The Brazen Ways the Charter School Industry Rips You Off

A stunning new report on the myriad ways public charter school operators have squandered or stolen millions of taxpayer dollars and how government education officials have failed to track or report this burgeoning privatization scandal has been released by the Center for Media and Democracy, a nationwide investigative reporting group.

“For years, no reporters or citizens could readily examine where their federal tax dollars had been spent on charters, which have a higher failure rate than [traditional] public schools and have been plagued by numerous fraud indictments of charter school operators,” said the introduction to the report, "Charter School Black Hole: CMD Special Investigation Reveals Hugh Gaps in Public Info on Taxpayer Money Spent."

CMD spent a year filing dozens of public records requests with federal and state agencies to produce an overview and summary of findings in 12 states and Washington, D.C., including the first-ever total of federal spending on public charter schools—$3.7 billion—since it began subsidizing this purportedly transformational reform two decades ago.

Public charter schools, which operate with a mix of taxpayer and private foundation funds, have been pushed by critics who say traditional public schools are failing and must be reconstituted without teachers’ unions, locally elected school board oversight or additional state and federal regulatory scrutiny. There are currently an estimated 6,700 charters operating across the country, with nearly 3 million children.

The charter school industry is arguably the foremost current example of privatization in America. A close look at its actual track record—not its political talking points and public relations rhetoric—reveals significant shortcomings, from delivering on its hyped pledges to transform public education, as seen in its mixed record of student performance to a growing evidence trail of fiscal cronyism, mismanagement and financial crimes. The CMD report focuses on the fiscal side of this ledger, pointing out how tax dollars have been wasted on hundreds of schools that never opened or soon closed, followed by the loose state and federal regulatory environment that turns an intentional blind eye to these developments and keeps pouring multi-millions into a new industry.

“Nearly 200 charters have closed in California, nearly one of every five that have opened,” CMD said, beginning its report on the state with the most charter schools, where one-fifth of U.S. charter students reside. “Their failures have included stunning tales of financial fraud, skimming of retirement funds, and financial mismanagement, material violations of the law, massive debt, unsafe school conditions, lack of teacher credentials, failure to conduct background checks, terrible academic performance and test results, and insufficient enrollment.”

This summation of categorized failings is followed by examples from 12 failing charter schools that received $4.7 million in federal funds. California officials would not disclose how much the state gave these schools. As one delves into these examples—versions of which are to be found in every state—one realizes that this investigative report is the tip of the mismanagement iceberg, because CMD has relied on “incomplete news accounts that simply cannot provide any actual accounting for the funds spent” in California and many other states where education regulators are protecting this new private industry.

CMD cites examples of failed California schools such as Renew Virtual Academy #1 in San Joaquin, where “CEO Ellen Ringer hired her son, Deputy Executive Director of Business Services Christopher Walenta, at an annual salary of nearly $100,000 and paid other relatives without disclosing relationships.” He telecommuted from “his Lone Tree, Colorado home” for “two weeks each month” and received full benefits and expenses. Such nepotism is typical of the many instances where school founders turn charters into a quick ticket to enrichment despite their industry’s polished rhetoric of doing a better job to lift up underserved and inpoverished communities.

In other states, CMD documents how federal funds went to more sophisticated operators or corporate chains that pursued other scams, such as charter managers who continued to access taxpayer funds even as partner businesses were in legal trouble with government agencies, or used their status as government-backed education entrepreneurs to obtain bank loans intended for new schools that they pocketed.

For example, Indiana’s Early Career Academy, which received “a $193,000 planning grant” but never opened last year, “is sponsored by a for-profit college—ITT Tech—being sued by the federal government for urging students to get loans for college credits that do not transfer.” In Michigan, Bay City Academy got a $200,000 federal grant, enabling “its founder… [to obtain] a construction line of credit to convert a church into the Bay City Academy, but instead funnelled $934,000 into his private account.” There are dozens of similar examples listed in the report.      

The yearlong investigation makes clear that many federal and state education officials have bought into the school privatization movement’s rhetoric that an intentional lack of public oversight, reporting and accountability enables school operators to efficiently and creatively bring education innovation to underserved communities. The report points out that state after state has adopted legislation transferring the oversight of charters—which are still public schools—from locally elected school boards to remote and newly created state “authorizer” offices. Even though this template was created and promoted by right-wing advocacy groups with deep anti-union sentiments, such as the American Legislative Exchange Council, it has been embraced by blue and red states, as well as top federal education officials under the George W. Bush and Barack Obama administrations.

“What has evolved as a result of the more than $3.7 billion… the feds have spent fueling charters—plus other sums from states—is a classic example of ‘industry capture’ of the agencies charged with oversight by the industry they are tasked with overseeing,” CMD explains. “With such capture comes agency devotion to protecting funding, insulated by a lack of transparency about funding oversight and distorted through agency relationships with charter industry cheerleaders… That flexibility has allowed an epidemic of fraud, waste and mismanagement that would not be tolerated in public schools. Charters are policed—if they are policed at all—mainly by charter proponents.”

How is taxpayer money being used and abused by the school privatization industry? In Indiana, “Padua Academy in Indianapolis lost its charter in 2014 and converted to a private religious school, but not before receiving $702,000 in federal seed money.”

In Michigan, “four out of five” charters are not being run by visionary ex-public school teachers—the original idea for these schools in the 1980s—but “are really being run by for-profit management companies.” As CMD noted, “The full amount of federal and state tax dollars that have been siphoned awy from students and publicly owned infrastructure  for for-profit firms has never been calculated.” As of 2014, the state has 297 charters operating, with 108 closing “since the inception of charters in the state.”

Ohio may have the nation’s worst charter school track record. “Setting aside the issue of failed charters, a majority of the CSP-funded [federal charter school program] charters that remain open—51%—scored in the bottom 16% (letter grades D-F) on the 2014 Ohio Performance Index, as measured by student performance on state assessments,” CMD noted. “Ohio charters also spend more than twice as much on administration as public schools on average. To offset this—which includes advertising buys and performance bonunses for the CEOs—charters allocate $1,000 less per student each year in classroom instruction than public schools.”

The Cleveland Plain Dealer found that the state’s top charter school executive falsified these results “by scrubbing data from low-performing online schools” as part of an effort to obtain continued federal funding. That official, who is married to Gov. John Kasich’s chief of staff, has since resigned but is working on Kasich’s 2016 presidential campaign.

The CMD report underscores that this is not simply a red-state problem. In New York, Democratic Gov. Andrew Cuomo has stonewalled CMD’s public records requests, even after its reporting team found “worrying discrepancies between the figures in the state Grant Finance database and what was reported to the U.S. Department of Education.” In other words, the people who know where the tax dollars are being spent aren't saying. And it’s not just New York. “With its poor oversight of charters, independent auditing in Texas has shown that federal monies have even gone to religious schools, and there is no indication that the state has the statuatory authority or budget to conduct meaningful oversight of charters.”

The CMD report shatters the myth that the private sector always knows best how to do what is difficult and challenging for government. Its recommendations are timid when considering that its report shows public school privatizers can be as abuse-prone as the privatized prison industry or military contractors serving in war zones overseas. CMD is not calling for a pause or moratorium on continued charter school growth, simply for every level of government involved to track where the money is going and to publicly disclose it.              

“This investigation reveals huge and continuing gaps in information provided to the public about federal and state tax dollars received by charters and how American taxpayer money is being spent,” the report concludes, adding that to respond “to these severe gaps” federal and state officials “should publish” annually detailed financial information about every school receiving government subsidies, as well as report any school that “never opens or closes voluntarily, or for any reason.”


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