This is an important article by three scholars. Derek Black of the University of South Carolina, Bruce Baker of Rutgers University, and Preston Green of the University of Connecticut. Please open the link to read it all.

 

https://theconversation.com/charter-schools-exploit-lucrative-loophole-that-would-be-easy-to-close-111792

 

While critics charge that charter schools are siphoning money away from public schools, a more fundamental issue frequently flies under the radar: the questionable business practices that allow people who own and run charter schools to make large profits.

Charter school supporters are reluctant to acknowledge, much less stop, these practices.

Given that charter schools are growing rapidly – from 1 million students in 2006 to more than 3.1 million students attending approximately 7,000 charter schools now – shining a light on these practices can’t come too soon. The first challenge, however, is simply understanding the complex space in which charters operate – somewhere between public and private.

Unregulated competition

Charters were founded on the theory that market forces and competition would benefit public education. But policy reports and local government studies increasingly reveal that the charter school industry is engaging in the type of business practices that have led to the downfall of other huge industries and companies.

Charter schools regularly sign contracts with little oversight, shuffle money between subsidiaries and cut corners that would never fly in the real world of business or traditional public schools – at least not if the business wanted to stay out of bankruptcy and school officials out of jail. The problem has gotten so bad that a nationwide assessment by the U.S. Department of Education warned in a 2016 audit report that the charter school operations pose a serious “risk of waste, fraud and abuse” and lack “accountability.”

Self-dealing

The biggest problem in charter school operations involves facility leases and land purchases. Like any other business, charters need to pay for space. But unlike other businesses, charters too often pay unreasonably high rates – rates that no one else in the community would pay.

One of the latest examples can be found in a January 2019 report from the Ohio auditor-general, which revealed that in 2016 a Cincinnati charter school paid $867,000 to lease its facilities. This was far more than the going rate for comparable facilities in the area. The year before, a Cleveland charter was paying half a million above market rate, according to the same report.

Why would a charter school do this? Most states require charter schools to be nonprofit. To make money, some of them have simply entered into contracts with separate for-profit companies that they also own. These companies do make money off students.

In other words, some “nonprofit” charter schools take public money and pay their owners with it. When this happens, it creates an enormous incentive to overpay for facilities and supplies and underpay for things like teachers and student services.

Millions of public dollars at stake

The Cincinnati and Cleveland charters are prime examples of this perverse incentive structure. In both cases, the Ohio report showed, the charters were leasing property from the subsidiaries of the charter school operators.

In fact, these and other similar subsidiaries were leasing facilities to several other charters in the state. These charters spent twice as much on rent as others in the state.

Thomas Kelley, a law professor specializing in nonprofit law, unearthed similar problems in North Carolina, where charter school management companies obtain “ownership of valuable properties using public funds” and then charge the nonprofit charter schools rent far in excess of what is necessary to cover the cost of acquiring and maintaining the facilities. Because of the self-dealing, he questioned whether the charters actually qualify for nonprofit status under federal law.

The windfalls from these self-dealing practices can be sizable. In Arizona, Glenn Way, a former state legislator, has made about $37 million selling and leasing real estate to a chain of charter schools that he founded and, until recently, directed as chairman of the board, according to local reporting.