Marian Wang of ProPublica reports on a curious phenomenon in the charter sector: “nonprofit” charters that are run by for-profit corporations.
“A couple of years ago, auditors looked at the books of a charter school in Buffalo, New York, and were taken aback by what they found. Like all charter schools, Buffalo United Charter School is funded with taxpayer dollars.
“The school is also a nonprofit. But as the New York State auditors wrote, Buffalo United was sending ” virtually all of the School’s revenues” directly to a for-profit company hired to handle its day-to-day operations.
“Charter schools often hire companies to handle their accounting and management functions. Sometimes the companies even take the lead in hiring teachers, finding a school building, and handling school finances.
“In the case of Buffalo United, the auditors found that the school board had little idea about exactly how the company – a large management firm called National Heritage Academies – was spending the school’s money. The school’s board still had to approve overall budgets, but it appeared to accept the company’s numbers with few questions. The signoff was “essentially meaningless,” the auditors wrote.
“In the charter-school sector, this arrangement is known as a “sweeps” contract because nearly all of a school’s public dollars – anywhere from 95 to 100 percent – is “swept” into a charter-management company.
“The contracts are an example of how the charter schools sometimes cede control of public dollars to private companies that have no legal obligation to act in the best interests of the schools or taxpayers. When the agreement is with a for-profit firm like National Heritage Academies, it’s also a chance for such firms to turn taxpayer money into tidy profits.
“It’s really just a pass-through for for-profit entities,” said Eric Hall, an attorney in Colorado Springs who specializes in work with charter schools and has come across many sweeps contracts. “In what sense is that a nonprofit endeavor? It’s not….”
“In Michigan, where NHA is the largest charter-school operator, state education regulators have voiced similar frustrations about the degree to which these private firms are shielded from having to answer to the public about how money is spent.
“I can’t FOIA National Heritage Academies,” said Casandra Ulbrich, Vice President of the Michigan State Board of Education, referring to the right to request public documents from public agencies. “I don’t know who they’re subcontracting with, I don’t know if they’re bid out. I don’t know if there are any conflicts of interest. This is information we as taxpayers don’t have a right to.”
“Last year, Ulbrich and the State Board of Education had called for more transparency to be brought to the financial dealings of charter-management firms. They specifically asked the legislature to outlaw sweeps contracts. “Unfortunately,” Ulbrich said, “it fell on deaf ears.”
Do taxpayers know that they are funding for-profit corporations that are not subject to public audit?
“If you have information about charter schools and their profits or oversight — or any other tips — email us at charters@propublica.org.”
Diane Ravitch's blog 
This can’t be true, Diane. I’ve been assured repeatedly that “progressive” states like NY allow only non-profit charters.
No one could have predicted that a contractor would set up a non-profit entity to comply with the state statute and receive funds and then “sweep” all the revenue to what are essentially for-profit subcontractors.
That’s unimaginable and a conspiracy theory. Never happens.
I think they have another way around it, after this is exposed. A for-profit can set up a “not for profit” entity and go the other way around. That’s what I’d try 🙂
Chiara,
Some for-profits were grandfathered in in Néw York, like National Heritage Academies, which was called out by the State Comptroller for renting a building from the Diocese of Brooklyn and charging the state far more thanarket rate in rental. The market rate was $1.8 million. NHA charged $2.6 million.
We also have nonprofits that pay unbelievable compensation to executives, not to teachers.
I agree. “Non profit” isn’t my measure of anything. I don’t think it means anything, all by itself, other than under the tax code. I think you’d have to look at where the revenue goes.
Ohio just deregulated the staffing requirements for public schools. That’s what the “5 of 8*’ rule was: it’s a staffing regulation. I think that was in response to the fact that charters weren’t meeting the public school staffing standard. It’s a race to the bottom, and it’s sucking in public schools.
““Non profit” isn’t my measure of anything. I don’t think it means anything, all by itself, other than under the tax code. I think you’d have to look at where the revenue goes.”
There are some very significant aspects of that tax classification. For-profit corporations can have shareholders, can be bought and sold, can distribute excess revenue to shareholders, can engage in any business for any purpose, and are run for the benefit of the corporation itself and its owners. Do you really think none of that means anything? It’s just a technical distinction without any practical significance? I have to disagree.
The overwhelming majority of New York’s charter schools, 90% or more, are either independent or are managed by a non-profit CMO. As of a 2010 amendment to the state’s charter school law, new charters are prohibited from contracting with for-profit management. The handful of charters with for-profit management tend to be very low-performing and are at a high risk of non-renewal.
I’m sure it’s just an innocent oversight that led to this important context being left out of the article.
Kinda seems like NY has been having a few too many “innocent oversight[s]” lately when it comes to charters, IMHO.
Tim, I live in Michigan where the market is dominated by for-profits. Also, having a law and enforcing the law are very different things.
The Morrigan, it’s regrettable that the Regents didn’t discover themselves that Ted Morris’s resume was fraudulent. It’s even more worrisome that they believed the board he put together was strong enough to run a school. But the school isn’t opening and it didn’t receive a dime of taxpayer money, largely because the process is so transparent that even a blogger in Louisiana can access all aspects of a charter school’s proposal with just a few mouseclicks.
Steve, while some laws aren’t enforced or are difficult to enforce, this isn’t one of them.
Tim, it isn’t a question of difficulty. It’s a question of will.
“Tim, it isn’t a question of difficulty. It’s a question of will.”
I don’t follow, Steve. Are you saying that New York authorities are not enforcing the NY state law that prohibits charter schools from contracting their management out to for-profit corporations? I’ve never heard that assertion before.
Steve, if a charter wants to contract with a non-profit management organization (and it bears repeating here that about half of the existing charters in NY do not), it has finalize all terms and fees with the CMO before receiving the charter, or any renewals. The authorizer has to approve any management changes that occur at any time. Furthermore, most of the CMOs in New York are part of a network: Success, Uncommon, Achievement First, etc. (I’m not certain, but I actually don’t think there are any “freelance’ CMOs).
Perhaps I am underthinking this, but I don’t see where the “will” is missing.
The Detroit Free Press just did an article about NHA schools doing the same thing here in Michigan.
http://www.freep.com/story/news/local/michigan/2014/12/14/charters-national-heritage-academies-tax-dollars-school-contents/20357559/
I might add that NHA bought an entire week of advertising for the online Free Press last summer when they did their charter series. An entire week. That’s a lot of money for advertising. Wonder where that came from?
I think we should also go after sponsors in Ohio and Michigan. Ohio sponsors get a 3% cut of revenue and they also sell services to charter schools. I know Michigan sponsors get a cut too. What are they doing to earn the 3%? They surely aren’t regulating these schools.
Besides the CLEAR conflict there, In some of these situations we’re paying public entities (like a public university) to privatize public K-12 schools. I object to that. I’m not funding public colleges so they can create a revenue-generating “portfolio” of privatized K-12 schools.
Ah, yes. This is what I argued about status and integrity of charters not so long time ago. It so easy for any individual brokers or businesses to enter education market under the name of non-profit especially when the system is administered by those who have secret ties with ed reformers or ALEC-affiliated politicians. Its kind of like having whalers going off shore as far as the Antarctica under the name of SCIENTIFIC RESEARCH for hunting whales for commercial business.
I don’t think we’ll ever see any regulation of this. The USDOE just brokered a bail out of a for profit college that involved a student loan servicer creating a nonprofit entity to buy the colleges:
“The U.S. Department of Education announced its support today of an agreement between ECMC Group and Corinthian Colleges Inc. for ECMC Group’s newly formed nonprofit education entity, Zenith Education Group, to acquire 56 Everest and WyoTech campuses for transition to nonprofit status”
You can do a ton with “nonprofit” “for profit” and “not for profit” legal designations and pass throughs. “Non profit” will eventually become completely meaningless because you’ll need a team of accountants to decipher if it’s ACTUALLY “non profit” or just a non profit shell covering creamy profit nougat 🙂
http://www.ed.gov/news/press-releases/us-department-education-supports-nonprofit-education-groups-intent-purchase-maj
Ready to copy and paste tweet that leads back to this post.
When Charters are Nonprofit in Name Only
“nonprofit” charters that are run by for-profit corporations
#EdBlogNet
http://wp.me/p2odLa-9cA
These poll results are terrible for ed reformers. It’s “What Americans Want from Democrats on Public Education”
“Increase the number of charter schools” polls at 36%
Even with the giant, coordinated media push to end teacher tenure it only polls at 41%
It’s just one poll but I now understand why they haven’t been trumpeting it 🙂
Democratic voters are not that fond of anti-labor privatizers, turns out, according to this poll 🙂
http://scholasticadministrator.typepad.com/thisweekineducation/2014/12/what-americans-want-from-democrats-on-education-third-way-fresh-thinking-1.html#.VJHESHtOxf0
Are they (terrible)?
–[B]y 23 points, Americans agree with this statement: “Teachers should be hired, fired, and promoted based on their students’ performance, not seniority.”
–By a spread of 32 points, voters say they would be more likely to vote for a candidate who said “modernizing the teaching profession is the best way to improve student learning” (58%) to one who says “we cannot fix our schools until we fix our poverty problem” (26%). Teachers concur, 49% to 28%. So do Democrats, 49% to 34%. And Millennials agree 62% to 29%.
–9 in 10 Americans, along with two-thirds of teachers, believe that hiring and firing decisions should be made “based on a teacher’s performance in the classroom, not seniority.”
–By ten points, voters want to increase the number of charter schools. However, teachers oppose charters by 43 points.
http://www.thirdway.org/polling/product/what-americans-want-from-democrats-on-education
(As an aside, the conservatism of Milliennials appears to be a very real, sustained “thing,” with interesting implications for education and public policy in general.)
Tim, I won’t debate those results but I would say that when I went to the website and read the linked article, those were very simple statements. If people had to see how that sausage would have to made, they may have different opinions.
For example, charters are promoted as “school choice.” But how many of those polled have the depth of knowledge on those charters that might influence how they felt about that?
Performance instead of seniority: I mean, yeah, that sounds great. Of course, they are not asked to define what makes for good performance. I was on the teacher evaluation committee in our district and that is a hugely complicated question.
So I believe those results but I do believe that if people were asked to define what was meant by “performance” they would have wildly different or incredibly basic definitions.
For example, I think universal health care is a great idea. I don’t know what would make it work well, but hey, it’s a great idea.
Tim, your poll shows how Americans have been bamboozled by a propaganda campaign that is terrible for kids, schools, and teachers. No other nation–at least none of those that have successful school systems–are judging teachers by their students’ test scores.
Tim,
The Gallup poll shows different results.
Tim,
The 2014 Gallup poll show a majority critical of standardized testing–and a dramatic decline in proportion who think teachers should be evaluated by student scores: from 61% to 38%. https://dianeravitch.net/2014/09/20/what-the-pdkgallup-poll-says-about-teachers-not-good-news-for-tfa/
I think part of the problem with the survey is the small sample, a little over 800 people polled. Overall, the public has a distorted view of some of the issues in public education. Some of the distortion stems from the last decade or so of relentless attacks from monied groups that want to make a profit by taking over public schools. They have used their considerable wealth and access to media to sell the message that public schools are failing due to unions protecting incompetent teachers. This narrative has been repeated over and over so many people start to believe it has to be true. This technique is a common propaganda tactic of conservative ideologues..
Many people seem to support the notion of merit pay for teachers. However, the current system of teacher evaluation is in chaos due to the insistence of value add with a formula that doesn’t work and the Common Core, a rigged test and a cut score designed to fail over two thirds of the students. How can anyone trust a system that has become so politicized? Supporters of public education have to continue to work to get the truthful message about public education out to the public. While public schools are far of perfect, it makes a lot more sense to work to improve them than throw the baby out with the bath water. The loss of public education would have far reaching implications for the future of what is left of our democracy.
Diane, this isn’t “my poll;” it is a poll that commenter Chiara indirectly linked to and whose results she said reflected bad news for “reformers.”
There is obviously some tension, reflected both in this poll and the Gallup poll, between the public and teachers as to how schools should be run. I find it a bit disappointing (but I guess predictable) that these differences are always sloughed off: people are dupes, the poll questions were phrased misleadingly, etc.
Is it really that impossible to understand that something like LIFO might be an unappealing or even offensive concept to the average American?
Tim,. the graph they put out says the opposite of the PR release. It has charters DOWN by ten points, not up.
Vouchers actually beat charters, according to the graph.
You can’t just say “non profit EMO” either. You CAN but it doesn’t mean anything.
You’d have to look at each school and see where the revenue goes. If it passes thru a nonprofit EMO and into for-profits it’s nonprofit in name only. That’s part of the point of the piece.
“You can’t just say “non profit EMO” either. You CAN but it doesn’t mean anything. . . . . You’d have to look at each school and see where the revenue goes. If it passes thru a nonprofit EMO and into for-profits it’s nonprofit in name only. That’s part of the point of the piece.”
I may be missing something obvious, but I thought the piece is about nonprofit *schools* that hire *for-profit* management companies, and that this arrangement can effectively make the nonprofit *school* a “nonprofit in name only.” I didn’t see anything in the article about funding flowing from nonprofit schools to nonprofit management companies and then into other for-profit management companies.
What is represented in the graphic and what is in the write-up regarding charters are two different things.
The graphic represents the increased/decreased likelihood a respondent would vote for a politician who pledged to increase the number of charter schools. 49% said they’d be less likely, 15% said no change/don’t know, and 26% said they’d be more likely.
When asked simply whether they’d like to see an increase in charter schools, 47% supported (26% strongly), 37% were opposed, and 17% (I guess it’s off due to rounding) had no opinion.
“When asked simply whether they’d like to see an increase in charter schools, 47% supported (26% strongly), 37% were opposed, and 17% (I guess it’s off due to rounding) had no opinion.”
I think that’s right, but I will confess that I had to read it from you before I could see it at all. The presentation of that survey’s results is simply atrocious.
I read this survey as implying that most of the respondents who had no opinion about whether the number of charter schools should be increased were less likely to vote for a candidate who pledges to increase the number of charter schools. “If that jerk thinks that the thing I don’t have any opinion about is a good idea, then I’m voting for the other guy.”
All of the education non-profits are paying hefty salaries to their administrators, at the expense of the children and the teachers, of course. Look to TFA, with a $400,000 salary to Wendy when she was top chief; look to TNTP; look to Michelle Rhee’s salary when she was heading Students First. Look at Eva Moskowitz. Have you heard of New Leaders? Is this non-profit new to the game or slipped past the radar? I never hear anything about it, until the recent closing of NY’s TFA location. Tell you one thing about the rich; they sure know how to jump through every loophole and enrich themselves further.
The NFL is also a non-profit. I think the term ‘non-profit’. as far as what the average person expects of a non-profit, is meaningless.
That statement deserves a little more context, which the folks at Snopes have helpfully provided: http://www.snopes.com/politics/taxes/nflexempt.asp
Thanks for that – I found it helpful. Especially this part:
“Letting the NFL operate tax-free makes a mockery of the entire concept behind nonprofits, which is that we should give a special break to organizations that do the useful, unprofitable work normal corporations won’t.
The problem is that the NFL should never have been considered a trade association in the first place. Love or hate the lobbying they do in Washington, trade groups are supposed to work for the benefit of entire industries, and be open to any business in that industry that would like to join. If you own a butter-making factory, then by God, you can pay dues and become a member of the American Butter Institute. The NFL, in contrast, operates a legally sanctioned sports cartel. It’s not in the league’s interest to let in more teams, because that could hurt the value of existing franchises.
If NFL executives were out lobbying on behalf of college football teams or arena football, we might have a different story. But they’re not. The league office is the enforcement wing and rule-making body of a profit-making operation. The same goes for leagues like the NHL, which exist for the express purpose of excluding competition.
The deeper issue at play here is that nonprofits exist to do things for the public good — things that for-profit companies generally don’t do. That’s why we give nonprofits a break from the IRS. And it’s why the government should be stingy about which kinds of organizations count and which don’t. We know that sports leagues won’t suddenly disappear if we treat them like normal corporations and ask them to pay, at most, a few million dollars to the government. Major League Baseball certainly hasn’t gone anywhere. The NFL won’t either.”
That passage objects very specifically to the concept of a non-profit that seeks to eliminate any form of competition (and which enjoys anti-trust exemptions), not the idea that non-profits might have assets or pay high/competitive salaries (see: universities, cultural and religious institutions, NGOs, etc.).
I am aware of that. I still do not understand why any part of the NFL (or any other professional sports organization) has non-profit status. Many people believe nonprofit=altruistic/charitable organization and that is where I think the misunderstanding arises.
I believe the original rationale was that it’s a business/trade organization.
So-called non-profits (run by so-called reformers) funneling cash to for-profit CMOs, aka bait and switch…
….or fraud
It is corporate style money laundering. A forensic accountant should take a look at the process. I am sure the corporations are looking for every tax avoidance scheme possible.
Have you finished proofreading and editing Beth’s piece yet?
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““I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” Maya Angelou – The world lost a great person with her passing.
To answer your question: NO!
Reblogged this on 21st Century Theater.
Because the topic is charters I have to say that rather than keep my child in a public school program where there is limited ability to provide individualized education I would not hesitate to transfer my child to a charter if they could make learning exciting and rewarding for my child. Currently my child is not fond of school which deeply disturbs me. Due to the restrictions placed upon his teachers by the test the classroom environment is dull and stale. This is not good for my child who is highly imaginative and whose interests lean toward the arts. Should I hang on in an effort to support our weakening public school system and allow my child to lose all interest in learning . I can’t allow my son to be a casualty in the war to save our public schools. It goes against my instinct as a mother. We are currently looking at alternatives which include, charter, private and homeschooling. I will say prior to this crazed new emphasis on the test we had for the most part a rewarding experience at his public school. I valued very much the socialization aspect of it and his opportunities to meet a variety of kids from different racial and economic backgrounds. He socialized very well and had lots of friends. I too was able to meet a wide array of mothers from different backgrounds which I benefited from intellectually and as a social support network. We will miss the variety , quirkiness and soul of the public school but we will not miss the boring handout assignments and lack of creativity. Charters as I see it are a necessary evil if that is what you want to call it. My generation views charters as the next evolutionary stage of education. I am saddened and worried like Diane that this could be a detriment to our public schools but the silver lining might be in that it will help reduce class size at public schools so kids who really need extra assistance will get it. It’s complicated but I must put my child first and for now it means leaving behind public education.
roxanne,
I will say to you what I wish someone had said to me – please think again before rushing in to a charter. I have seen and experienced the kind of heart-rending disruption that happens when you are lied to by charter operators who are really in it for their long game – a ridiculously big salary,-CEO’s paying themselves over $250,000 a year for any generation is an absurd amount of money, especially for a “non-profit”. Think about it- your child or someone’s $250,000 salary- which do you think they will put first? Just one of the reasons the charter system is so very, very corrupt.
Charters are not necessary, not now nor have they ever been. I don’t know anyone who sees this as the next evolutionary stage of education, in fact, I see charters trying to lie about being charters. Now they’re taking the charter out of their names and getting themselves designated as “other educational centers” and other methods of hiding their identity. My guess is If you knew the absolute truth about the charter you’re considering, you would walk away. I know I would have. As far as the testing, they have to do it too, and charter pushers are the ones behind it.
Whatever option you choose, at least know who you are entrusting your child to, and what their motivations are. If a quarter of a million dollar salary for the CEO of your charter school is in the equation, ultimately your child will either help or hinder them in getting paid, period.
You may think you are putting your child first, but they will put their money first. And happily use your free labor in mandatory volunteer hours to do it. Someone in a sales job (charter CEO?) who takes an enormous inappropriate salary from the money that tax-payers pay to educate our children clearly has the instinct to put money first.
At least check Guidestar.org for info on your non-profit charter if it is non-profit.