Broken-question
Better Unanswered? / David Goehring

December 10, 2015; International Business Times

If there was a time to ask if charter schools should be part of the public education system, that time has passed. 6,723 charters currently operate in 43 states and the District of Columbia, serving 2.9 million students, or six percent of the total public school population. The Every Student Succeeds Act, the newest version of our national education policy, includes significant funding for expanding their share of the school market. Proponents of the use of market forces as the catalyst for improved school performance continue to advocate for charters to play an even greater role in public education.

What still remains are many unanswered questions about how charters should be allowed to operate and how they will be effectively integrated into a coordinated public education program that serves all of our nation’s children effectively. Many of the questions center on what it means to be “public” and “accountable.” Should they be freed from many of the accountability requirements that have been placed on traditional public schools? Can they be for-profit entities? Let’s remember what has been occurring in the realm of for-profit schools in higher ed.

A newly released study by the National Education Policy Center, “The Business of Charter Schooling: Understanding the Policies that Charter Operators Use for Financial Benefit,” provides a disturbing look how the organizational and confused regulatory nature of many charter operations provides opportunities for public funds and assets to end up in private hands.

By design, charter schools are different from traditional public schools and do not have the same nature of public accountability.

The charter reform is different from many other education reforms in that it does not prescribe specific interventions. Rather, it changes the conditions under which schools develop and implement educational interventions. At the heart of the charter concept lies a bargain. Charter schools will receive more autonomy over curriculum, instruction, and operations than other public schools. In exchange, they must agree to be held more accountable for results—the outcomes articulated in the charter contract. In theory, if a charter school does not meet its stated goals, its sponsor can revoke its charter or refuse to renew it when the contract expires.

And the independent nature of charter schools appears to make them less accountable for their use of public funds. The NEPC study finds that the organizational complexity of charter schools creates an opaque system that may not be very efficient and moves funds from the classroom to administrators, contractors, and in the case of for-profit operators, to shareholders.

Put simply, the increased complexity of charter school governance relative to traditional district governance makes it highly likely that the subsidies that actually reach the school site—the primary mission centers in question—are reduced in the process of financially sustaining various intermediate layers. Further, at various points in this system, public expenditures are transferred to the control of entities where public transparency may be compromised, including the possibility that all or nearly all public monies are transferred as a lump sum to the control of a private actor not required to provide detailed expenditure reports.

The NEPC study points to “four major public policy concerns:

  1. A substantial share of public expenditure intended for the delivery of direct educational services to children is being extracted inadvertently or intentionally for personal or business financial gain, creating substantial inefficiencies;
  2. Public assets are being unnecessarily transferred to private hands, at public expense, risking the future provision of “public” education;
  3. Charter school operators are growing highly endogenous, self-serving private entities built on funds derived from lucrative management fees and rent extraction which further compromise the future provision of “public” education; and
  4. Current disclosure requirements make it unlikely that any related legal violations, ethical concerns, or merely bad policies and practices are not realized until clever and difficult investigative reporting, whistleblowers or litigation brings them to light.

For example, what might happen when charter schools acquire the facilities they need for their students? Using either third-party bond arrangements or REITs as their financing mechanisms, “the acquired property is often originally a traditional public school facility no longer in use. Such facilities start off being owned by the public and paid for with public tax dollars, first through debt financing for land acquisition and construction, and later through ongoing maintenance. The original debt financing of the facility was most likely approved by local taxpayers.”

In contrast, the sale of the facility to a third party for lease to a charter operator was likely not approved by taxpayers. Nor did voters approve the charter school operator’s use of taxpayer funds (to the extent taxpayer funded operating revenue is required) for purchasing the facility for the third party. In short, what is happening is that taxpayer funds are being used, without voter approval, to purchase a property from the taxpayers themselves, for someone else. The taxpayers are buying the facility a second time, albeit from themselves, but the result is that these taxpayers will no longer own it. Worse, in the process of transferring the property, taxpayer dollars have subsidized substantial fees and interest to various parties. The icing on the cake is that the federal government has spent federal taxpayer dollars to stimulate these transactions.

Even the question of who owns schoolbooks and other educational materials purchased by a charter operator can be open to debate. An Ohio school district faced this startling reality when it decided to terminate its contract with a charter school operator.

When severing their contracts with White Hat, schools were faced with the prospect of having to purchase back from White Hat all of the equipment purchased while White Hat managed the schools. Since this equipment had been purchased with publicly financed operating revenue, the schools challenged White Hat in court over the ownership of the assets. However, the court concurred that the contractual language was clear that the property belonged to White Hat and that the school operators, if they wished to retain that property, would have to purchase it back from White Hat.

Based on their look at how the current state of the art for charter school operations, the NEPC brief reached some very concerning conclusions:

  1. A substantial share of public expenditure intended for the delivery of direct educational services to children is being extracted inadvertently or intentionally for personal or business financial gain, creating substantial inefficiencies;
  2. Public assets are being unnecessarily transferred to private hands, at public expense, risking the future provision of “public” education;
  3. Charter school operators are growing highly endogenous, self-serving private entities built on funds derived from lucrative management fees and rent extraction which further compromise the future provision of “public” education; and
  4. Current disclosure requirements make it unlikely that any related legal violations, ethical concerns, or merely bad policies and practices are not realized until clever investigative reporting, whistleblowers or litigation brings them to light.

If the NEPC brief is on target, we have much to fix before the work of school reform is done.—Martin Levine