Answer Sheet: A Report that Detailed up to $1 Billion in Wasted Federal Funds on Bad Charter Schools May Have Underestimated the Problem
In March, I published a post about a report detailing up to $1 billion in federal funds wasted on charter schools that never opened, or opened and then closed because of mismanagement and other reasons. The report — titled “Asleep at the Wheel” and published by the Network for Public Education, a group that advocates for public schools — also said that the U.S. Education Department does not adequately monitor how money it uses for grants in its Charter Schools Program is spent.
A few days later, the report was raised at a House subcommittee hearing by Rep. Rosa L. DeLauro (D-Conn.), who asked Education Secretary Betsy DeVos about it. DeVos, a big supporter of charter schools, said that schools that don’t “make it” should be closed. The full House recently passed a spending bill that would provide more funding than ever for the Education Department, though charter school funding would be cut by nearly 10 percent.
Now, one of the authors of “Asleep at the Wheel,” Carol Burris, is back with an update. Her conclusion: The waste and fraud may be worse than the original report stated, as she explains in the following piece. Burris is executive director of the Network for Public Education and a former award-winning principal in New York.
It is worth noting that the original report said that the Education Department in Republican and Democratic administrations has “largely ignored or not sufficiently addressed” recommendations to improve the Charter Schools Programs made by the department’s own inspector general.
By Carol Burris
A few weeks ago, 11 people connected to online charter schools in California were indicted on criminal charges of grand theft, conspiracy, personal use of public money and financial conflict of interest. More than $50 million was stolen by the alleged conspirators. The nonprofit charter management company at the center of the scandal is known as Academic, Arts and Action Charter Academies, popularly known as A3 Education.
The Voice of San Diego news organization reported that the A3 charter empire extended throughout the state of California — a “nonprofit” that was very profitable indeed: 2016 tax returns show the principals collected $14.2 million in taxpayer dollars while spending only $3.6 million.
According to those returns, $855,796 of that $3.6 million financed the salaries of Chief Executive Sean McManus and President Jason Schrock. McManus and Schrock also allegedly steered about $8 million into onshore and offshore bank accounts, a personal charity, and the $1.6 million home in San Juan Capistrano that they shared. Among the 11 indicted were former superintendent Steve Van Zant and charter school broker, Eli Johnson. Readers of The Answer Sheet might recognize their names from my 2016 blog about the schemes of Steve Van Zant, Sean McManus and Eli Johnson reported here and here.
Voice of San Diego details a clear and comprehensive account of how, through the deliberate and fraudulent manipulation of enrollment, A3 was able to fleece millions of dollars from California taxpayers. But the story begins long before the founding of A3 Education.
From 2009-2015, McManus was the CEO of the Academy of Arts and Science Charter Schools for which he served as CEO from 2009-2016, developing his model of using cash-strapped, small districts as authorizers of online charter schools that draw students from all over adjoining counties in exchange for fees.
And who gave the seed money to start this adventure?
The U.S. Department of Education’s Charter Schools Program (CSP) did.
Eleven Academy of Arts and Sciences charter schools that used the for-profit K-12 curriculum received a total of $2,825,000 from the CSP state grant to California. Today, all 11 schools are closed.
Back in March, the advocacy group Network for Public Education released its report on the Department of Education’s Charter Schools Program — a federal grants program supporting charter expansions and start-ups. The report, “Asleep at the Wheel,” charged that the program is rife with misspent and poorly vetted grants. At the time, Education Secretary Betsy DeVos scoffed at the report, saying “I’m not sure you can even call it a report,” and dismissed it as the work of those with a “political agenda.”
The Network for Public Education, however, continued investigations, going state by state, documenting the failed and never opened charter schools that received grants. To date, we have analyzed the lists of grants given from 2009 to 2014 in 15 of the 40 recipient states. Some of the 15 states received multiple grants, others few.
We have found 1,203 charter schools in those 15 states alone that either never opened or have closed. This represents 40 percent of the total grantees.
The federal CSP funding given to these failed and nonexistent schools totals $326,518,634 — a sum that does not include state grants or other sources of taxpayer funding.
Here, following the report, we provide summaries for each state, as well as the list of closed charter schools and the amounts they received in federal start-up and or expansion funds. In the months ahead, we will add the additional 25 states, Guam and Washington, D.C., which all received CSP grants.
It appears we underestimated the waste in the report — the percentage of failed schools is higher than the 30 percent that we reported and given the limited number of states and years analyzed so far, it is likely that waste will exceed our estimate of $1 billion.
Charter schools that never opened or failed
In Michigan, we found 63 charter schools, nearly all of which received grants of $100,000 or more, that never opened. Just this spring, based on the history of failed grants, the Michigan Board of Education voted to stop the disbursement of funds from a new federal $47 million dollar grant while it investigates what happened to the funds given to charter schools that never opened or quickly failed.
Board President Casandra Ulbrich cited the “Asleep at the Wheel” report as the board’s motivation for slowing down new grants.
“The report raised legitimate concerns about the oversight and accountability associated with this grant,” she said. “As such, a majority of the State Board of Education attempted to slow down the process until we could ensure that taxpayer dollars were being used appropriately. I have requested final reports and financials for the entities that received funds but never opened a charter school to review.”
Michigan’s attorney general, Dana Nessel, stepped in and told the board that the State Education Department was obligated to disburse the funds. Ulbrich, however, will continue to investigate what happened to the substantial sums that went to the state’s “ghost” charter schools. Eighty percent of Michigan charter schools are run by for-profit companies.
Michigan is not alone. The small state of Maryland had 54 schools in the 2009-2014 federal data set that never opened. Overall, the percentage of Maryland charters that received federal grants but never opened or failed is an astounding 55 percent. Those schools, together, had received $7,901,164 in federal taxpayer dollars.
Forty-two percent of the Pennsylvania charter schools that received grants either never opened, closed or may not have ever been a charter school at all (an example is given below). Of those, the overwhelming majority (39 of 49) either never opened or were non-charters. Many received grants that exceeded $50,000.
No-name charter schools get federal grants
The National Center for Education Statistics assigns a 12-digit code to all public and charter schools. Its school locator tool is current up to the 2017-2018 school year. Most of the time, the charter schools that received grants but never opened had not been assigned an NCES number in the database.
However, we found numerous cases in two states where the school not only did not have a NCES number, it did not even have a name.
Tennessee which has a 49 percent grantee failure rate, gave 38 grants of $10,000 each to schools that not only did not have a NCES number, they also did not have a listed name. Where did that $380,000 go? Apparently, the Department of Education has no idea. Nor do they (or taxpayers) know where 18 grants to Arkansas “no name and no NCES ID” charter schools went. Two of those grants were for $50,000.
Non-charter school recipients of CSP grants
The NCES school identifier provides not only school addresses but also school type. After not finding numerous Texas and Georgia schools on their state’s charter school list, we searched for the schools using the given NCES number. We discovered that the grantee was not a charter school but rather a neighborhood public school or magnet school. In some cases, the name was the same as the charter listed by the U.S. Department of Education, but in other cases it was not. There were 27 such grantees in Texas, and 38 in the state of Georgia.
Although we are happy that public schools benefited, it is additional evidence of the lack of supervision that the Education Department provides to a program designed to finance “high-quality charter schools” as either start-ups or expansions. As mentioned earlier, we also found nonschool organizations in Pennsylvania that received grants as well. One of those organizations was Three Cord Youth Services. Its story follows.
Fraud, corruption and self-dealing by grantees
Three Cord Youth Services, in York, Pa., was not a charter school. Nevertheless, it received a $45,000 state pass-through grant from the CSP. Three Cord Youth Services was one of several companies owned by the for-profit Three Cord LLC. The company and all of its subsidiaries, including a real estate firm, were operated by former basketball coach, Isiah Anderson who was the sole owner and stockholder.
Three Cord was also the charter management company that operated the charter school that Anderson founded in 2007. That charter school, New Hope, had also received a start-up grant of $93,660 from the federal Charter Schools Program.
Not only did Anderson own the management company, he also owned the building leased to New Hope Charter School. That was not the only way that he profited, however. According to the contract between the charter school and its management company, Three Cord was to receive 50 percent of all of the profits generated by the supposedly nonprofit charter school.
From 2009-2012, years in which the school’s student truancy rates were high and test scores were abysmally low, New Hope paid Anderson’s three companies — Three Cord Inc., Three Cord Youth Services LLC and I Anderson Real Estate a total of $5.24 million. When the charter school was shut down in 2012, it was revealed that its officials had violated the public officials and employees ethics law, nonprofit corporation law and the school’s own conflict-of-interest policy.
Another Pennsylvania Charter Schools Program grant recipient, Pocono Mountain Charter School was shut down in 2014. The school’s former chief executive was cited for improper dealings with the Shawnee Tabernacle Church where he served as pastor. After pleading guilty to tax evasion, the Rev. Dennis Bloom was sentenced to 10 months “for funneling more than $1.5 million in taxpayer money to himself, his family, his businesses, and his church.”
Cases of self-dealing between federal grant recipient charter school CEOs and their companies (and sometimes churches) are not infrequent among Charter Schools Program grant recipients.
The now-defunct Shekinah Radiance Academy of San Antonio, Tex., was part of a small chain of schools run by a highly paid superintendent who was also the pastor of the Shadrach Temple International. The dealings of the school and the church were so intertwined that they prompted not only a 2012 audit finding that the charter operator violated state law, but also complaints from Americans United for Separation of Church and State.
Like the CSP-subsidized Florida SLAM Academies founded by rap star Pit Bull, Texas also had its own celebrity charter, Prime Prep Charter School. Prime Prep was founded in 2012 by football and reality television star Deion Sanders and his partner D.L. Wallace. It received a $600,000 state pass-through grant from the Charter Schools Program to get it going.
Prime Prep was controversial from the start. Even before it opened, the Dallas Observer ran a long investigative piece on prior alleged for-profit charter dealings of D.L. Wallace and questionable real estate dealings between a Prime Prep charter school and the church in which it was to be housed. That church, Charity Church, whose founder had business dealings with Wallace, would later sue the charter school for nonpayment of rent.
During its tumultuous 2 ½ years in operation, it was the subject of multiple lawsuits. By 2014, the Texas Education Agency would be looking into conflict of interest allegations, violations of the National School Lunch Program and a failure to conduct employee criminal background checks.
It closed abruptly in 2015 giving students and teachers only one hour notice, owing money to the IRS, employees and vendors.
Even after the school closed, it was the subject of a federal and state investigation due to the disappearance of 100 laptop computers purchased with, you guessed it, federal CSP charter start-up funds.
It appears that Sean McManus of the California online A3 charter scam has left the country. But the multimillion-dollar heist of federal and California taxpayers’ funds for which he allegedly is responsible pales in comparison to the hundreds of millions of dollars in waste we are finding in our investigation of the U.S. Department of Education’s Charter Schools Program.
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