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Janresseger: 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.

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Jan Resseger

Before retiring, Jan Resseger staffed advocacy and programming to support public education justice in the national setting of the United Church of Christ—working ...