Ohio’s ECOT Mess—Like a Sink Full of Dirty Dishes

Exactly five months ago today, on February 13, 2018, the Ohio Supreme Court heard the final legal appeal by the Electronic Classroom of Tomorrow (ECOT) trying to keep itself in business.

  • You may remember that ECOT, perhaps the nation’s largest online charter school—at least according to what we now know were its inflated attendance numbers—had already been shut down (on January 18, 2018) by its sponsor, the Education Service Center of Lake Erie West, and the Ohio Department of Education because it hadn’t enough money to pay its teachers in upcoming months along with what it owed the state.
  • And you may remember that the state has been trying to recapture money ECOT had collected in public tax dollars—$80 million overpaid to ECOT for only the two most recent school years after the state strengthened its oversight procedures in 2015— despite that everyone knows ECOT has been cheating the state since its founding in 2001.
  • And you may remember that William Lager, ECOT’s founder, has been milking profits out of the nonprofit school via his own two for-profit companies—IQ Innovations that provided the curriculum—and Altair Management that ran the operations.

Here is how the Ohio Supreme Court hearing—five months ago today—concluded, according to the Columbus Dispatch‘s Jim Siegel:  “As ECOT attorney Marion Little finished his arguments for why, under the law, the online school should get full funding for students even if they only log in once a month and do no work, Chief Justice Maureen O’Connor interjected. ‘How is that not absurd?’”

Now, you would think that by now the Ohio Supreme Court could have arrived at a decision on ECOT’s final appeal to stay in business—a case in which lower courts had found against ECOT at every level.  But as citizens of Ohio, we await ECOT’s death without any kind of closure even though we all know that the school has already been shut down—totally. The school’s assets have been sold off in a widely publicized auction and it no longer provides services for students.  The Supreme Court decision matters, because ECOT’s officials hope—if the Supreme Court finds for ECOT—the school wouldn’t be required to repay as many tax dollars and because the same officials say they hope to resurrect the school.

In just the past month, as we await the high court’s decision, and the state remains mired in the ECOT scandal: here are some things we’ve been learning.

For the Associated Press, Kantele Franko reports that 2,300 of ECOT’s supposed students are apparently unaccounted for.  Nobody knows whether they have dropped out or left the state or perhaps re-enrolled someplace else.  Franko explains that a thousand of the students were likely 18 years of age or older, but that 1,300 were school-age youngsters who ought to be considered truant if they are not re-enrolled.  Franko quotes Peggy Lehner, chair of the Ohio Senate Education Committee: “I think this just illustrates the whole problem that we’ve had with ECOT… You not only can’t tell how long the students signed on, you can’t even tell for sure if they even exist, so I am not surprised that there are students that they can’t track.”  So far, however, the Ohio Legislature hasn’t passed any new laws to better regulate attendance at Ohio’s e-schools.

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The Ohio Legislature has taken steps, however, to protect schools where ECOT’s former students are known to have enrolled—giving them safe harbor from stringent oversight because ECOT’s former students were known to be so far behind. The Plain Dealer‘s Patrick O’Donnell reports: “Leaders of both houses said it wouldn’t be fair to punish schools that absorbed the 12,000 students left without a school after budget problems forced ECOT, once Ohio’s largest charter school, to close mid year. The primary beneficiary of ECOT’s closure and of this new law is Ohio Virtual Academy, a for-profit online school that took in 4,000 ECOT students mid-year. That boosted its enrollment more than 40 percent, along with its income and potential profit.  With 12,000 students, the school is now Ohio’s online giant, replacing the mammoth ECOT.”  Ohio Virtual Academy is the state’s affiliate of the notorious K12, Inc., a national, for-profit, online-charter empire.  The legislation to protect schools serving students abandoned when ECOT closed was added quietly as an amendment to another bill just before the Legislature adjourned for summer break, and was opposed by several prominent Democrats. O’Donnell quotes Toledo Representative Teresa Fedor, the ranking Democrat on the House Education Committee: “Children move in and out of schools because of choice every day.  It’s outrageous that Ohio taxpayers have to foot more profits for e-schools and then give them safe harbor.”

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Now the ECOT scandal is creating political trouble for the Ohio State Attorney General Mike DeWine, who has suddenly filed in court to recover money from ECOT’s founder, William Lager under Ohio’s Corrupt Practices Act.  The Dispatch‘s Jim Siegel explains: “ECOT founder Bill Lager could be forced to personally pay back millions of dollars to the state, which plans to go after him for some or all of the $200 million in taxpayer money paid to his for-profit companies. Lager, who went from broke businessman to multimillionaire after opening the state’s largest online charter school, could face claims of breach of fiduciary duty, conflicts of interest in public contracts, and civil claims under Ohio’s Corrupt Practices Act.”

In other words, suddenly the Attorney General has noticed that Lager, who founded and served as an agent for a publicly funded online charter school, had a conflict of interest as he steered contracts to his own for-profit businesses. The Plain Dealer‘s Patrick O’Donnell explains: “Lager, as a legal agent of ECOT, has a fiduciary duty to the school, DeWine and his staff say, which was violated by contracting with companies he owns for key services.”

What everybody wonders is why DeWine, who has been Ohio Attorney General since 2011, only decided to go after ECOT now in the summer of 2018—as he, Ohio’s 2018 Republican candidate for governor, actively campaigns. DeWine claims to have waited until another case set a precedent for cracking down on such conflicts of interest involving a charter school—this time a smaller charter school in Cincinnati. Now, says Mike DeWine, he can be assured that as the State Attorney General he has standing to crack down on charter school fraud.

Clearly, the ECOT scandal has become a hot potato for Republican candidates seeking state office in the November 2018 election.  Democrats across the state, reminding the public of William Lager’s huge political investments in Republican campaigns over the years, are also reminding voters that key Republicans including Mike DeWine—currently attorney general and Ohio’s Republican gubernatorial candidate in November, and Dave Yost—currently state auditor and Ohio’s Republican candidate for attorney general in November, have been ignoring for years Lager’s compromised position as the founder and agent of nonprofit ECOT who is also making huge profits by steering business to his own for-profit contractors.  And, as Patrick O’Donnell explains, Democrats are finding clever ways to use years of sordid Republican support for Lager to undermine DeWine’s bid for Governor.  When ECOT’s assets were auctioned online, the liquidator offered a costume worn by Eddy the Eagle, ECOT’s mascot—a giant Big Bird sort of character sporting an ECOT t-shirt. A still-mysterious purchaser acquired the costume for $153 plus taxes and fees.  Now Eddy the Eagle has been appearing at political rallies—still wearing his ECOT t-shirt, but now carrying a sign that reads, “Ask Me about Mike DeWine.”

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The Akron Beacon-Journal, The Toledo Blade, and the Columbus Dispatch have editorialized against ECOT and Lager this week, noting that while Attorney General Mike DeWine’s court action may seem timed politically to distract voters from the years when Republicans did nothing to crack down on ECOT, it remains a good thing DeWine is taking action, however belatedly. The Dispatch is clearest in defining the importance of DeWine’s recent action. Ohio’s ECOT scandal symbolizes a much larger problem that remains unaddressed by the Ohio legislature:

“Lager might have been among the most brazen, but he’s not the only charter school founder to abuse the process to enrich his companies and himself.  While all Ohio charter schools are by law nonprofit, many, like ECOT, contract with for-profit companies to operate them, and in many cases the for-profit companies are controlled by the founders of the schools. Ohio lawmakers have failed to change charter school law to explicitly ban these clear conflicts of interest. Having a court rule on them would be a welcome push in the right direction.”

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Despite ECOT’s Death, Ohio’s Unscrupulous Charter Schools Gobble Up State and Local Tax Dollars

Despite the death last January of the notorious Electronic Classroom of Tomorrow, Ohio’s charter schools continue to suck money out of their host school districts, and, at the same time, many fail to educate the students for whom they are responsible.

The giant Electronic Classroom of Tomorrow (ECOT) was finally shut down after the state tried to collect $80 million the Department of Education calculated ECOT had overcharged taxpayers for the past two school years alone.  ECOT, which had been billing taxpayers (on a per-pupil basis) for thousands of phantom students the school had enrolled but who were not logging on to use the school’s curriculum, couldn’t pay the bill when the state demanded that the school return the money.  ECOT descended into bankruptcy.

Because of the way Ohio funds charter schools, not only the state but also the local school district loses money when a student leaves for a charter school. In Ohio the money follows the child to the charter right out of the general fund of the school district in which the child resides.  Many districts lose more money to charters than they receive in state aid.  As the Columbus Dispatch‘s Jim Siegel reports: “Ohio does not directly fund charter schools, instead subtracting the money from individual districts based on where a charter student lives. Traditional public school officials and advocates have complained for years that the system also diverts local tax revenue to charter schools along with state funding. Siegel quotes Columbus, Ohio school board member Dominic Paretti, who says ECOT gobbled up enough funds to have used up several local school property tax levies: “If you add up all that local share of dollars that has flowed to ECOT from Columbus schools’ taxpayers, it would erase the need for us to possibly ever have to go to those levies.”

The Electronic Classroom of Tomorrow remains in the news because it will take years to wind up its affairs. Also Ohio waits for a final decision by the Ohio Supreme Court on the matter of ECOT’s final legal appeal to stay in business. In the meantime, Innovation Ohio has now calculated the total amount ECOT sucked out of  local school districts’ funds between 2012 and 2018.  During the six year period, for example, Columbus lost $62,897,188 to ECOT; Cleveland lost $39,405,981; and Dayton lost $20,200,830. Over the six year period, ECOT drained a total of $590,954,999 from Ohio’s school districts.

Many people push back with the argument that the money should follow the child; after all, the school district no longer has to pay expenses for that student. In a new report published by In the Public Interest, however, political economist Gordon Lafer dissects the stranded costs the child’s public school district must continue to cover: “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.”

The Ohio State Board of Education, which has been increasingly proactive, voted last Tuesday to toughen the rules that regulate another of the state’s notorious charter school sectors: the Dropout Recovery Charter Schools—schools which have been held to far more lax academic standards than traditional public schools or other charter schools because they are said to serve students in trouble.

The Plain Dealer‘s Patrick O’Donnell reports: “The state school board on Tuesday passed higher standards for… the nearly 90 dropout intervention charter schools statewide, as Ohio continues refining how to measure schools that help the most struggling and at-risk students earn diplomas. The tougher rules—covering graduation rates and which schools qualify for the easier dropout school report cards—continue Ohio’s gradual crackdown on charter schools that have skated by for years despite poor results.”  Until last week, the state required Dropout Recovery Charters to graduate 8 percent of their students in 4 years; as of last week, the State Board will now require 25 percent to graduate in 4 years, or the school will be held accountable.

To qualify as a dropout recovery school, the old rules said that a school must enroll at least 50 percent of its students who are far behind their peers and in danger of dropping out. Last week the State Board changed the rules to demand that Dropout Recovery Charters will need to prove (in 2019-2020) that 65 percent of their students are in real academic danger and need special services. In 2020-2021 that requirement will increase to 75 percent of the school’s students.  In other words, these schools won’t be able to pad their graduation rates and average test scores with students who don’t fit their mission as schools for “dropout recovery.”

Schools that fail to comply with the new standards will be in danger of closure, and their sponsors’ ratings will also be at risk.  Is there an urgent need for such reforms?  O’Donnell explains: “Invictus High School of Cleveland barely graduates 12 percent of its students in four years.” And yet there have been no penalties, and public funding (combined state and local dollars) have flowed freely to this deplorable school until now.

In what has become a series of scathing columns, retired editorial page director for the Plain Dealer, Brent Larkin describes the legislative corruption that has fed the growth of a poorly regulated charter school sector in an all-Red state without any kind of checks and balances: “Legislators in Ohio have long stood accused of serving not their constituents, but the people who fund their campaigns. But in the last eight years, House Republicans seem to have reached new lows in their ethical depravity… In April, House Speaker Cliff Rosenberger resigned in the wake of revelations he may be the target of an FBI probe… including ties involving the insidious payday lending industry. Before that, the House was ruled by Bill Batchelder, who spent four years protecting some of the most unprincipled bottom-feeders ever to prowl Statehouse corridors. Then, lo and behold, some of those who received favorable treatment, including the now-shuttered Electronic Classroom of Tomorrow online charter school, became clients of the Batchelder lobbying firm… ECOT was once the nation’s largest online charter school.  And arguably its worst… From 2001 to 2016, ECOT raked in more than $1 billion in taxpayer money.  In return, ECOT founder Bill Lager and his flunkies contributed more than $2 million to campaigns of Ohio politicians, a huge majority of that going to Republicans.  That money seemed to buy protection from a legislature that required only token policing of online charters.”

What’s clear in Ohio is that cleaning up this mess will require a long time and some very significant political change.

News Continues to Seep Out About How ECOT Cheated Ohio Taxpayers

Presumably now that yesterday’s primary election has occurred, Ohio State Auditor Dave Yost will release his long-awaited audit of the now-defunct, mega-online-charter school, the Electronic Classroom of Tomorrow (ECOT).  In yesterday’s primary election, Yost ran unopposed for the Republican nomination for Attorney General, and Mike DeWine, the current Attorney General, became the Republican nominee for Governor. Some time will pass before the November general election—time perhaps for voters to forget about what they learn in the audit about the way Ohio’s trifecta (House, Senate, Governor) Republican supermajority has handled the outrageous ECOT scandal.

Here are some of the revelations about ECOT that have recently seeped out.

We learned on Monday that, when ECOT was caught using a quarter of a million tax dollars to pay for television ads attacking the Ohio Department of Education for trying to crack down on ECOT for grossly inflating its attendance figures, ECOT quickly had one of its for-profit contractors pay the bill. Of course, ECOT’s only source of revenue—and the only source of revenue for the privately held for-profit corporations that managed ECOT and the communications company that handled its public relations—was the tax money paid to the school from the state as part of the school’s per-pupil tuition.

The attack ads represented an illegal use of tax dollars. As the Columbus Dispatch‘s Jim Siegel reports, “Although charter schools can legally run ads in an effort to recruit students, no public school—charter or traditional—is allowed to spend taxpayer money on political–type ads….”  You will remember that ECOT launched the television advertising campaign after the state began trying to claw back $60 million the state calculated it had overpaid ECOT in the 2015-16 school year because the online school had over-reported its enrollment by 60 percent. Here is how Siegel characterizes the television ads : “ECOT took to the airwaves, launching a string of television ads attacking the Department of Education, urging it to keep ECOT open and accusing it of wanting to end school choice and not caring about ECOT students.”

Siegel describes the transaction: “Using private companies owned by Electronic Classroom of Tomorrow school founder Bill Lager, plus a media-production company run by his daughter, ECOT tried to hide the source of payment for nearly $250,000 worth of TV attack ads aimed at the Ohio Department of Education.  That is the conclusion reached by the office of state Auditor Dave Yost, who, in a draft finding for recovery obtained by The Dispatch, lays out details of a plan designed to avoid the appearance that ECOT illegally used taxpayer money to pay for political ads.  As a result, Yost is ordering a pair of Lager’s ECOT-affiliated for-profit companies, Altair Learning Management and IQ Innovations, along with Third Wave Communications, where Lager’s daughter Jessica Harris is an owner, to repay ECOT a total of nearly $250,000 for illegally spending public money.”

ECOT was shut down by its sponsor, the Educational Service Center of Lake Erie West, in January, and a receiver is using the school’s assets to repay ECOT’S creditors including the state, which has not yet been able to recapture the tens of millions of tax dollars overpaid to ECOT for the 2015-16 and 2016-17 school years alone.

We learned this week that an auction has been scheduled for Friday.  Among the items scheduled to be auctioned off were ECOT’s administrative computers, although the Dispatch reported late yesterday that the Columbus City attorney is trying to block the sale of computers, in case they may contain evidence needed in a future trial.  Earlier in the week, State Auditor Dave Yost sent investigators to copy data from the computers to be kept potentially as evidence if criminal charges are ultimately filed against the school and William Lager, who owns Altair Management and IQ Innovations, the for-profit operators of the school.  The Plain Dealer‘s Jackie Borchardt reported:  “A Franklin County judge last week ordered Ohio Auditor Dave Yost to issue a subpoena for the information. A Yost spokesman confirmed Monday that the unit that deals with cyber technology and fraud was onsite ‘mirroring’ data from computers and information ahead of the sale.”

Last week we learned that ECOT paid hush money as severance bonuses to several ECOT employees if they would sign a non-disclosure agreement promising not to compromise ECOT by sharing information that might be used to prove that the school was intentionally fraudulent in its over-reporting of student enrollment.  Ohio’s Plunderbund reported: “Stormy Daniels isn’t the only one who has been offered hush money.  Some past employees of ECOT were offered some, too…. News that several past employees were offered public money in exchange for agreeing not to disparage the Electronic Classroom of Tomorrow (ECOT) follows an Associated Press story that quoted a whistleblower saying the Department of Education was informed last August that ECOT manipulated software to garner unearned money from the state… The whistleblower turned down two weeks of severance pay by refusing to sign the agreement—a decision that freed him to tell the public about ECOT’s attendance padding.”

WCMH-TV reporter Jason Aubry adds: “According to Sandy Theis, a member of Ohio’s Charter School Accountability Project, six individuals have confirmed with her they were provided non-disclosure agreements… to sign when they parted ways with the charter school.  At least two of the six individuals signed the NDA as part of their severance package where they were provided some money as part of a layoff.”

The Toledo Blade recently editorialized about the ECOT scandal: “The Electronic Classroom of Tomorrow, an online charter school now shuttered, is becoming a millstone around Republican necks this election year. And rightly so. The online school, chartered for nearly the last two decades in Lucas County but based in Franklin County, was forced into bankruptcy when state officials, after dragging their feet for years, went after ECOT’s exaggerated attendance claims… It sits in the lap of Republicans who accepted large donations from ECOT’s founder, William Lager, and then looked the other way for years as ECOT’s founder and chief vendor became rich with the state’s per-pupil funds… From the start, anyone could have known that an online charter school would not require the same level of per-pupil reimbursement that a regular bricks-and-mortar school would need.  And yet, ECOT received that money, and Ohio’s lawmakers went along with this baloney… The state of Ohio failed miserably…  and the children of Ohio are the victims.”

Another Chapter in the Saga of Ohio’s Electronic Classroom of Tomorrow

The Columbus Dispatch reminds us where we are in the story of ECOT, Ohio’s online charter school, the Electronic Classroom of Tomorrow. Currently the Ohio Supreme Court is considering ECOT’s “lawsuit fighting the state’s requirement that the online charter school repay $60 million for unverified enrollment for the 2015-16 school year. The state says the school owes another $19 million for the same reason in 2016-17.”

In an editorial last Friday, the Dispatch describes what seems to be the unraveling of the scam William Lager has been running for years with the support of Ohio legislators to whom Lager has generously contributed: “Overall, it has been a trying year for ECOT.  What was for years a smoothly operating business plan—signing up students in droves and billing taxpayers for their education, regardless of whether the students actually logged in to get one—was interrupted by state officials demanding accountability for all that money. Instead of taking the school’s word on attendance, the Department of Education demanded to see ECOT log-in records.  That led to a finding that ECOT had overbilled taxpayers by 143 percent, and an order to repay $60 million for the 2015-16 school year.  That was just for starters; the department is auditing ECOT for other school years. In September, it said the school owes another $19 million in overpayments, for the 2016-17 school year.  As ECOT is laying off employees and slashing its budget to cope with the clawback, Yost (Dave Yost, Ohio’s state auditor) has said that a proportional share of the repayment should come from the for-profit companies, owned by ECOT founder Bill Lager, with which ECOT contracts for services.”

It appears that ECOT officials launched a new strategy last week: blame ECOT’s attendance officer, who had complained all along that the school was not providing the adequate computer software for him to do his job. The Dispatch reports that, as of last Friday, ECOT’s truancy administrator, Patrick Tingler, has resigned. Tingler had testified last year in a deposition that ECOT’s software left him unable to add up the total number of days students were absent without an excuse. He had complained that he had to compute such records manually. The Dispatch adds: “Tingler’s truancy software did track consecutive days students missed, but ECOT crafted a more-relaxed truancy rule for itself than the one called for in the Ohio Revised Code. Instead of missing five or seven consecutive days to be considered truant, ECOT used 30 days, Tingler testified. This truancy measure appears nowhere in state law… After students log in, Tingler testified, he didn’t track whether they participated in any classwork, which is at the heart of the state funding lawsuit.”

ECOT’s other recently exposed strategy has been to rally powerful friends and endorsers behind its lawsuit challenging the Ohio Department of Education’s effort to claw back overpayments to the school.  Steve Dyer of Innovation Ohio reports that five former Republican state legislators filed an amicus brief supporting ECOT’s lawsuit. Together the five “have received more than $50,000 in campaign contributions from Electronic Classroom of Tomorrow founder William Lager, and nearly $135,000 total from Lager and David Brennan—Ohio’s charter school Godfather.”

The Columbus Dispatch explains that William Batchelder is among the five: “William G. Batchelder is described in the brief as the former House speaker, and a former common pleas and appeals court judge. It does not mention that, until late July, his lobbying firm, The Batchelder Company, represented ECOT founder Bill Lager.”

Steve Dyer adds: “In fact, the lead legislator on the filing is William Batchelder—one of the longest serving state legislators in history, who was Brennan’s bag man on Ohio’s school voucher legislation in the mid-1990s. Batchelder left the legislature in 2014. Shortly after that, he fell into a new job—lobbying for Bill Lager. Makes sense. Lager had paid him $45,000 (not to mention the tens of thousands he paid to the Ohio House Republican Caucus during Batchelder’s time as Speaker of the House). Batchelder collected $67,000 from Brennan, and even more if you include Brennan’s wife, Ann.”

Ohio awaits a decision from the Ohio Supreme Court.  Will the court permit the Ohio Department of Education to claw back millions in overpayments from taxpayers to the Electronic Classroom of Tomorrow?  Or will the Court back ECOT’s claim that Ohio law was unfairly updated without enough warning when the state began demanding accurate log-in records to document student participation at the online school?  Steve Dyer reminds his readers that four of the seven justices on Ohio’s elected Supreme Court have received campaign contributions from ECOT’s William Lager.

This blog has covered the ECOT scandal extensively.

Ohio Auditor Moves to Recapture Profits from ECOT’s Contractors and Overpayment to Sponsor

For years in Ohio all sorts of people have been siphoning off profits from online charter schools—the giants like ECOT, smaller online schools, and private companies with which the schools contract for management and curriculum. There have also been overpayments to nonprofit charter school sponsors, the organizations that Ohio pays as a percentage of any school’s enrollment to authorize the opening of the school and subsequently to oversee its operations.  Perhaps it is more accurate to say that the state pays the sponsors to pretend to oversee charter schools while they pad their operating budgets with state money.

Now, suddenly, Dave Yost, Ohio’s state auditor, has stopped looking the other way. In a story this blog has been tracking, the state has now halted a 2003 practice of paying online charter schools a per-pupil fee merely for providing 920 hours of curriculum per year.  Beginning in 2015, the state has instead demanded that the schools prove students are actually actively engaging with the online curriculum for 920 hours per year.  In other words, the state has begun to demand accurate attendance reporting. The ensuing scandal has primarily involved the giant Electronic Classroom of Tomorrow, ECOT, which has been over-reporting enrollment by 60 percent.  The state is trying to claw back $60 million in overpayments to ECOT for the 2015-16 school year alone, and is gathering data to bill ECOT for over-reporting its enrollment during 2016-17 as well.  ECOT has responded by trying to block the claw-back in court but has lost in a series of decisions. A final decision is pending from the Ohio Supreme Court.

In the meantime, Dave Yost, Ohio’s state auditor, once an ECOT supporter, has cracked down in an effort to protect what Ohio’s major newspapers have now established is a huge theft of Ohio tax dollars. Patrick O’Donnell of the Plain Dealer recently clarified what have become the stakes involved: “With ECOT cutting staff and losing students as a result of the state’s ‘clawback’ of funding, worries are growing that the school would declare bankruptcy to avoid repaying the money.”

Last week, Yost demanded that not only a charter school—in this case ECOT—must pay back the tax dollars it has overcharged the state, but also the private management companies with which the charter school has contracted must pay back any dollars they have collected due to the charter school’s misrepresentation of its enrollment. And the sponsoring agency which authorized the school and supposedly oversees it on behalf of the state must return funds it earned from the school’s misrepresentation of its enrollment.

Even while Ohio awaits a decision from the Ohio Supreme Court in ECOT’s case, Yost and the Ohio Department of Education have begun deducting into an escrow account a percentage of ECOT’s state reimbursement for the 2017-18 school year as a way for the state to recapture what ECOT owes taxpayers.

Here is Jim Siegel of the Columbus Dispatch explaining Yost’s demand that for-profit charter management companies and nonprofit charter school sponsors must also begin returning overpayments back into state coffers: “If a charter school must repay the state for unjustified enrollment figures, state Auditor Dave Yost wants the sponsor and for-profit companies that oversee and run the school to share the burden. Charter school boards… need to recoup payments made to management companies, software developers and sponsors that are paid based on a percentage of school revenue, he said.”

Siegel quotes Yost: “I understand that this may produce significant difficulty for some… (charter) schools, and for their management companies and sponsors… But if a school was over-funded, it must not result in a windfall profit for a private company, while the school itself suffers with reduced funding.”  Yost warns schools that they are responsible for going after the dollars overpaid to their sponsors and contractors: “(Y)ou have an obligation to go and retrieve a portion of that revenue… This isn’t an option, in our view.  You are a public entity, a public school.  You owe this to taxpayers, the state and to children to retrieve those resources.”  He continues: “I’m sure the private companies are not voluntarily going to write a check for several million dollars and send it back.”

Siegel adds that William Lager’s privately held companies, IQ Innovations (which provides curriculum for ECOT) and Altair Management (which operates the school), have profited, just as ECOT’s nonprofit sponsor has also over-collected from ECOT: “The state Board of Education this year, following a department attendance audit and a ruling from a state hearing officer, ordered ECOT to repay $60 million to the state after the school was unable to verify roughly 60 percent of its enrollment for 2015-16.  Yost said that means ECOT should recoup $9.6 million from IQ, $2.4 million from Altair and about $900,000 from the Educational Service Center of Lake Erie West in Toledo, the school’s sponsor, which gets 1.5 percent of its revenue each year.”

Is there reason to fear that ECOT will declare bankruptcy to avoid paying back the tax dollars the state has overpaid?  Siegel reports that in late July, “ECOT”s board voted to slash spending by $56 million for the coming school year, including the layoff of 250 employees.”  Then last Friday, ECOT’s superintendent, Rick Teeters announced that he will resign next month to spend more time with his family.  Dave Yost worries that William Lager, the owner of the private, for-profit companies that run ECOT, will try to protect his profits by having ECOT declare bankruptcy.  In the Plain Dealer, Patrick O’Donnell reports, “Yost… questioned whether ECOT has the ability to declare bankruptcy.  He called it a public entity subject to different bankruptcy rules that individuals or companies and said it would need permission from the state tax commissioner to do so.” O’Donnell speculates as well that, “Yost’s stance may give other boards legal cover to demand re-payment from contractors, since they have now been ordered to do it.”

Overpayments by the state to ECOT for the school’s apparent gross inflation of its enrollment figures are much larger than for smaller online charters, but Jim Siegel reported on Saturday that, “(O)ther online charter schools also face repayments, and a few others have shut down. One school, TRECA Digital Academy, recently reached a tentative settlement to repay $5 million, to be deducted over five years… The Department of Education also reached a smaller settlement with the Massillon Digital Academy… Akron Digital Academy is awaiting a decision from the hearing officer. Appeals are ongoing for Buckeye Online School for Success, Findlay Digital Academy, Quaker Digital Academy and Reynoldsburg-based Virtual Community School, which was just taken over by the state.”  Three online schools have closed—Provost Academy (which paid back the state in full), Marion Digital Academy, and Southwest Licking Digital Academy, which still owes $140,500 to the state for inflated enrollment figures it submitted.

The state’s overpayment to the Educational Service Center of Lake Erie West in Toledo—ECOT’s nonprofit sponsor—is only a tiny piece of the ECOT scandal. But Ohio’s reliance on nonprofit organizations as charter school sponsors—agencies often located across the state from the schools they supposedly oversee—agencies that frequently lack any experience in education—agencies poorly regulated by the state—is an enormous problem. In ECOT’s case, one can only imagine the sort of lax oversight imposed by the Educational Service Center of Lake Erie West when one observes the massive theft of state dollars paid to ECOT for phantom students. Last week this blog covered other serious problems with Ohio’s nonprofit charter school sponsors.

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.

ECOT Appeals to OH Supreme Court after Trial Court, Appeals Court and OH Dept. of Ed. Reject Excuses

The serialized saga of the years-long theft of tax dollars by Ohio’s Electronic Classroom of Tomorrow (ECOT) has been exciting. It seems, however, that the story may be ending. And while Ohio’s out-of-control charter sector rip-off will continue, in the specific story of ECOT, at least, it appears there is hope that the good will win out.

All the signs point to a fall for the notorious Bill Lager, the founder of ECOT and the guy whose private management and curriculum companies have amassed a profit of $200 million over the years. Although it seems the end is near, the state and a lot of local school districts are still owed $60 million in funds over-paid to ECOT for the 2015-2016 school year alone. And the Columbus Dispatch reports that the Ohio Department of Education has not released results of a new attendance audit for the 2016-2017 school year. Assuming the state can claw back what ECOT owes, the remaining question is whether local school districts will be able to recoup what they have paid, or whether the state will keep the money.

Here is a plot summary, according to the editorial board of the Akron Beacon Journal: “So far, a Franklin County trial court, the Education Department, a separate hearing officer and now the appeals court have rejected the ECOT case. Next, the school heads to the Ohio Supreme Court, where it has already asked the justices to block the state from retrieving that $60 million.” “ECOT argues that state law requires the school to provide the mere opportunity for a minimum 920 hours of learning per year. The appeals court found the obligation is much greater. It reminded that though enrollment is key, student participation drives the level of public money the school receives. Thus, education officials rightly requested log-on and log-off data showing when students engaged in learning online. If the state failed for years to enforce the necessary standard, that doesn’t mean it must hold to a neglectful course.”

In mid-June, the Ohio State Board of Education voted almost unanimously to require ECOT to re-pay the state $60 million dollars the school had charged the state for the phantom students it said were enrolled but whose participation could never be documented. The State Board voted to accept the ruling of a hearing officer from the Ohio Department of education, who is reported by the Columbus Dispatch to have declared that no school’s intent is to “teach to what could be the equivalent of an empty classroom.”

Then on June 29, after the appeals court ruled against ECOT’s claim that the state has been treating the school unfairly, ECOT filed an immediate appeal to the Ohio Supreme Court. Here is the Columbus Dispatch: “The appeal filed Thursday questions whether a state ‘by bureaucratic fiat, may take unilateral action that has the effect of destroying an entire system of schools of last resort for thousands of Ohio students—a system expressly established by the General Assembly.'”  Alan Johnson, the Dispatch reporter, reminds readers, however: “So far, the charter school giant has not won any legal challenges filed against a state hearing officer, the State Board of Education, and courts at two different levels.”

As this saga winds down, ECOT has kept up the pressure. In mid-June, Bill Seitz introduced a bill into the Ohio House to allow ECOT to delay payment of the money it owes, if its appeal to block the repayment fails.  The Akron Beacon Journal Editorial Board explains: “William Lager has been generous to Republicans at the Statehouse. The founder of the Electronic Classroom of Tomorrow has routed hundreds of thousands of dollars to their political coffers. That is the backdrop for an expedient bill proposed last week after the giant online charter school suffered a deserved setback at the State Board of Education. The legislation, sponsored by state Rep. Bill Seitz, would permit ECOT to delay repaying the state $60 million for students whose attendance the school could not verify. The school would be required to post a 10 percent bond.  Seitz told the Columbus Dispatch he just wants to ensure due process for the school.” Seitz’s bill was never enacted, however, and it does not appear that it was secretly sneaked into the state budget, as many feared.

Finally ECOT made a couple of pleas for pity. First ECOT threatened to lay off 350 employees, a quarter of its staff if the state Supreme Court finds against the school. Its lobbyist has continued to threaten that the school will have to close and ruin the future of its students, should the state succeed.

Then right at the end of June, the school began running a TV ad in Columbus, which ECOT admitted was paid for with tax dollars. The Dispatch describes the ad, which is narrated by Lionel Morales, a 2017 ECOT graduate: “The Ohio Department of Education wants to end school choice and stop parents from deciding what’s best for their children. That’s why I and the over 36,000 students and alumni of ECOT are hoping our elected leaders fix what’s broken and save our school… Sadly, the Ohio Department of Education says many of us don’t count.”   The Dispatch article describing the ad explains: “The end of the ad is signed ‘Ohio’s children.'”

The egregious expenditure of Ohio tax dollars to run an ad that castigates the Ohio Department of Education finally motivated Ohio’s state auditor, Dave Yost, to step in.  The Dispatch reports: “Yost, who has been an ECOT supporter, spoke Thursday morning with Attorney General Mike DeWine and senior staff about going to court to stop the school from continuing a blitz of television ads paid for with taxpayer money. The ads have attacked the Department of Education and tried to put pressure on lawmakers. Yost, who sent ECOT a cease-and-desist order… said that if ECOT were allowed to continue the ads, it would signal to other state agencies that they could use taxpayer dollars on political campaigns. ‘This is a very dangerous precedent—where money can be taken by force from taxpayers to tell the legislature what to do,’ Yost said.”