The mainstream press in Ohio is starting to take a closer look at charter schools, many of which are money pits for big donors to Governor John Kasich and the legislature.

The Akron Beacon-Journal published a remarkable, three-part series on charters, looking closely at the peculiar financial operation of the for-profit White Hat management company.

In this article, the reporter discovered that most charters won’t tell anyone who is in charge.

Journalists learned that most charter schools will not provide basic information. They are neither transparent nor accountable.

“The calls were made as part of a school-choice project by the Akron Beacon Journal and the News­Outlet, a consortium of journalism programs at Youngstown State University, the University of Akron and Cuyahoga Community College.

“In a phone-call blitz that began in early January, students in the journalism lab called 294 of Ohio’s 393 charter schools in operation at the time, seeking basic information:

“• Who runs the building?
• Who is that person’s supervisor?
• Who is the management company in charge?
• How does one contact the school board?
• When does the board meet?

“Public accountability was difficult. Of the 294 called, the results by March 26 were:

“• 114 — more than a third — did not return messages seeking information.
• Eight refused to answer.
• Seven said they would call back but did not.
• 73 provided some of the information.
• 80, or about 1 in 4, provided the information requested.

“By law, Ohio charter schools “must follow health and safety, ethics, public records and privacy laws; and comply with open meetings laws,” states a 2014 position statement by the Ohio Alliance for Public Charter Schools. Citizens are not required to provide reasons for the requests.”

In the second article in the series, a reporter finds that board members of White Hat charters has no idea where the millions of taxpayer dollars go.

“As a board member of four publicly funded charter schools in Akron and Cleveland, Charlotte Burrell will watch this year as $5.3 million in taxpayer money passes through her financial reports.

“She knows most of it will go to White Hat Management ­— a private, for-profit Akron-based company that runs 32 charter schools in Ohio. But unlike an elected school board member who can obtain intimate details about spending, her hands are tied. What White Hat does with the money, she said, is beyond her control.

“She does, however, control “unrestricted net assets.”
She pointed to the line item on a budget at a joint board meeting in February for two of the charter schools — University and Brown Street academies. Of $2.1 million in expected yearly funds, unrestricted dollars for both schools totaled roughly $1,500, or less than 0.1 percent.

“That’s what we concern ourselves with the majority of the time,” she said.
She’s satisfied, so long as a school treasurer — employed by White Hat — says the money spent by White Hat adds up.

“So, who is in charge of the nonprofit, publicly funded Ohio charter schools that 20 years ago did not exist? This school year, more than $900 million in state and local tax dollars — some of it approved by local voters — will be transferred from local schools to charters.

“In Ohio, charter schools are required to satisfy strict federal guidelines as nonprofit organizations under Section 501(c)3 of the Internal Revenue Code, including board autonomy. If the board is not independent of the company, the IRS is supposed to throw up a red flag.
But state law allows private companies to throw out nonprofit boards that challenge them.

“At many White Hat-operated schools, this already has happened. Last summer, boards in Akron and Cleveland expressed dissatisfaction with White Hat, so White Hat forced them out and new boards were formed.
The three unpaid board members who attended the February meeting said they were recruited by White Hat to serve. They turn over 95.5 percent of funding to White Hat, which then hires the staff, pays the bills and gives rent to its for-profit affiliates that own the tax-exempt school properties.”

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“The IRS’ checklist to qualify for federal tax-exempt status draws a bright line between the charter-school governing board and the management company hired to run the school. The company should not create the board or recruit the members, and any evidence of boilerplate contracts from one school to the next suggests the company may be in control.

“Richard Schmalbeck, a Duke University professor of law and a former tax law attorney, said the description of relationships between private companies and Ohio charter schools may be problematic.

“The charter schools appear to be run by a for-profit organization,” he said.
Because the private company creates and owns the nonprofit school, then recruits a governing board that would give a favorable contract to the private company, “There may be a private benefit problem. Charities are supposed to operate exclusively for charitable purposes, and not for the purpose of advancing for-profit business ventures.”

“Schmalbeck is disappointed but not surprised that the IRS, buried in applications, might carelessly grant tax-exempt status to a nonprofit created or controlled by a private company. “If these facts are accurate and fully disclosed to the IRS, I think the IRS should withhold 501(c)(3) status,” he said.

“Ohio law requires schools to obtain 501(c)(3) status. The federal government allows 27 months to apply. Some charter schools are created and disappear in less than two years.
University and Brown Street were created by a White Hat attorney in September 2011, or 28 months ago. The board for each school, represented by the same attorney, had yet to file as of mid-March.

“Last year, the Ohio Department of Education (ODE) barred the creation of four White Hat schools when the state determined that boilerplate contracts would strip too much power from the boards.

“So directors who owe their position and continued appointment to White Hat are voting a lucrative operator contract to White Hat. Since a community school is a public entity, ODE feels this is not permissible,” ODE’s Mark Michael wrote in an email rejecting White Hat’s applications.
This was a rare event, though, because the legislature has shifted direct regulation of charter schools from the state to school-choice friendly groups known as sponsors — such as Buckeye Community Hope Foundation, a two-time sponsor of the school at 107 S. Arlington St.

“Initially sponsored by ODE and known as Hope Academy University Campus, the state handed over control after State Rep. John Husted — now secretary of state and a recipient of at least $139,033 in campaign contributions from the Brennans — sponsored legislation that effectively stripped ODE oversight.

“Buckeye Community Hope then took over. Peggy Young, director of the group’s Education Division, takes the position that the boards have ultimate authority.

“We’ve seen boards fire management companies, so in that sense they have ultimate control of the school,” Young said.

“However, when 10 school boards attempted to fire White Hat, it didn’t work out so well. Because White Hat had trademarked school names and bought up real estate through affiliate companies, the renegade boards couldn’t force White Hat out of the building.

“All but one has since contracted with another private company, this one a Delaware-based affiliate of a Florida company founded by a former White Hat employee.

Young saw that as the board maintaining control.

“I’ve had boards do that. They move next door. They have the students. The records,” Young said.

The old buildings didn’t stay empty. They have students and teachers, and board members who say they were recruited by White Hat.

And their attorney, Amy Goodson, whose name is on incorporation papers for several White Hat-managed schools, said it’s “pretty typical” that lack of wherewithal forces boards to enter contracts with big name companies.

“What happens is, I can’t say broadly, but in the case of University and Brown Street, those were education models that White Hat creates,” said Goodson, who is paid by the board. “It’s kind of a chicken and an egg thing because you have to have someone start this.”

Burrell is unaware of her predecessors’ disapproval of White Hat. To the contrary, it’s been “fabulous” working with White Hat, she said.

When asked if she could provide some of the financial information that prior boards continue to seek in court, she replied: “That comes under the management company, not the board. So you would have to interview those persons at White Hat.”

A third article describes IRS rules supposedly governing the tax exempt status of charter schools.

Doug Livingston can be reached at 330-996-3792 or dlivingston@thebeaconjournal.com. Contributing to this story were NewsOutlet reporters Matt Hawout and Sara Rodino.

TheNewsOutlet.org is a collaborative effort among the Youngstown State University journalism program, the University of Akron, Cuyahoga Community College and professional media outlets including, WYSU (88.5-FM) and The (Youngstown) Vindicator, The Akron Beacon Journal and Rubber City Radio (Akron).

http://www.ohio.com/news/local/irs-sets-rules-on-how-charter-schools-qualify-for-tax-exempt-status-1.477137

Lets hope that journalists keep asking questions. The public has a right to know who and what they are funding, and where the money goes.