Public School, Inc.: When Public Education Turns into Big Business
Andrew Sterling thought BASIS Tucson in Arizona was a teacher’s dream when he started working there in 2008. Class sizes at the midtown public charter school were small, teachers were experts with advanced degrees and students were bright and engaged, with few disciplinary issues.
“The kids were excellent – just amazing kids that came from seemingly a variety of backgrounds and variety of interests, quite quirky in a lot of ways,” said Sterling, who taught history and government.
Those quirky kids were the reason he later enrolled his daughter there for fifth grade. He wanted her to be surrounded by good peers. Plus, he’d get to watch her closely. But his concern was growing over the school’s changing climate.
BASIS, which started as a single Tucson charter school and grew into a network of educational facilities, began attracting national attention as an academic powerhouse with soaring test scores by the late 2000s. Riding that momentum, the company pushed to expand, adding charter and private schools nationally and internationally and multiple layers to its corporate structure.
And the pressure grew for students to score even higher to fuel that growth.
Sterling saw his students drowning in schoolwork, which increasingly focused on test results. Some students were built for it, he said. Most struggled. Many transferred out, unable to keep up.
There was a physical change, too.
In 2012, BASIS added a new custom-designed campus in the wealthy Catalina Foothills on the north side of Tucson. The school added more grades between the two campuses, and hundreds more students enrolled. By then, a new management arm of the BASIS corporation had taken over school operations.
Despite his concerns, Sterling stayed, hoping to help his struggling students. Meanwhile, BASIS kept growing.
BASIS today is perfectly poised to capitalize on growing efforts across the country to turn public education into big business. Although it is not the largest charter school network in the U.S., BASIS is one of the only to have successfully expanded into private and international operations. None of the five largest charter networks concurrently operate private schools.
BASIS expanded rapidly, mostly by leveraging its public school status to borrow hundreds of millions of dollars, ultimately paid by taxpayers, while also expanding its private school operations. And in its race to the top, critics say BASIS systematically shortchanged the students who are the most costly to educate, including those with disabilities.
Despite continued criticisms – especially regarding what some consider “cherry-picking” of students, a common complaint about some charter schools – BASIS has continued to attract parents looking for something more than a traditional public school for their children.
“We have a laser-like focus on academics,” said Peter Bezanson, CEO of BASIS.ed, the corporate arm that manages BASIS schools.
As school choice – a movement to give students access to more public education options – continues to gain momentum, companies such as BASIS are seen as the solution to public education’s ills. It brought together people from different ends of the political spectrum – former U.S. House Speaker Newt Gingrich and the Rev. Al Sharpton – to jointly tour the BASIS Tucson campus in 2009. BASIS is also touted as a model for public education by Arizona Gov. Doug Ducey.
President Donald Trump and his billionaire education secretary, Betsy DeVos, whose family are Republican megadonors, are among the biggest champions of school choice.
“I’m opposed to any parents feeling trapped or, worse yet, feeling that they can’t offer their child the education they wish they could,” DeVos said in a speech at the Brookings Institution in March. She compared school choice with consumers picking Uber or Lyft over traditional taxis.
“What they are trying to persuade the American public of is that public schools don’t belong to the public, that they’re consumer items,” saidDiane Ravitch, a former assistant education secretary under President George H.W. Bush, who once advocated for school choice herself.
Back then, Ravitch envisioned choice as schools within schools that could serve as labs for educational innovation, she said. But school choice became synonymous with big businesses, she said, and big businesses brought about legally questionable practices such as conflicts of interests, nepotism and putting their own interests above those of the public.
How BASIS got its start
As the movement to create independent and innovative public schools spread across the country, Olga Block, an immigrant from the Czech Republic, wanted a more rigorous education for her daughter.
Block decided to start her own school with the help of her American husband, Michael, a Stanford-educated economist. She would combine best of both worlds: the hands-on, slower-paced American learning environment and the rigorous European study habits Olga Block was used to back home.
“BASIS was essentially built on a mother’s love for her daughter,” said Bezanson, the BASIS.ed CEO.
The Blocks, who remain managers at BASIS.ed, declined to be interviewed.
The school opened in fall 1998, renting space at a synagogue in midtown Tucson. It was called Building Academic Success in School, or BASIS.
Today, the BASIS network runs 24 charter schools in Arizona, Texas and Washington, D.C., and seven private schools in California, New York, Virginia, and Shenzhen and Guangzhou, China. It has plans to open more schools in the U.S. and overseas in the near future.
As BASIS grew, so did its corporate structure. In 2009, Olga and Michael Block established a private limited liability company, BASIS.ed, to handle school operations. To manage the assets and equities of various private management arms that run the charter, private and international schools, the founders also established BASIS Educational Ventures.
Such complex corporate structures, also common to other large charter networks, limit risk and maximize profit, said Gary Miron, an expert in charter school finance at Western Michigan University and fellow for the National Education Policy Center.
“It’s just amazing that they are public schools,” he said, “but they are really private in so many ways.”
Reading, writing and reaping profits
Before BASIS’ multi-tiered corporate structure emerged, IRS disclosure forms showed that in 2008, Olga Block earned $197,507 as the chief executive officer of BASIS, which then had two schools and just over 1,100 students. Michael Block earned $156,362 in various roles.
That same year, the superintendent of the Tucson Unified School District, which served more than 56,000 students in more than 80 schools and programs, made just over $200,000.
Tax filings from 2007 and 2008 also show that the founders paid family for work they did for BASIS: Olga Block’s two daughters and her sister, who lives in the Czech Republic, were paid for public relations material design and accounting. Michael’s son, Robert, was paid for technology services in other years.
The founders’ relatives still occupy high-level management positions in various arms of the network. At least three of Olga and Michael Block’s children are on the BASIS payroll.
Arizona law requires all public officers on political subdivisions, boards or commissions to disclose conflicts of interest. It also says public officers should refrain from voting on or participating in any contract, sale, purchase or service from a relative.
The Arizona attorney general’s office said it believes the law applies to charter school officials and board members, but referred to the Arizona State Board for Charter Schools for enforcement of the law. The charter board said it does not keep track of conflict-of-interest disclosures.
“I think it’s fairly common for family-owned businesses to employ family members,” said Bezanson, BASIS.ed’s CEO.
BASIS.ed provides everything that’s required to run a school – from supplying teachers to buying textbooks on a contract basis, he said. The difference between BASIS.ed and the nonprofit charter holder, BASIS Schools Inc., he added, is that BASIS.ed is private, which allows it to efficiently manage schools in different states.
Once BASIS transitioned to private management in 2009, few details about its schools’ finances remained public. Filings instead show millions in lump sums for management fees and leased employees, including teachers, all addressed to Michael Block, who until 2015 was a BASIS charter board member.
For the 2014 tax year, the most recent tax filing publicly available, the nonprofit housing the network’s charter schools paid BASIS.ed $15.6 million in management fees and an additional $44.3 million for salaries and benefits. In exchange for the fees, BASIS.ed says it handles tasks such as hiring administrators and teachers and buying school supplies.
A 2016 U.S. Department of Education inspector general’s report raised the alarm about charter schools using private management, saying it limits accountability.
But Bezanson said that the structure allows BASIS to run its schools more efficiently and that the BASIS charter school expansion is “wholly separate and not commingled with anything having to do with the expansion of the international or independent schools.”
Bezanson would not provide information about executives’ salaries, saying it’s a private company.
On average, BASIS paid about $3.3 million annually per school to BASIS.ed for salaries and management between fiscal years 2008 and 2014, according to tax filings. In comparison, the average total budget for a school in the Tucson Unified School District for the 2014-15 school year was about $2.5 million.
In tax filings, the fees to BASIS.ed are listed under transactions with related parties – something the Education Department’s inspector general’s report called a red flag because it could mean weak internal controls, alongside conflicts of interest and insufficient division of duties.
As it stands, though, the Department of Education does not have an adequate way to monitor charter management companies to identify and address potential risks, the report concluded.
BASIS borrowed big to grow big by leveraging its charter schools’ public status, which allows it to borrow tax-free and at lower interest rates.
The network’s charter schools are funded by state governments on a per-pupil basis, like district schools, but there is no dedicated funding for charter school buildings. So BASIS turned to the government bond market to fuel its charter school expansion.
It has borrowed so much that its charter school arm, the only BASIS subsidiary for which financial information is publicly available, had about $230 million in long-term debt at the end of fiscal year 2016, according to its consolidated financial audit submitted to the Arizona State Board for Charter Schools.
BASIS borrowed largely through industrial development authorities of municipalities in Arizona, which are government-affiliated middlemen that help secure funding for projects that benefit the people of that town, city, county or state.
It used loans through the city of Phoenix and Pima County – sometimes to pay back other loans – to build and renovate schools in Washington, D.C., and Texas, using its existing charter school facilities as collateral.
In one instance, a 2016 loan for $84 million for various capital projects across the network – about $31 million of which was used for refunding a previous loan for the D.C. campus – was secured by 14 BASIS charter schools’ state funding and facilities.
The city of Phoenix isn’t fronting the money, nor is it liable for the debt, said Bezanson, the BASIS.ed CEO. The money comes from private investors.
But taxpayers – primarily in Arizona – do pay for the costs of these loans, including transaction fees and interest, through state per-pupil funding for education.
The charter network’s buildings are not publicly owned, either – they are owned by BASIS.
“That seems illogical that we would allow them to use a share of public dollars to acquire an asset with public dollars that is then owned by this private entity,” said Bruce Baker, an education professor at Rutgers University in New Jersey who specializes in charter school business practices.
At the same time, Baker said, charter schools are backed into a corner when it comes to facilities financing. Without a dedicated funding mechanism, they must seek other options.
But many of those options are the result of bad policy design and create opportunities for bad deals and bad debt, he said. Repeated borrowing and refinancing results, Baker said, in a lot of public money being sunk into transaction costs and fees.
The 2016 financial audit shows signs of what looks like financial distress for the BASIS network’s charter school arm. It ended fiscal year 2016 with negative cash flow – a deficit of nearly $23 million, according to the audit.
That distress was caused by refinancing loans for better rates and resulting prepayment penalties, said DeAnna Rowe, head of the nonprofit organization for BASIS charter schools, who previously served as executive director of the state charter school board.
The National Alliance for Public Charter Schools is “agnostic” about how charter schools finance their growth, said spokeswoman Natalie Laukitis. “At the end of the day, what we say is a sign of progress is the results they get,” she said. “BASIS and other large networks have shown great academic results.”
Around the country, oversight of private companies that run charter schools largely doesn’t exist because the industry and state legislatures didn’t anticipate this level of privatization, said Miron of the National Education Policy Center. Laws were created to give an opportunity to educators and parents who wanted to start their own schools.
Education management companies shield charter schools from public scrutiny, he said. Records that would be subject to public disclosure for traditional public school districts, such as employment contracts, contract bids, communication between administrators and detailed financial reports, are held privately.
The service agreement between BASIS charter schools and their management company is a trade secret, according to an application BASIS filed with the state charter board last year to open another school in the Tucson area.
Board minutes on the authorization of a resolution for bond financing were redacted from that document. Details about BASIS’ education program, including what it calls “proprietary techniques, methods, processes and formulas,” also were not disclosed.
“Those things should all be public, especially things like curriculum,” said Jim Hall, a retired public school principal who now runs Arizonans for Charter School Accountability. “There’s nothing that should be secret about those sorts of things. That’s a complete lack of transparency.”
Hall spent more than two decades in Arizona public schools as a teacher and administrator and finds the discrepancy between disclosure requirements for public school districts and charter schools baffling.
In a district school, “there’s not a thing we do that is not open to public scrutiny,” he said. “Literally, we keep track of every candy bar we sell.”
Students left out
Onida Perkel spent hours pacing the Arizona State Capitol’s lobby while dozens of bills passed through the House floor. She’d shown up on an April morning this year to tell state legislators about how her experience with school choice had had devastating consequences for her daughter, Bree.
She had spent months trying to get BASIS Scottsdale Primary to provide special instruction services for Bree, now 11, who has attention deficit hyperactivity disorder and severe anxiety attacks. Sometimes, Bree couldn’t sit still or keep on task. Her mother said teachers often scolded her.
“I just was always sad,” Bree said of the two years she attended BASIS schools, when she had two or three hours of homework nightly. Without special education services, her anxiety attacks worsened.
Because BASIS charter schools are public, they must serve every student picked from a lottery. But parents say students with disabilities or limited English skills often are pushed out later because they can’t get specialized services. Others are deterred from even applying.
Data from the National Center for Education Statistics for the 2014-15 school year – the most recent available – shows only six English-language learners were enrolled at BASIS’ Arizona charter schools. But company spokesman Phil Handler says state data says differently: There were 28 – about 0.3 percent of all students enrolled in those schools, compared with the national average of 9.4 percent.
A spokesman for the national statistics center said the data reflects how states administer English-language learner program funds and not necessarily the exact number of students enrolled.
The average enrollment for students with disabilities was less than 2 percent across 15 BASIS charter schools for which data were available. That same year, 13 percent of all public school students in the U.S. received special education services.
BASIS charter schools are not a realistic option for some families because most do not offer free lunch or transportation. Its Washington, D.C., and Phoenix South campuses are the only ones that participate in the federally subsidized lunch program.
Peter Bezanson, the BASIS.ed CEO, said enrollment of students with disabilities or those who are learning English has improved in recent years, especially with BASIS’ expansion into primary grades across the country. It also has made efforts to open schools in low-income areas, including South Phoenix, and increase outreach to Spanish-speaking families.
BASIS does make curriculum modifications, Bezanson said. But it does it so that students “can reach our graduation requirements.”
“In other words, we might increase the amount of time or do something different with the math curriculum in middle school to better prepare them for calculus in high school,” he said.
The U.S. Department of Education’s Office for Civil Rights began investigating BASIS after a teacher filed a complaint in July 2014, alleging that she and others were told during mandatory training that BASIS does not modify its curriculum for students with disabilities.
On another occasion, the teacher was told that “students are failed/retained if they are unable to master their curriculum without modifications,” according to the complaint.
BASIS accepted a voluntary resolution agreement in 2015 in lieu of a full investigation. It agreed to submit its special education policies and drafts of in-service training materials to the Office for Civil Rights, among other things.
Onida Perkel’s daughter had a 504 plan, which by federal law grants modifications for students with disabilities. But her mother says she didn’t get any.
After Bree struggled for months, the Perkels pursued an individualized education program, a blueprint for a child’s special education under the Individuals with Disabilities Education Act, in December 2015. It turned out that Bree needed special instruction for math calculation and organizational strategies.
Under federal law, an initial plan must be in place within 60 days of the first meeting. But a state investigation found it took five months of sometimes heated exchanges between Perkel and school administrators before BASIS Scottsdale Primary signed off on Bree’s initial plan.
And a plan came together only after Perkel filed a complaint with the Arizona Department of Education. Its investigation found that the school had not provided a proper initial placement statement. As a result, BASIS was ordered to pay for compensatory services, and the school’s special education coordinator was required to attend a dispute resolution course.
By then, in fall 2016, Perkel had decided to transfer Bree to a district school, where she finally began receiving special education services.
“I think where I got to was, ‘I can’t do this anymore,’” Perkel said.
Selling a philosophy
The BASIS philosophy is that any child willing to work hard can succeed at a higher level.
“3rd graders can think critically, 6th graders can learn Physics, and High School students can read Critical Theory and Philosophy,” the network’scurriculum overview says.
That philosophy sells, as evidenced by its steady enrollment growth.Politicians, educators and others have pointed to BASIS as a model for public education. And BASIS’ academic results are above average.
To graduate, BASIS high school students must take at least eight college-level Advanced Placement courses and six AP exams. In 2016, BASIS students graduated with an average of 11.5 AP exams, according to the management company’s website, compared with a national average of about 1.8 among students who take AP exams. BASIS students also pass AP exams at much higher rates – about 84 percent, compared with the U.S. average of less than 58 percent.
Students in kindergarten through fifth grades must earn 60 percent or higher in their final grades for every subject to move on to the next grade. Starting in sixth grade, students must pass comprehensive school exams for all subjects, despite widely accepted research that holding students back has no proven benefit.
With the way the BASIS curriculum is set up, it makes no sense for a kid to move on to the next grade without having mastered the content of the previous one, Bezanson said. A student simply could not move on to precalculus without having passed algebra 2.
“That’s inhumane, setting the kid up for failure or setting up the school to be a joke,” he said.
Parents and educators have said BASIS pushes out underperformers that way, saying the fear of a child being held back can serve as a strong motivation for parents to transfer a child out.
Bezanson said the vast majority of parents and students who decide to leave the network leave because they want something different, whether that’s more time for club sports or less academic rigor. It’s no secret that the BASIS curriculum is tough, he said.
“People can choose to come to us because of who we are, and when people choose to leave us to go somewhere else, that’s a beautiful thing,” he said. “I mean, we want to keep as many kids as we can, but the key to the school choice movement is choice, and a student leaving us to go to another school has exercised that choice.”
At BASIS Tucson North, teacher Andrew Sterling’s fifth-grade daughter lasted just 10 weeks. That was in 2013. She desperately wanted to do well, her father said, but struggled almost immediately.
She was stressed and tired, Sterling said, and developed a urinary tract infection because she didn’t feel like she had time to use the bathroom between lessons.
“She snapped,” he said. “It was kind of like a circuit breaker.”
Disillusioned, Sterling transferred his daughter to a public school in their home district. When he went to unenroll his daughter, school administrators asked whether he was going to quit, too.
He told them that he’d stick around until the end of the school year – that was the right thing to do for his students. But he wouldn’t stay any longer than that. Disagreeing with the school’s pedagogy was one thing; seeing his own daughter suffer was another.
“There’s no doubt if you just look at the business of BASIS, it’s a success,” he said. “The question is whether parents are fully appreciating the problems that are underlying that model.”