-profit corporations… Most of the schools are located in four states—Michigan, Florida, Ohio, and Arizona…. Together the seven largest national chains (Academica, National Heritage Academies, The Leona Group, K12Inc., Charter Schools USA, Pansophic Learning/ACCEL, and Pearson/Connections Academy) manage 555 schools.  At least one of the big chains operates in twenty-five states and the District of Columbia.”

The Network for Public Education explains that virtually all of the charter schools operating for profit are technically nonprofits whose boards hire for-profit management companies to run the schools. Frequently the management companies, as in the case of David Brennan’s old White Hat company, work with nonprofits to set up the charter schools, or help set up the nonprofits and then help suggest people connected to the management company to be members of the schools’ boards of directors: “The term ‘for-profit charter school,’ while commonly used, does not accurately describe the vast majority of charters designed to create private profit. Only the state of Arizona allows for-profit entities to be licensed as a charter school. In addition, the for-profit charters cannot receive any federal funds. However, those who wish to profit from charter schools have developed creative workarounds to evade state and federal laws. The for-profit management organization, commonly referred to as an EMO, finds individuals to create a non-profit board. That board, which is appointed, not elected, enters into a contract with the for-profit to run the school.”

The report documents all sorts of unsavory business practices being underwritten with our tax dollars: “The first responsibility of any for-profit company is to maximize profit for its owners, and in the case of a public corporation, its shareholders. The typical way to enhance profits is to cut costs… This is often achieved by reducing personnel costs…. either paying teachers less or paying fewer by increasing class size… Savings can also accrue from hiring uncertified teachers or discouraging students who need the most services from enrolling.”  Then there are the big real estate deals when education management companies have subsidiaries that acquire school facilities and charge the schools managed by the EMO outrageous leasing costs. And it goes on and on.

The Network for Public Education’s new report covers the nefarious operations of several of the enormous for-profit education management organizations, but I would like to follow up with the report’s coverage one of those companies now operating in Ohio.  When Ohio’s charter czar David Brennan became ill and eventually died, the story of his charter school empire lived on.

The story actually links to another charter school empire, beginning in 2000, with the launch of K12Inc.,  the huge for-profit, online charter school founded by Ron Packard, “with a $10 million investment from Michael Milken and $30 million from other Wall Street investors.  Previously, Packard had worked for Milken… K12 became a publicly-traded company in 2007.” There was considerable controversy about K12’s practices. Packard left the company, and, “In 2016, after an extensive investigation of the for-profit’s dealings in California, (that state’s) then-Attorney General Kamala Harris announced a $168.5 million settlement with K12 due to its misleading advertising to prospective students and the reporting of inflated attendance numbers.”

In 2014, K12 formed a new company, Pansophic Learning, led by Ron Packard and financed by an investment company located in Dubai. “Pansophic Learning’s name and address were used to register a new Ohio for-profit, ACCEL Schools, LLC. Seven months later, Pansophic took over the contracts of 12 charter schools managed by the controversial White Hat Management. In July 2015, another large for-profit education management organization operating schools in Ohio, Mosaica, ran into financial trouble and sold its assets to Pansophic Learning… Packard continued to build a ‘critical operating mass’ for his new venture. He took over the contracts for 12 I Can charter schools, and also the Ohio Distance Learning Academy (OhDELA), the last of the White Hat Schools. The OhDELA contract is a sweeps contract that funnels 97 percent of the school’s revenue to ACCEL. We looked at several other contracts for ACCEL charters in Ohio and found that schools pay ACCEL either a 12.5 percent or an 18 percent management fee.” And by providing other management services for the ACCEL schools, Packard’s EMO profits from additional fees-per-service.

Why should Packard’s quiet expansion of the ACCEL for-profit charter school venture in Ohio be of concern to Ohio’s citizens and legislators?  Because charter schools are publicly funded and eat up funds the state should be spending on the more than 1.8 million students enrolled in Ohio’s public schools.

In his new book, Schoolhouse Burning, Derek Black traces how funding charter schools depleted public school funding in Ohio during and after the Great Recession in 2008: “While states were reducing their financial commitment to public schools, they were pumping enormous new resources into charters and vouchers—and making the policy environment for these alternatives more favorable. Charter schools, unlike traditional public schools, did not struggle during the recession. Their state and federal funding skyrocketed. Too often, financial shortfalls in public school districts were the direct result of pro-charter school policies… Ohio charter schools received substantial funding increases every year between 2008 and 2015. While public schools received increases in a few of those years, they were modest at best—in one instance just one-tenth the size of the charter school increase.  In 2013-14, Ohio school districts, on average, went $256 in the hole for every student who went to a charter.  Some went deeper in the red.  Nine districts sent charters between 20 percent and 65 percent more money than they received from the state… All told, charter schools received $7,189 per pupil in state funding.  Public school districts received less than half that amount.” (Schoolhouse Burning, pp. 35-36)

The Network for Public Education ends its new report with a constructive list of recommendations for reigning in the for-profit charter school management sector.  An important recommendation is that President Joe Biden’s Department of Education should investigate the extent to which federal Charter Schools Program dollars are being surreptitiously funneled into the for-profit EMOs despite that federal rules prohibit the investment of federal program dollars into charter schools that are, in fact, not independent of for-profit management companies.

Charter Schools: All the Ways They Are Not In the Public Interest

Donald Cohen is the executive director of In the Public Interest. In a powerful statement about his organization’s mission for 2020, Cohen proclaims:

“So much is under attack: public education, water, transit, public parks, public health, libraries, the postal service, air traffic control, and much more.  Where there’s money to be made, there are corporations positioning to take over… What worries us most is when private interests get too much control and influence over fundamental democratic decisions and our ability to provide public goods… We often hear that government is needed when markets fail. We disagree. There are market things and public things. They’re different things, like apples and oranges.  Here’s what we mean by ‘public’ (or, what’s in the public interest):

  • The things we can only do if we do them together…
  • The things we all benefit from regardless of whether we use the specific service or asset…
  • The things that protect and support us all…
  • The things that make us a better, fairer, more compassionate, and more democratic nation.

“We are pro-government because it is the only institution capable of ensuring that public things remain public.”

During the past quarter century, charter schools have come to threaten the public interest as Cohen defines it.  While their sponsors call them “public charter schools,” they are public only in the funding stream of public tax dollars. Their boards are private, and the management companies that operate many of them are frequently for-profits.

In an article she published last fall in the Journal of Policy Analysis and Management, Duke University public policy expert, Helen Ladd explains how charter schools threaten the public interest: “A fundamental problem with charter schools is that in most cases they undermine the coherence and effectiveness of state and local school systems. If charter schools were limited in number to the fringe of the traditional system, as was originally envisioned by some early supporters such as Ray Budde and Albert Shanker, or if elected policymakers take special precautions to ensure that charters and traditional schools work toward common goals, the adverse systemic effects might be contained. But, in areas with relatively large or growing charter school sectors overseen by weak authorizers, the negative systemic effects undermine the public interest.”

While the overall academic quality of charter schools cannot be assessed because each one or each chain of charter schools is unique, two very significant overall problems with charter schools threaten the public interest.  The first overall problem is that charter schools drain tax dollars out of the public schools. Because legislators never add new taxes when they budget money for charter schools, the state education budget is depleted.

Charter schools also drain funds from the school districts where their students live, and over time, this financial loss is unsustainable for the public schools. In a report published in 2018 by In the Public Interest, political economist Gordon Lafer demonstrates that charter schools drain $57.3 million annually from California’s Oakland Unified School District. Why does this happen? “To the casual observer, it may not be obvious why charter schools should create any net costs at all for their home districts. To grasp why they do, it is necessary to understand the structural differences between the challenge of operating a single school—or even a local chain of schools—and that of a district-wide system operating tens or hundreds of schools and charged with the legal responsibility to serve all students in the community.  When a new charter school opens, it typically fills its classrooms by drawing students away from existing schools in the district…  If, for instance, a given school loses five percent of its student body—and that loss is spread across multiple grade levels, the school may be unable to lay off even a single teacher… Plus, the costs of maintaining school buildings cannot be reduced…. Unless the enrollment falloff is so steep as to force school closures, the expense of heating and cooling schools, running cafeterias, maintaining digital and wireless technologies, and paving parking lots—all of this is unchanged by modest declines in enrollment. In addition, both individual schools and school districts bear significant administrative responsibilities that cannot be cut in response to falling enrollment. These include planning bus routes and operating transportation systems; developing and auditing budgets; managing teacher training and employee benefits; applying for grants and certifying compliance with federal and state regulations; and the everyday work of principals, librarians and guidance counselors.” “If a school district anywhere in the country—in the absence of charter schools—announced that it wanted to create a second system-within-a-system, with a new set of schools whose number, size, specialization, budget, and geographic locations would not be coordinated with the existing school system, we would regard this as the poster child of government inefficiency and a waste of tax dollars. But this is indeed how the charter school system functions.”

The second problem is that charter schools are difficult to regulate. The charter sector is well funded, and the coffers of its advocates are fed by the tax dollars collected by the for-profit operators. The money for lobbying and political contributions to the legislators who would have to pass regulations saturates the system with corruption.

It is encouraging that three times since Christmas states or local school districts have taken steps in the public interest to rein in their out-of-control charter school sectors.

In Newark, New Jersey, the Superintendent of Newark Public Schools worries about what he says is 30 percent of the school district’s revenue redirected to charter schools. For Chalkbeat, Patrick Wall explains: “The head of the Newark school system is calling for the closure of four local charter schools and a ban on most new charter schools…. First, he cited the financial impact of charter schools on the district.  Because school aid follows students in New Jersey, districts must hand over most of the funding attached to each student who enrolls in a charter school.  Wall describes the superintendent’s concerns: “Finally, he questioned whether the schools adequately serve a significant number of students with special needs. He pointed to data in the schools’ renewal applications showing that they serve a smaller share of students with disabilities or those still learning English than the district and argued that the schools’ own descriptions of their programs suggest students are not being properly served.”

The state of New Hampshire just turned down a federal Charter Schools Program grant of $46 million.  The Concord Monitor reports: “The Joint Legislative Fiscal Committee voted 7-3… to reject the funds… Democrats have maintained they rejected the money due to a sense of fiscal responsibility.” The newspaper quotes an op ed column by Senate Majority Leader Dan Feltes, Senator David Watters, and Reps. Mel Myler, Dave Luneau, and Mary Heath: “There are simply too many unanswered questions about the current landscape of charter schools in New Hampshire, and our state’s capacity to support doubling the number of those schools… It would be fiscally irresponsible for the fiscal committee to move forward with this grant, which would double charter schools outside the legislative process, jeopardize the financial health of New Hampshire’s current traditional and charter public schools, and make an end-run around the state budget that commits the state of New Hampshire to millions of dollars in unbudgeted education aid into the future.”

The final story is from Ohio—a story of sort-of protecting the public interest. In Ohio there are all sorts of authorizers of charter schools, and there have been decades of insufficient oversight of charter schools. Ohio is also where one of today’s players is Ron Packard, who started K-12 Inc.—the notorious national online for-profit school—and whose new for-profit education venture is Accel, which has been taking over the management of schools once run by White Hat Management and the infamous David Brennan.

Keep in mind that Ron Packard and Accel manage all the schools described last week by the Cleveland Plain Dealer‘s Patrick O’Donnell: “East Academy, Cleveland Preparatory Academy and West Park Academy charter schools each scored an F on their latest state report cards. But school leaders are claiming they are ‘quality’ schools, so they can receive new bonus tax money of up to $1,750 per enrolled student from the state. Officials of the F-rated OhDela online charter school of nearly 2,000 students are making the same claim. And Chapelside Cleveland Academy is seeking the ‘quality’ bonus, even though its authorizer—the non-profit that oversees the school on behalf of the state—has given up on trying to fix the school’s F grade and is yanking its support. The fast growing for-profit Accel charter school chain, which runs all of these schools, has applied for more than $15 million in cash from a new $30 million fund that Gov. Mike DeWine and the state legislature created this summer as a boost for Ohio’s best charter schools.”

Thanks to charter school promoters in Ohio, $30 million to reward charter schools was buried in the fine print of the state budget. The fund is supposedly to support quality charter schools, but a school can also qualify if its management company has received a federal Charter Schools Program grant for a school it operates in another state: “Under a provision in the bill, these F-rated Accel schools may qualify for the bonus because a Colorado Springs charter school run by Accel won a federal grant a few years ago.”

O’Donnell reports this week, however, that the Ohio Department of Education blocked Ron Packard’s  swindle: “The Ohio Department of Education has blocked a ‘loophole’ that would have given millions of tax dollars to charter schools with bad grades…. (T)he department today rejected Accel’s application for those schools, citing details of Accel’s corporate registrations in Ohio that fail to connect Ohio operations with those of Accel in Colorado. Because Accel is not registered as a business that also operates in other states, the department ruled it is not eligible for the money… Accel founder Ron Packard said the ruling is unfair and while schools in different states may have different corporate registration, they are all Accel subsidiaries.”

It is definitely not in the public interest that $30 million was secreted in Ohio’s state budget last summer for charter schools when, in the same budget, basic-aid foundation funding for public schools is frozen over the FY 20-21 biennium.  However, it is very much in the public interest that the Ohio Department of Education has just prohibited a windfall award of $1,750 per-pupil to Ron Packer’s academically inferior, for-profit, Accel charter schools.

Bill Lager, David Brennan, and Ron Packard: Swindlers Stealing Tax Dollars from Ohio Public Schools

While the Ohio Department of Education and the Ohio Supreme Court have finally ended the career of William Lager, the founder of Ohio’s huge, notorious online Electronic Classroom of Tomorrow, Ohio’s legislature has never passed adequate laws to protect taxpayers and students from unscrupulous swindlers operating charter schools.  Besides Bill Lager, another notorious charter school czar has disappeared from the scene this year.  David Brennan, founder of White Hat Management, a huge and shady for-profit Education Management Organization (EMO), has sold off all of his Ohio schools.  But it seems sales of Brennan’s Ohio schools are expanding Ron Packard’s EMO—the for-profit Accel Schools. Packard founded and, until 2014, served as CEO of K12 Inc., the nation’s biggest operator of for-profit, online charter schools.

From the very beginning, Ohio’s biggest charter schools have been run by con men. They paid off  legislators to allow them to cheat the public at the expense of the public schools. This story traces all the way back to 1991, and it is helpful to be reminded of the history. David Brennan, father of Ohio school privatization, was first and foremost a business entrepreneur, reports the Akron Beacon Journal‘s Doug Livingston: “Brennan made millions buying and selling manufacturing companies in Akron.  In the 1990s, he promised to unleash the private market on what he demonized as failing government schools. His tactics included $1 million in political contributions to elected GOP officials… Then Gov. George Voinovich put Brennan in charge of crafting Ohio’s private voucher program, which would eventually bring Brennan’s private schools more state funding per pupil than was flowing to 85 percent of Ohio’s traditional public schools.”

But when Brennan realized that operating charter schools would be far more profitable—under what had become, through the lobbying maneuvers of Brennan and his friends, extremely lax oversight laws—Brennan immediately switched his empire’s mission and became a charter school operator. Livingston continues: “The Akron Beacon Journal reported that flipping the switch from private to charter school on just one White Hat operation in Akron would generate $285,000 more a year for a mere 75 students. The school, reconstituted to get around a state law that banned converting private schools to charter schools,… was called Hope University Campus.  It would be the first of dozens of K-8 schools bearing the Hope Academy moniker. Brennan’s charter schools, ranking among the lowest performers in the state, were plagued from the start with allegations of padded enrollment and skirting accountability. Amid the bad publicity, White Hat lobbyists pushed for exemptions… In 2010, fed up with not knowing how White Hat was spending 97 percent of the tax dollars sent to each academically failing school, 10 (of Brennan’s White Hat) school boards sued the operator.  White Hat fought them to keep ownership of all the desks, computers, and assets bought over the years with public money.”

Livingston explains that White Hat’s Hope Academy (K-8) schools and his Life Skills Academy dropout recovery high schools, among the worst-rated in the state, have been losing ground as charters have expanded across Ohio. Now Brennan has closed or sold off the last of White Hat Management Company’s Ohio charter schools: “By June of this year, White Hat’s once prolific presence in Ohio had shriveled to a single online school—Ohio Distance and Electronic Learning Academy (OHDELA)—and 10 ‘Life Skills’ centers, which deliver computer-based GED courses to academically faltering teens and young adults.”  Over the summer, the Life Skills Academies have either been sold to other operators or shut down.

Now that swindlers, Bill Lager and David Brennan, have left the Ohio charter school scene, one wishes Ohioans could be reassured that unscrupulous online schools and shady dropout recovery academies are gone for good.  But Ron Packard, a former banker, knows a lucrative opportunity when he sees one. The Plain Dealer‘s Patrick O’Donnell reports: “The once-mighty White Hat charter school empire continues being dismantled, with its longtime e-school—the Ohio Distance Learning Academy (OHDELA)—being turned over to the fast-growing Accel charter school network. The move puts Accel founder Ron Packard, the founder and former CEO of the giant national e-school company K12 Inc., back in the online education business after four years away… As White Hat’s presence shrinks, Packard’s is growing incredibly quickly. After resigning as K12 CEO in early 2014, Packard has been taking over operations of charter schools across Ohio, usually by negotiating to assume management of financially-struggling schools. He snagged several strong schools from the Mosaica network first, then more than a dozen low-performing White Hat schools. When Cleveland’s I Can charter network had financial trouble in early 2017, he took over those schools. And earlier this year, he added several more previously run by Cambridge Education Group, a company with White Hat ties.  Even before the OHDELA transfer, Packard and Accel were running 37 charter schools across Ohio with about 10,700– students…. OHDELA adds another 1,100 students.  Accel is also starting new schools this fall in Cincinnati, Dayton, and Lorain. That combined enrollment makes Accel bigger than all but 13 school districts in Ohio…”

In a follow-up report, O’Donnell explains that Packard claims to have learned from the problems of K12 Inc. online schools. Packard says he plans to require more in-person meetings between students at OHDELA to keep online students engaged, to reduce the kind of advertising that pushed enrollment growth at K12 over academic priorities, and to make a a greater effort to engage students who are not self-motivated.  However, as O’Donnell interviews Packard, it is clear that while Packard admits there were failings at K12 Inc., the corrections in his Accel network will be limited. Packard tells O’Donnell: “The overwhelming majority of kids were coming in way behind grade level… and they didn’t have support of households. The model needed to change to reflect that.” But O’Donnell continues, paraphrasing Packard: “Those students, he said, need far more help from the school. That’s why to have students meet with staff more often. It won’t be at the level of ‘blended’ schools, which have students take lessons in person a couple days a week, while working online other days. He envisions monthly visits or having students come to a school for tutoring and to take ongoing tests of their progress.”

As his for-profit Accel management company takes over the Ohio Distance and Electronic Learning Academy, I guess Packard expects to provide students with at least a bit more personal attention.

I hope the recent explosion of Ohio’s ECOT scandal will motivate Ohio’s legislators to enact more than just a bit of added oversight to try to reign in swindlers who continue to figure out ways to suck tax dollars out of state coffers and the budgets of Ohio’s more than 600 local public school districts.

Bob Herbert Explains “How Millionaires and Billionaires Are Ruining Our Schools”

Did you see Bob Herbert’s wonderful new article, The Plot Against Public Education, in Politico Magazine?  If not, you should read it.  Bob Herbert was a regular New York Times columnist between 1993 and 2011, when he left to join Demos and to write the book, Losing Our Way: An Intimate Portrait of a Troubled America, from which this article is excerpted.  The book was published this week.

Herbert’s subject is the role of money and the power of elites to shape education policy in America these days.  Herbert skewers Bill Gates: “When a multibillionaire gets an idea, just about everybody leans in to listen.”  And he notes that when  Bill Gates’ “small high schools” experiment utterly failed, there weren’t the kind of consequences we might see if a public school district, for example, failed in a similar school restructuring. “There was very little media coverage of this experiment gone terribly wrong. A billionaire had an idea. Many thousands had danced to his tune. It hadn’t worked out. C’est la vie.

“This hit-or-miss attitude—let’s try this, let’s try that—has been a hallmark of school reform efforts in recent years… But if there is one broad approach… that the corporate-style reformers and privatization advocates have united around, it’s the efficacy of charter schools…  Corporate leaders, hedge fund managers and foundations with fabulous sums of money at their disposal lined up in support of charter schools, and politicians were quick to follow.  They argued that charters would not only boost test scores and close achievement gaps but also make headway on the vexing problem of racial isolation in schools.  None of it was true. Charters never came close to living up to the hype. After several years of experimentation and the expenditure of billions of dollars, charter schools and their teachers proved, on the whole, to be no more effective than traditional schools.  In many cases, the charters produced worse outcomes. And the levels of racial segregation and isolation in charter schools were often scandalous.”

Acknowledging Bill Gates’ good intentions, Herbert then tells the story of a number of school “reformers” who have been in it for greed—including Ron Packard the CEO of K12 on-line learning, a company whose founding was underwritten by Michael Milken, the junk-bond king.  And there are others.  “It was easy to lose sight of the best interests of children as corporations throughout the country did all they could to maximize profits from public education. Consider for example, the Rupert Murdoch-Joel Klein connection.”  And there is Jeb Bush, who with former West Virginia governor Bob Wise, “started an organization called Digital Learning Now!, which took on the task of persuading state legislators to make it easier for companies to get public funding for virtual schools and for the installation of virtual classrooms in brick-and-mortal schools.”  We are also reminded about Cathie Black, New York Mayor Michael Bloomberg’s hapless schools chancellor, a socialite who served for 91 days until it became clear that running a school district with 1.1 million children might be complicated. “Black had had no previous experiences with the public schools.  She hadn’t attended them… She hadn’t taught in them.  She hadn’t sent her children to them.  In one of her first public appearances after the appointment, she said, ‘What I ask for is your patience as I get up to speed.'”

Herbert concludes: “The amount of money in play is breathtaking.  And the fiascos it has wrought put a spotlight on America’s class divide and the damage that members of the elite, with their money and their power and their often misguided but unshakable belief in their talents and their virtue, are inflicting on the less financially fortunate.  Those who are genuinely interested in improving the quality of education for all American youngsters are faced with two fundamental questions: First, how long can school systems continue to pursue market-based reforms that have failed year after demoralizing year to improve the education of the nation’s most disadvantaged children?  And second, why should a small group of America’s richest individuals, families, and foundations be allowed to exercise such overwhelming—and often toxic—influence over the ways in which public school students are taught?”

A Peek into How the Education Sector Works

Many of us have the sense that profit has become increasingly involved in the world of education, but while the term “education sector” has come into our lexicon, we have only the vaguest idea about the many ways profit is driving privatization in and around our public schools.  Nor do we really understand how the for-profit education sector is wound together with the operation of laws and policies like No Child Left Behind and Race to the Top.

A new article, For Education Entrepreneurs, Innovation Yields High Returns: Learning from Larry Berger, Jonathan Harber, and Ron Packard, posted on the website of conservative Education Next, helps fill in the gaps about the growing role of venture capital and for-profit corporations in education.

Writer Julie Landry Petersen describes the struggles and frequent failures of many private education companies over the past 25 years, but contends that, “the economics of education investing are changing.  Schools are now wired and have accountability incentives to invest in technology to boost student achievement, while teachers are ready to experiment with new tools.  For start-ups, hardware costs have come down and software is cheaper than ever to develop.  Longtime education banker Michael Moe of GSV Capital says a higher quality of entrepreneurs is entering the space. Consequently, education technology companies raised $1.1 billion in funding from venture capitalists in 2012, more than double the amount raised the prior year and nearly 10 times as much as a decade earlier.”

Peterson profiles education technology entrepreneurs Larry Berger of Wireless Generation, sold in 2010 for $390 million to Rupert Murdoch’s News Corporation as the anchor of its ed-tech division Amplify, headed up by former NYC schools chancellor Joel Klein; and Jonathan Harber, founder of SchoolNet, sold to education publishing giant Pearson in 2011 for $230 million.

Both start-ups initially grew when they scrambled to discern ways to fill a technological niche when new federal laws or policies were enacted.  “Wireless Generation employees poured over the No Child Left Behind Act (NCLB) the night it was signed, looking for potential opportunities, and found that the act’s Reading First component ‘created an unusual amount of liquidity centralized at the state level (about $200 million per year) that did not already have a bureaucracy trained to spend it,’ as Berger has written.  Wireless Generation went on to secure at least 18 state contracts….”

SchoolNet, on the other hand, planned to cash in on Race to the Top as well as the need for data demanded by NCLB.  “In 2009 and 2010, states competing for Race to the Top grants began looking for ‘instructional improvement systems’ that would earn them points against the grant program’s criteria for providing teachers, principals, and administrators ‘with the information and resources they need to inform and improve their instructional practices, decision-making, and overall effectiveness.'”  SchoolNet filled the niche with “systems that could capture, analyze, and report formative data quickly to allow teachers and principals to make instructional changes accordingly, a gap that grew even wider when NCLB began to shine a spotlight on the dismal progress of student subgroups and put pressure on schools to improve their performance.”

Petersen also profiles Ron Packard, the founder and CEO of K12, the huge, for-profit, on-line academy.  Petersen’s profile of Packard and K12 acknowledges the serious criticism of this company that has made enrollment growth its priority, while ensuring neither student achievement by any generally accepted measure nor an acceptable course completion or graduation rate.  She quotes investor Whitney Tilson who advised other investors against K12: “K12’s aggressive student recruitment has led to dismal academic results by students and sky-high dropout rates.”  K12 has succeeded as a for-profit company, however, “with revenues skyrocketing from $141 million in 2007 to $848 last year, drawn mostly from its management contracts with states and districts to operate virtual and blended-learning schools, but also from operation of three private online schools paid for by parents and from direct sales of its courses to schools and districts.”  Packard’s annual salary was $670,000 plus stock options.

Those promoting privatization in education value individualism, competition, efficiency, deregulation, innovation, profits and creative disruption.  These are, of course, the values of the marketplace.

Entirely different core values underpin the public school system that has historically served our children in the United States. We have long valued public schools for civic as well as personal benefit and we have counted on a vast and stable publicly owned system designed to serve the needs and protect the rights of all children.  We would do well to consider the warning of political philosopher Benjamin Barber—who reflects on the loss of public ownership and public oversight—as we contemplate the implications of the growing privatized market for education technology and services:

“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 (brute force), personal skills (randomly distributed), and personal luck.  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 a social contract.”

On a less philosophical level, there are also several really basic things that the three entrepreneurs profiled in  Petersen’s article never consider as they look for a corporate niche in our public schools. What about the school children and their need for personal connection with teachers who will nurture their learning and development?  And what about the stewardship of our tax dollars?  Should we be spending public funds for services from tech companies, for on-line schools, and for corporate profits, salaries and bonuses when we might instead, for example, hire more classroom teachers and thereby lower class size?

K-12 Inc., Largest Education Management Organization, Pays CEO $19 Million from Our Taxes

This week the National Education Policy Center (NEPC) at the University of Colorado published the fourteenth edition of its report, Profiles of For-Profit and Nonprofit Education Management Organizations.  According to NEPC’s press release, “The real growth in the for-profit sector is with companies that operate virtual schools.  The growth of virtual schools, which is fueled by millions in advertising dollars is astounding because of the sketchy academic results reported by the schools that operate online.”  According to NEPC, K-12 Inc., the largest for-profit Education Management Organization, now enrolls 87,091 students in the 57 virtual schools it operates across the states.

It is therefore appropriate that the Center for Media and Democracy (CMD) recently launched a new series of profiles, “America’s Highest Paid Government Workers,” on its OutsourcingAmericaExposed.org web page with the story of Ron Packard, the CEO of K-12 Inc.  CMD’s “highest paid government workers” are people who work for private companies and contractors but whose salaries are paid with our tax dollars.  CMD reports: “K-12 Inc. is a publicly traded, for-profit, online education company headquartered in Herndon, Virginia.” “In 2013, K-12 Inc. took in $848.2 million from its businesses, with $730.8 million coming from its ‘managed public schools’ with 86 percent of the company’s profits from tax dollars.  According to CMD, Packard made $19 million from tax dollars paid to K-12 Inc. in 2013.