Charter Schools’ Big Success? Accounting Tricks, Shady Land Deals, and Skimming Off the Top

Soon after declaring the first week of May "National Charter School Week," President Obama continued the push to open up public school districts—and their coffers—to non-union, privately run charter schools. Applications are due June 1 for the second round of his Race to the Top fund, which will reward states that jump on the charter bandwagon. But new reports about corrupt, profiteering charter operators across the country are making the president’s endorsement premature, to say the least.

Nearly every claim made by charter school proponents has come under fire in the last year. A major national study shows that test performance is on average no better in charters than in traditional schools; another report contradicts the stated “civil rights” mission of the charter movement, claiming that the schools are actually exacerbating racial segregation.

And now a third plank of the charter movement platform—that they provide a greater “bang for the buck” by avoiding waste and fraud—is starting to warp.

The claim has been touted by unelected school managers like Detroit’s Robert Bobb, who has set about dismantling the Detroit public schools while endorsing a private plan to set up dozens of charters in their wake over the next decade. (Legal challenges have slowed that train down).

While Detroiters watch the clock tick on his tenure, up in March 2011, Bobb collects a recently increased salary nearing a half-million dollars, paid in part by the pro-charter Broad Foundation. And that doesn’t include speaking fees for conventions in the suburbs to tout his fraud fighting “war stories.” He’s spreading district money around too, signing nearly every city high school over to private “education management organizations,” and setting aside $40 million for an out-of-town consultant team to carry some hatchets. Bobb’s promised to close 45 schools on top of the 29 he shuttered last summer—and thousands of teacher layoffs loom. The district’s deficit, which he was appointed to fix, has grown since his arrival.

Bobb’s case for expanding charter schools in Detroit is being undermined nationwide. In the last month, reports of corruption, fraud, and profiteering by charter schools in Ohio, Philadelphia, Denver, New York, and New Orleans have uncovered dozens of loopholes, accounting tricks, and outright skimming by self-described "edupreneurs."

PHILADELPHIA

In April, Philadelphia’s City Controller released some unflattering details during an investigation into 13 of the city’s 63 charter schools—which collect a total of $294 million a year in public dollars. The 94-page report shows charters gone wild, with little oversight from the school district’s Charter Schools Office (CSO).

"Independent" audits, often done by firms handpicked by the charter operator itself, kept much of the spending under wraps. School credit card bills show charter executives living high on the hog, with daily charges at fine restaurants. One item in excess of $30,000 points to a beach resort where there was, incidentally, no conference on education reform taking place.

The CSO meanwhile has been asleep at the wheel, and a review of its records shows missing vital documents about the terms of agreement with various schools. It was not reviewing charter schools’ financial disclosure statements yearly, as required by law. As a result, says the report, "charter schools were conducting operations and using public funds in ways that were highly susceptible to fraud, waste and abuse."

To distance themselves from public oversight, however weak, several schools set up associated non-profits to handle school leases. In one case both entities were run by the founder of the charter school. These companies also invested in real estate deals that turned public school money into private stash. Five such "associated" entities upped their total assets from $28 million to $44 million between 2003 and 2008—assets, says the report, "controlled by nonprofits with no accountability to the school district or taxpayers."

The CSO has no records of leasing arrangements on file and "is not monitoring charter school facility leases, has no policy concerning leasing agreements, how the leases are negotiated, how fair market value is established, nor who is involved."

Unelected charter school executives pay themselves handsomely—some collecting multiple salaries—on average $10,000 above those of district administrators. The 10 highest-paid charter CEOs investigated were making an average salary of $175,246, which is $40,000 higher than the average for nine assistant superintendents in Philadelphia schools.

The city is under a gathering cloud of scrutiny, including a growing federal investigation that began at Philadelphia Academy Charter School and has spread to 18 other city charters. The city controller’s report adds other charter outfits to the suspect list—several of which have signed up for the state’s "Race to the Top" application. If Pennsylvania wins in June, nine schools under investigation would divvy up somewhere between $1.2 million and $1.6 million.

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State legislators drafted a law this month that would tighten the rules for operators of Pennsylvania’s 135 charter schools—67 of which operate in Philly. Charters would undergo yearly audits, done by truly independent entities, and administrator salaries would be made public. Parents would have legal means for removing unelected charter school board members.

OHIO

In Ohio, the country’s largest for-profit charter company, Imagine Schools, only spends 40 percent of the state funds it receives on classroom instruction, according to a May report by an Ohio research group called Policy Matters.

Though for-profit entities are not allowed to set up schools in Ohio, they can secure management contracts. A third of the state’s charter schools have contracted out to for-profit managers, and the results haven’t been pretty.

With less than half of the $116 million it receives in public funding money getting to the classroom, Imagine schools are failing miserably. None of its schools met federal "Adequate Yearly Progress" goals in 2009. And of the six schools old enough to get ratings from the state, five received an “F” last year.

Charter companies are good at something, though: making a quick buck on land deals. Imagine has the game down to a science. Its subsidiary, Schoolhouse Financial, buys, renovates, and leases school buildings for use by non-profit charter schools. Then they’ll sell these properties to "real estate investment trusts" and lease the buildings back from them—while subleasing to the school.

The set-up is not designed for easy bookkeeping but it has, says Policy Matters, allowed Imagine "opportunities for profit, both at resale and as it collects rent." The report reveals that during the 2008-09 school year alone, Imagine schools reaped $38.5 million in profits.

The company’s rightwing CEO, Dennis Bakke, left the energy sector for the big money five years ago. Since founding Imagine, Bakke (a member of the notorious rightwing Christian club in D.C. called “The Family”) has amassed $400 million despite having no background in education.

How has this happened? For one thing, the state government itself is overrun with subcontracting and conflicts of interest. The Ohio Department of Education entrusts oversight of charter schools to a group of authorizers charged with keeping an eye on a school’s academic and financial status. Those sponsors include a range of non-profit entities, including St. Aloysius Orphanage, which is charged with overseeing seven schools run by Imagine. But St. Aloysius pays a private company instead, Charter School Specialists, to do the job. The company—run by a former state Board of Education official—is also under contract with Imagine to provide financial services.

At several Imagine schools, the company takes 12 or 13 percent of state funds off the top for “administrative fees,” to be paid in monthly sums by the charter school. A monthly “development” fee is charged at the outset of a project. Connecticut schools denied the company entrance as a result of such terms.

Imagine's not alone, either. Last week, several more Ohio charter schools sued White Hat, the state's largest for-profit management outfit for alleged corruption

Rest assured, though—the charter movement is in it for the children. The reformers just want to give parents a choice, they say.

But mounting evidence shows charters are just another bad option, while draining precious resources from existing schools. Freed from the “bureaucratic confines” posed by elected school boards, organized teachers, and concerned parents, charters are running wild all the way to the bank. And they’re returning to the federal trough for another Obama giveaway to states that set up the most charter schools in the shortest time.