Mercedes Schneider thinks she has figured out the BASIS financial model by studying its tax returns over the years. She writes that it’s owners, Michael and Olga Block, keep expanding because the chain needs more revenue.
She goes through the BASIS returns year by year. Every time they open a new school, they get more revenue—and more debt.
“That seems to be the secret to its financial sauce: Use the revenue generated from opening new schools to make money while forestalling the crash of snowballing debt.”
She writes:
“What do you call an investment where you have to keep bringing in more investors?
“A fraud.
“Consider the following from Investopedia regarding pyramid schemes:
The process continues until the base of the pyramid is no longer strong enough to support the upper structure, and there are no more recruits.
“The problem is that the scheme cannot go on forever….
“The fraud lies in the fact that it is impossible for the cycle to sustain itself….
“In the case of Basis schools, Michael and Olga Block cannot go on opening new schools ad infinitum.
“If they are dependent upon opening new schools (as they seem to be), they are setting up all Basis schools for financial collapse.
“Basis Schools:
“$274 million in long-term debt as of June 30, 2017, according to its FY 2017 audit.”
Diane Ravitch's blog 
It’s kind of a cross between a Pyramid Scheme and a Ponzi Scheme. Either way, it’s built on sand and you know what happens to beach front property in a Hurricane. I see a storm on the horizon for these Charter chains.
Lisa M., I was kind of thinking that BASIS sounds like the educational equivalent of Amway, another pyramid scheme.
Betsy DeVos must love BASIS, since it’s similar to her family’s pyramid scheme.
You do know that the Supreme Court ruling on pyramid schemes is also called “The Amway Law”?
Didn’t know that. I love it!
“Of bases and BASIS”
The basis of the BASIS
Is pyramidal form
Where nothing is in stasis —
Eternal growth’s the norm
AS usual this analysis of 990 tax forms offers insights hard to come by other means. Mercedes is not intimidated by these forms
On a related development, the charter industry is also complaining about slower rates of expansion. This is from a previous post.
An April 2018 report, based on a study funded by the Thomas B. Fordham Institute, Michael & Susan Dell Foundation, the Walton Family Foundation comes just as there are other reports of some slowing of charter school growth nationwide, and a concurrent promotion of the idea that charter expansion into the suburbs is needed. The promotion build on the idea of charter school deserts.
What is a charter school desert? According to the lead author of a study, Andrew Saultz from Miami University, there are charter school deserts all over the US. The study, with state-by-state reports on charter elementary school deserts draws on data from the GreatSchool.org website (2014-2015) and US census tracts identified by poverty levels of the population.
Charter school deserts are formally identified as “areas of three or more contiguous census tracts with moderate or high poverty and no charter elementary schools.” In a low poverty tract, from 0% to 20% of the population lives at or below the poverty line. In moderate poverty tract, from 21% to 40% of the population lives at or below the poverty line. In a high poverty tract, 41% to 100% of the population lives at or above the poverty line. These three thresholds of poverty have been color-coded onto maps for each state and major metro areas.
The report says that the maps in the report are “visual approximations” of the areas where “parents, policymakers, and educators with information about which high- and medium-poverty communities do not have access to charter schools today. These groups can use our findings to better understand the supply of schooling options in their states and cities and perhaps press for changes that would improve that supply. Likewise, charter operators and authorizers will find the data helpful as they consider where to establish new schools” (p. 3).
Among the caveats for the whole project (p. 33) are these:… Although we focus on school locations, location alone is insufficient to ensure that families have viable access to schools. Nearby schools may not be available to families if they’re filled to capacity, if policies prohibit transfer, or if transportation is unavailable. …Some rural areas may lack charter schools simply because the population is too thin to support them. …Our report does not address school quality, but the companion website allows users to view schools’ math and English language arts proficiency data. Finally, visually identifying charter school deserts is inevitably vulnerable to human error, as they may be identified differently based on how contiguous census tracts are positioned and how “desert circles” are drawn.
The whole report is actually designed to flex the definition of poverty and aggrandize the need for charters in suburbs and other geographies. The authors assume that charters are inherently better and entitled to take students from public schools. These aims are explicit.
“First, the charter sector needs to move beyond city boundaries. We urge charter management organizations, other school operators, and philanthropies and organizations that boost, assist, and encourage charters, to widen their gaze and consider opening schools in places that haven’t yet been on their radar but whose residents deserve more options.” [Notice the pitch to foundations for money].
“Second, we must address the policy and practical barriers in some states that keep charter schools from locating where they are needed. In short, if disadvantaged families are increasing in number outside the city, so should the number of philanthropists willing to support them there. We also need elected and appointed officials to adopt more supportive charter school policies, including those that allow these innovative public schools of choice to locate anywhere in the state” (p.7, 21). [The report is really a pitch for unlimited geographic expansion within a state, no need to rely on poverty after all, choice is the thing and charter schools are “innovative”].
The report also continues the myth that charter schools are underfunded and complaints that charters have a problem with financing facilities and transportation (p. 22).
The maps are created with this software, normally used to address poverty bot to capitalize on it. https://www.researchgate.net/publication/284162786_Poverty%27s_place_the_use_of_Geographic_Information_Systems_in_poverty_advocacy
https://edexcellence.net/articles/new-report-charter-school-deserts-high-poverty-neighborhoods-with-limited-educational also
https://www.the74million.org/article/bradford-the-politics-partisanship-of-americas-education-reform-debate-time-for-a- suburban-strategy/
Sounds like how Trump got “rich”.
Maybe some nice ed reform billionaire will bail them out just like the Russians bailed out Trump.
I sure hope the citizens of this country WAKE UP or our name will be permanently AMERI-DUH.
So this is kind of interesting – is this charter chain a pyramid scheme – opening a new school increases money coming in while attrition through the years means that only the best if the best (AP test material) actually graduate….
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Success Academy doesn’t need to grow to get more money, it regularly gets multimillion dollar gifts from hedge fund executives like Dan Loeb, John Paul Singer, and Julian Robertson ($25 million from him alone).
By the way our extradition treaty signed between the U.S. and Czechoslovakia expired in 2015.
I would like to see a similar deep dive into tax records for Gulen and Success Academy. Continuous expansion seems to be their model as well.
Charter schools are a racket closely resembling Ponzi’s model: when they cease growing, they collapse.
They probably took a page from Trump’s business book of fraud. Even when Trump was going bankrupt in some of his business ventures, it was the corporation that was going broke, not Trump because he was paying himself millions and giving himself annual raises as the CEO of a business building a mountain of debt until it went bankrupt costing investors and banks hundreds of millions.
But Trump walked away with more money in his bank account than when he started that failed venture.
Trump survived on about $800 million in corporate welfare and about $1 billion in defaulted loans through his corporate bankruptcies. To be clear, Trump has never filed bankruptcy in his own name. Each of the six bankruptcies was all corporations that he owned and/or controlled. Incorporating a business creates a buffer so the individual that owns or controls the corporation doesn’t get financially burned when it sinks.
That’s why all the tech interlopers file an LLC for their villainthropyl
There are charter schools, both chains and stand-alone schools, which deliver a bad education and are in it for a buck — which is to say, frauds. I have concerns about those.
I am not concerned with a chain that has a) been around for 20 years, B) hasn’t seemed to change its educational philosophy in those 20 years, and C) has been objectively successful at educating kids for those 20 years. I mean, BASIS claims to be great. We continue to doubt them. Yet outside assessment continues to show it is, year after year, even while expanding. Doesn’t sound so Ponzi !
You know who expands, besides Ponzi schemes? Successful institutions, responding to demand. ¯_(ツ)_/¯
I oppose the very idea of corporate charter chains, taking the place of democratically controlled public schools.
BASIS is a chain of elite schools for elite students.
I’m with you on quite a lot, Diane, and respect you greatly. But I have to (respectfully 😉 ) disagree with you on this.
I love the idea of great schools. We need more great schools, like BASIS. Not fewer.
I realize that BASIS’s excellence comes from an academics-focused model may not be great for every child; I’m okay with that. Harvard isn’t great for every child, either. Same for Missouri-Columbia, or TCU, or Pasadena City Community College. If kids can’t get what they want/need from the curriculum in their public schools, I am okay with them trying to get it from public charter schools.
I say that as a blue-bleeding, former union member, lifelong lefty Democrat who was shouting my own “liberal” label when it was a frowned-upon word!
I just want more great schools. In education, one size does not fit all.
Has anyone looked into whether retention would actually benefit these schools financially?