When any sector of our society defends conflicts of interest as essential for their operations, creativity, and impact, something pernicious is going on and needs to be rooted out of the body politic.

Case in point: charter school operators just succeeded in convincing the California state legislature to delay action on an Assembly bill to limit conflicts of interest in charter schools. Why? Because restricting conflicts of interest might hamper the flexibility and creativity that distinguishes them from public schools. Rather, they say, they need the conflict of interest flexibility accorded to the nonprofit sector.

Located in Encinitas, California, the Theory-into-Practice Academy, generally known as the TIP Academy, garnered a threatened shutdown due to accusations of “impropriety,” some of which involved the Academy’s alleged conflicts of interest:

  • A trustee of the academy (also the principal) allegedly pushed the school to hire her husband as chief of operations and said she would ‘quit and take teachers with her if the board refused”, according to the local school district.
  • The same trustee got the academy board to shift thousands of dollars to an entity called TIP Education, Inc., where she also sits on the board. [The funding transfer plan was dropped under pressure from parents who spotted the potential conflict of interest.]
  • The Academy’s board also agreed to a policy preventing the firing of its director — this particular woman — without the approval of TIP Education, where she is on the board.

You won’t find much about the purportedly nonprofit TIP Education on the web, nor a prior organization associated with the woman’s husband, New Education for Communities, with a “suspended” status on the webpage of the California Secretary of State. Neither has any information of note on Guidestar (www.guidestar.com), lacking 990s or other filings on the website.

Amidst all this managerial murkiness, a member of the California Assembly introduced a bill that would have required charter schools to meet the conflict of interest standards applicable to public schools, but she pulled it from the Appropriations Committee in May “for further work” — maybe to work with the California Charter Schools Association, which vigorously opposed the bill “to preserve more freedoms than public school boards have.” When is conflict of interest an essential management “freedom”?

California is hardly the only state to encounter charter schools dancing along the conflict of interest line — with legislatures stumbling to craft regulations to control the most egregious excesses.

In Florida, charter school champion and operator T. Willard Fair of the Greater Miami Urban League, appointed by Governor Jeb Bush to the state’s charter school commission, has made clear his opposition to local school board oversight like that which challenged California’s TIP people. “I don’t trust [the local school boards] . . . That’s why I need a law to protect me from them,” said Fair. Or perhaps he might have said to shield the self-dealing of charter schools from the oversight of local districts and parents who find conflicts of interest odious harbingers of bad management and other financial improprieties.

The state’s charter school commission was undoubtedly aware that state auditors found that 140 of around 300 Florida charter schools had “intertwined business relationships’ reportable as “related-party transactions.” Typical were relationships such as charter directors, employers, and managers leasing property they personally owned to their schools, interest-bearing loans for charter school board members to the schools (including one at 21 percent), and more. Notably, the administrator of the school with the usurious 21 percent lender-boardmember refused to reveal his or her name, arguing “I am tired of newspapers dredging up the past instead of focusing on the future.” A bill that would have cleaned up Florida’s charter school conflicts of interest was withdrawn, like California’s, after furious charter school lobbying against it.

Other states too have hit a brick wall on bolstering murky conflict of interest requirements applicable to charter schools. Opposition has stalled an effort in Arizona to compel state legislators to disclose how they or the companies they own might benefit from charter school funding. In 2007, the Pennsylvania state legislature debated House Bill 446, which contained conflict of interest regulations preventing board members of “cyber charter schools” (basically providing online curriculum, accreditation, and teachers) from doing business with the school or management, but that legislation is still stuck in committee.

The argument used in the California charter system and with the Pennsylvania cyber charters to defend their position is that the conflict of interest standards applicable to 501(c)(3) nonprofits are sufficient.i

Conservatives have long argued that self-interest, properly placed, should not be hamstrung by state and federal regulations. In writings that go back more than a decade, the Hudson Institute’s William A. Schambra has long called for nurturing “self-interest, rightly understood.” The litany of charter school conflicts of interest, conducted in some cases with brazen impunity, may not be the incentive structure Schambra meant to laud.

In Philadelphia, federal attorneys are now examining alleged conflicts of interest involving the founder of the Philadelphia Academy Charter School and other employees. According to the Philadelphia Inquirer, the families of Brien Gardiner, the now-retired founder of the charter school, and Kevin O’Shea, the since resigned CEO, received $541,200 in the 2005-2006 school year and $494,120 in 2006-2007 from a web of nonprofit and for-profit companies plus the charter school itself providing services to the school and the school district.

These aren’t cases of self-interest leading to social obligation and the public good, but social and nonprofit obligations warped into opportunities for self-interest, self-dealing, and profiteering. The defense that conflict of interests like these are acceptable in the nonprofit sector is spurious and repugnant.

i A straightforward defense from the PA Cyber School Information blog specifically challenges HB446’s proposed prohibition of members of the school management from sitting on the board of directors: “Cyber boards of trustees are not school boards. They are, rather, boards of 501c3 non-profits. So, like all 501c3’s, depending on their bylaws, cyber charter school CEOs, leaders, teachers, or parents may have a place on the board. Placing restrictions on this membership violates a very tenet of being organized as a 501c3.” Wrapping charter school self-dealing in purported nonprofit conflict of interest flexibility arose as a defense in the California bill as well.