School Finance 101: The Charter School Company Store
About a year ago, I released this report: http://nepc.colorado.edu/publication/charter-revenue
In which Gary Miron and I discuss various methods by which charter school operators work largely within existing policy constraints, to achieve financial gain. While working on this report, I explored various other topics that did not make the final cut, in part because I was then, and continue to have difficulty gathering sufficient information. The other day, however this article was posted on LA Weekly about wage extraction by “Gulen” charter schools: http://www.laweekly.com/news/did-a-california-charter-school-group-fund-an-effort-to-overthrow-the-turkish-government-7666698
This reminded me that I still had the related content I’ve posted below sitting on my hard drive, and that I should at least get around to posting on the blog.
Accessing Money by Creating a “Company Store”: Taxing Salaries through Affiliated Enterprises
There are many ways to “tax” teacher wages, and recapture a share of wages through closely affiliated entities (see Figure 6). In recent years, for example, there has been significant reporting on charter schools using imported labor for classroom teaching.[i] This staffing model provides two opportunities. First, there exists an opportunity to engage generally in non-traditional compensation agreements with imported labor, which may include much lower and differently structured salaries and benefits than would be paid to traditional domestic, certified teaching applicants. Second, there exist additional opportunities to “tax” the wages of these employees for such services as processing their visas and/or making travel arrangements. These services may be provided by private entities closely affiliated with the schools. That is, the money flows from one hand to the other. In this case, that money is obtained by obligating employees to pay a tax from their wages.
Public districts have been involved in similar schemes. In 2012, Louisiana school districts were caught up in a scheme involving Filipino teachers forced into exploitive contracts through a Los Angeles based placement firm.[ii] No evidence was presented, however, of any kick-back relationship between the placement firm and the districts. The arrangement came to light because (lawyers on behalf of) teachers brought litigation against the placement firm.
It can be difficult if not impossible to obtain documents specifying financial parameters of agreements between foreign teachers and charter school operators, because charter school operators refuse to release these documents, claiming exemption from public disclosure laws. Blog sites including Charterschoolwatchdog.com has posted partial documents indicating that Turkish teachers in U.S. charter schools teach under a “Tuzuk” (roughly translated as regulations or bylaw) involving an agreement to receive only a nominal stipend for their work; and, they are required to remit cash portions of their salaries as well as retirement benefits and tax refunds (although it is difficult to discern exactly which entity receives remittances).[iii]
Figures 7 and 8 illustrate salary structures derived from available statewide personnel files in Houston, Texas and the state of New Jersey. Figure 7 shows that Harmony/Cosmos schools in Texas, which rely heavily on Turkish labor,[iv] show relatively flat distribution of salaries by experience levels. It may be that actual salaries allocated show this distribution or that schools have simply reported a single salary figure of $40,000 for all teachers regardless of position, education or experience level, and not representing actual compensation. Other charter operators in Houston show growth in salaries by experience parallel to that of Houston district schools. KIPP schools pay higher than district salaries.
Figure 7. EMO Operated Charter vs. Houston ISD: Full Time Teacher Salaries by Experience at Constant Degree Level in 2010
Figure 8 shows that New Jersey schools similarly reliant on Turkish labor (Paterson Science and Technology, Central Jersey College Prep, among others[v]) also report flat salaries with respect to experience. Again, by contrast, the KIPP school (TEAM Academy) a) pays higher than other charter schools and public districts and b) shows growth with respect to experience. So too does North Star Academy, and Uncommon School. Yet, the schools employing larger shares of Turkish labor show a) very low salaries, b) little or no growth with respect to experience and c) in some cases, no variation at all in salaries with respect to experience.
Data Source: salaries modeled using statewide “Fall Staffing Report” data. Salaries estimated as a function of degree level and years of in-state experience, excluding administrative job codes, and using data from 2010 to 2015. Predictions based on teachers holding a bachelors degree in 2015.
Figure 8. New Jersey Charter School Salary Structure (by Total Experience)
Other options exist for recapturing portions of teacher salaries. But as is true for the Turkish Tuzuk, documentation of these schemes may be difficult to obtain from privately-managed charter schools that often claim these agreements are exempt from public disclosure laws. One common model is the “company store,” where employees are required to purchase goods and/or services from the affiliated entities. This model can be used for visa processing fees for foreign labor, but might also be used for obtaining relevant credentials, professional development, or even housing.[vi]
For example, founders of New York and Newark, NJ area charter schools and management companies have established their own Graduate School of Education (Relay GSE), staffed primarily by themselves—current and former employees of the charter schools and management companies. Relay GSE was criticized in public hearings over its use of under-credentialed and inexperienced faculty to deliver its programs, but was eventually granted accreditation.[vii]
The Relay Board of Trustees includes founders of KIPP, NYC; Achievement First; and affiliates of Uncommon Schools.[viii] In New Jersey, Relay’s graduate programs are offered on-site within North Star Academy,[ix] a Newark charter school affiliated with the Uncommon Schools network (established by a founder of Relay GSE). The Dean of Relay, Newark, is a co-founder of North Star Academy.[x] Former teachers from the affiliated charter schools report being obligated as a condition of employment to obtain credentials (MA degrees and related certifications) from Relay GSE. That is: employees at the charter schools are having a portion of their salary taxed to pay tuition to a “graduate school” run by founders of their own charter schools, operated within their own charter school facility (lease agreement unknown), where courses are often taught by their own teaching peers having only slightly more advanced education and experience.[xi] We elaborate on this example in Appendix A.
Another way for affiliated charter schools to channel money to Relay is to set aside a portion of their budget to subsidize graduate education—but only at Relay GSE. That is, some EMOs (including Uncommon) have a practice of paying for graduate degrees obtained from Relay, but not from any other institution (unless the teacher can prove that Relay does not offer a degree in the same field). Teachers agreeing to pursue their degrees from Relay with school support must complete those degrees or, as noted earlier, are required to reimburse their EMO for any/all tuition reimbursement they received.
Compensation taxing models could conceivably be taken one step further, to access not only a portion of teacher salaries, but also their retirement benefits, by adopting the Enron version of the Company Store: having employee retirement benefits invested directly back into the charter school operator or through a closely affiliated financial manager. In the Enron case, approximately 60% of the company’s 401(k) was invested in Enron stock.[xii]
The information provided in the main text describes a “company store” model at Uncommon Schools/Relay Graduate School of Education. But it only describes the information that is publicly accessible. A great deal more about the model is still unclear. Here we provide a few insights, based on the limited disclosures from, e.g., former employees. We stress here that it is difficult to obtain clear official documentation of the practices involved, because current employees are sworn to secrecy, including prohibitions against providing contractual documents and employee handbook materials. Accordingly, this appendix summarizes merely what we were able to ascertain through published accounts and acquired documents. This is an obvious area for officials and investigative journalists to delve into, since a great deal is unknown, and the limited accounts, discussed here, have yet to be fully collaborated.
A former Uncommon schools teacher who identified herself only as “Emily” created a blog with a single post, which states: “upon my being hired and deciding to take the job in August 2011, I was required to enroll at Relay. It was one of the conditions of my employment—to begin the process of getting my masters in education at Relay, which has a partnership with Uncommon Schools.”[xiii] That is, as we note above, obtaining the graduate credential was a condition of continued employment.
Regarding financial arrangements, the former Uncommon Schools teacher notes that “Relay offers all of its students a very doable tuition package—you can pay in small increments that are realistic with most charter school salaries. And, to be a Relay student, you must be employed at a charter or public school. Not only that, Relay will greatly subsidize your tuition from various sources that fund it, such as money from AmeriCorps.” This squares with Relay’s own explanation of “Tuition & Aid” from their web site:
It also squares with language we acquired from an Uncommon Schools employee handbook:
Figure A2. Handbook Excerpt
These limited pieces of information, taken together, suggest that if total annual tuition for Relay graduate programs is $17,500, the typical Uncommon Schools new teacher can be expected to pay about half that for two years (to degree completion) and have the other half subsidized. If the teacher leaves her position at Uncommon Schools prior to completion or otherwise fails to complete the graduate degree, the teacher may be responsible for reimbursing the school. New teachers would seem to have little choice in the matter.
Additional evidence gathered from individual school websites and through deep web searches (leading to Uncommon Schools Family Handbooks) reveals school faculty bios that indicate large shares of teachers who have a) recently completed degrees at Relay, b) are currently pursuing degrees at Relay, and/or c) currently serve as adjunct instructors for Relay.
Again, these elements of the Company Store need further investigation. If they are true, it raises serious concerns. If it is not, then taxpayers and public officials should expect public clarification on that point.
As we discussed in the main text of this brief, a small handful of individuals were involved in the founding and original governance of each institution. Our analysis here is not comprehensive, because Uncommon Schools and Relay GSE span many state boundaries. Thus our examples here focus primarily on the New York/New Jersey area, with particular attention to Newark, NJ. Table A1 shows the board membership and highest paid employees for four interconnected organizations (and there may be others we have missed thus far).
The two left hand columns include Uncommon Schools (data from IRS 990, 2014, 2013 tax year) and North Star Academy’s Consolidated Annual Financial Report (CAFR) from the New Jersey Department of Education. We expect these organizations to overlap because one (North Star) is subsidiary to the other (Uncommon). The right three columns include Relay Graduate School of Education; a separate non-profit entity providing financial support to Relay, called Uncommon Knowledge and Achievement, Inc. (UK&A); and a third organization, Zearn. We also expect these three organizations to overlap because it would appear that UK&A’s primary function is to raise funds for providing scholarship/aid for students attending Relay GSE (providing $500,000 to GSE in tax year 2013 according to IRS filings, and another $100,000 to Zearn). We understand less about the role of Zearn, except that it appears to be a company created for the aggregation and distribution of electronic teaching materials/modules for mathematics.
More significant potential concerns arise when parties cross over between the left two and right three columns, especially in significant governance or leadership roles or where significant financial interests are involved. Specifically, it would be questionable for leadership of Uncommon Schools to be requiring their employees to purchase goods/services from Relay if in fact those leaders have financial interests in Relay. This is likely true even if these individuals absolve themselves of voting roles in setting those policies. IRS Filings (and charter school financial audits) indicate that Uncommon Schools is a “related party” to its various subsidiary schools (and even their real estate arms). IRS filings similarly acknowledge the relationship between Relay, UK&A and Zearn. But, for some reason neither IRS filings nor external audits of Uncommon Schools mention a formal relationship between Uncommon and Relay, despite Norman Atkins’ role as CEO of one and chair of the board of the other.
The connectedness between Relay and Uncommon does not end there. Jamey Verrilli is Dean of Relay’s Newark, NJ branch, which operates out of an address shared by a North Star (Uncommon) school (10 Washington Place, Newark). Verrilli also sits as a “community member” representative on the board for North Star. That is, he sits on the board of a school that obligates (as we understand it) its teachers to pay his other organization, housed in the same building, substantial annual tuition. In addition, Relay Dean Verrilli’s wife is employed by North Star (duly noted on state conflict of interest reports).[xiv]
Deeper exploration of the Uncommon and Relay websites reveals that Uncommon’s Newark Managing Director also plays a significant role in Relay GSE, leading Relay’s Leverage Leadership program. Other Uncommon employees, including those in leadership roles, also have significant presence on the Relay website (noted in green in Table A1), including the starring role of Verrilli’s wife in demonstration videos.[xv] In sum, formal leaders of Uncommon/North Star Academy are in positions to influence policy decisions that would direct school resources to Relay and would require employees to make payments to Relay, as well as senior employees and administrators at North Star in a position to exert significant coercion over incoming and other junior staff. Note that according to the handbook, these individuals wield significant influence over what types of professional development and graduate pursuits might be approved for reimbursement.
|CMO and Subsidiary School
(Acknowledged as Related)
|UK&A Formally Related to Relay GSE (Acknowledged)|
|North Star Academy (NJ CAFR)||Relay GSE
|Uncommon Knowledge & Achievement Inc. (IRS 990)||Zearn LLC
|Norman Atkins (Chair)||Rick Rieder (Chair)||Larry Robbins (Chair)||Norman Atkins (CEO)||Norman Atkins (Chair)|
|David Cooper||Michael Lytle||David Levin (Secretary)||Timothy Saintsing (COO, Prior)||Evan Rudall (CEO)|
|Donald Katz||Robert Howitt||Arthur Levine (Trustee)||Thackston Lundy (COO, Current)||Shalinee Sharma (Secretary)|
|Charles Harris||Gia Rys||Julie Mikuta (Trustee)||Robert Karr (Treasurer)|
|Pearl Kane||Nicole Albano||David Saltzman (Treasurer)||David Levin|
|Robert Karr||Paul Bambrick-Santoyo||Dacia Toll (Vice Chair)||David Saltzman|
|Rondo Moses||Trisha Scipio-Derrick||Carlos Watson (Trustee)||Dirk Ziff|
|Robert Jain||Ravi Bellur||Dacia Toll|
|Brooke Reid||Scott Sleyster||Larry Robbins|
|Neal Moszkowski||Nkyah Taylor|
|Employees & Officers|
|Brett Peiser (CEO)||Carolyn Hack (Treasurer)||Norman Atkins (President)|
|Carolyn Hack (CFO/COO)||Michael Ambriz (COO)||M Yvonne Chao (CFO)|
|Paul Bambrick-Santoyo (Managing Director, Newark)||Julie Jackson (Principal)||Piper Evans (Director of Finance)|
|Julie Kennedy (Managing Director)||Mike Mann (Head of School)||Timothy Saintsing (COO)|
|Joshua Phillips (Managing Director)||James Verrilli (Community Member)||Mayme Hostetter (Dean, Relay NY)|
|Julie Jackson (Managing Director)||Michael Larosa (CIO)|
|Dana Lehman (Managing Director)||Brent Maddin (Provost)|
|Barbara Martinez (Chief External Officer)||James Verrilli (Dean, Relay Newark)|
|Laura Lee McGovern (Chief of Staff)||Robert Underwood (CTO)|
|Laura Maestas (Chief Talent Officer)|
|Tara Marlovits (COO Uncommon NYC)|
|Michael Ambriz (COO North Star Academy)|
Others with current/past significant presence on Relay web site
 KIPP Co-founder
 Founder, Achievement First
Figure A3 attempts to sketch out some of these relationships, with particular attention to Newark, NJ. On the left are charter schools, where not only Uncommon Schools, but also KIPP and Achievement First are official partners of Relay GSE. Clearly, as indicated in the table above, there exists significant, substantive leadership and financial overlap between Uncommon and Relay. In addition to the founding/leadership overlap, in Newark the two share a facility (financial arrangement unknown) and seem also to share at least a few employed staff, including the Newark Managing Director (compensated at $223,227 by Uncommon alone in tax year 2013).
About 50% of Relay tuition is directly extracted from new faculty, assuming the above sources to be correct, with the other 50% coming through: a) schools like North Star and b) UK&A.
One might question how lucrative it can be to rely heavily on tuition extraction (and other subsidies) from only new, incoming teachers required to pursue two-year graduate programs. After all, how many new teachers might there be in any given charter school? Could there possibly be a constant or increasing flow? Figure A4 uses statewide annual staffing files from the New Jersey Department of Education to tally the total numbers of teachers and numbers of teachers with zero or one-year experience in North Star Academy from 2009 to 2015. In the most recent three years, North Star alone had 103, 134 and then 153 novice teachers. Assuming that Relay could gross $17,500 per year for each, the total would approach $6 million by 2015 (about half extracted from teacher wages and half from grants made by or through related entities). The high rates of novice teachers in North Star and other Uncommon (NY) schools are a function of both growth and very high rates of turnover.
So, I know many will say, what’s the big deal? Relay affiliated charter schools are (at least perceived as) highly successful and their success reliant on strict adherence to their specific pedagogy. So why not grow their own/train their own teachers? As I see it, that’s a clearly separable issue from what I outline above. First of all, having effective staff in-service training, even where provided by affiliates is more acceptable in a number of ways (depending on how those affiliate contracts are handled & disclosed). It’s localized, specific training, not degree/credential granting having broader public policy implications. No institution – a single public or private school – should be granted the authority to self-credential their own employees in this way, to hold supposedly broad, transferable expertise, which is in fact anything but. Provide specific training for their current job and context? OK. Provide degrees and credentials w/broader state accreditation? That’s the public policy concern (which should have been shut down earlier). The second (ethical/COI) concern (which is also a public policy concern) is that no school leaders should have authority to require or have such opportunity to coerce teachers under their supervision to buy back services provided by their employer or close affiliates of their employer (resulting in financial benefit).
I am quite sure that if I was to collaborate with my Dean at Rutgers Grad School of Education to start a charter charter school chain in and around New Brunswick, placing us on the leadership team and board (along with other faculty and leadership at Rutgers),
AND THEN, require each of our new teacher employees in those charter schools to obtain graduate degrees from Rutgers GSE as a condition of maintaining their employment (even if indirectly, that we needed to give them assignments which required they be certified in certain areas, in which we provide the cert programs),
AND ON TOP OF THAT, use teachers who had just completed those programs to deliver the courses (as underpaid graduate assistants) to the new teacher on site… in the charter schools…
it would raise at least a few eyebrows.
And it should!
[i] Pilcher, J. (2014). Charter schools use Turkish ties, visas to get teachers. Cincinnati.com http://www.cincinnati.com/story/news/2014/10/05/charter-school-turns-turkish-teachers/16791669/
Beauchamp, S. (2014). 120 American Charter Schools and One Secretive Turkish Cleric. The Atlantic. http:// www.theatlantic.com/education/archive/2014/08/120-american-charter-schools-and-one-secretive-turkish- cleric/375923/
[ii] Samuels, D. (2012). Filipino teachers win $4.5 million jury verdict, claim they were forced into ‘exploitative contracts.’ The Times-Picayune. http://www.nola.com/news/baton-rouge/index.ssf/2012/12/filipino_ teachers_win_45_milli.html
[iii] See, for example, the blog: http://www.charterschoolwatchdog.com/tuzuk—a-contract-to-steal.html
[v] Schools selected based on information provided here: http://turkishinvitations.weebly.com/list-of-us-schools. html
[vii] Mooney, J. (2013). Alternative Grad School Raises Concerns About Who’s Teaching NJ’s Teachers. NJ Spotlight. http://www.njspotlight.com/stories/13/07/09/alternative-grad-school-raises-concerns-about-who- s-teaching-nj-s-teachers/
[xi] See, for example: http://emily-thetruth.blogspot.com/2012/03/truth-about-relay-graduate-school-of. html?spref=tw
[xii] Schutz, E.E., Francis, T. (2002). Enron Executives’ Benefits Kept on Growing as Retirement Plans of
Employees Were Cut. Wall Street Journal. http://www.wsj.com/articles/SB1011745748757428600
[xiii] Blog post can be found here: http://emily-thetruth.blogspot.com/2012/03/truth-about-relay-graduate-school- of.html
[xiv] State ethics filings here:
[xv] To understand the extent of connections between Relay/Uncommon, see here (https://www.youtube.com/ watch?v=9XnrT4MC7fw) where Beth Verrilli (employed by North Star), wife of Jamey Verrilli (Dean, Relay Newark) is used in a demonstration video, linked from Relay GSE leadership program, but to an Uncommon Schools web site. So, in the video, Mrs. Verrilli is acting as an employee of Uncommon Schools (North Star), while being used in a demonstration for leadership training at Relay, applying techniques promoted by Bambrick Santoyo – Managing Director of Uncommon Newark, but also lead faculty member for Relay’s Leverage Leadership program.
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