October 15, 2014;Charlotte News & Observer

In North Carolina, some controversy swirling around a nonprofit that operates four charter schools raises some interesting questions about how close a for-profit and a nonprofit ought to get. It also raises questions about the level of oversight and accountability the government should exercise. NPQ has reported many times on the practice of nonprofit charter school operators contracting for-profit corporations to manage their schools. Although it is legal in many states, it has also been called into question, seen as a ruse to allow public dollars to flow into a for-profit company.

Charter Day School, Inc. (CDS) in North Carolina seems to be one of the more extreme examples of this, with its relationship to the Roger Bacon Academy (RBA) outlined in a very detailed report on CDS now operates four charter schools in the state, several of which have done very well in standardized test results. However, throughout its history, the relationship between RBA and CDS has been close to the point of questionable.

CDS was created as a nonprofit school in 2000, although it did not receive 501(c)3 status until 2002. The IRS apparently was not comfortable with the relationship CDS had to the for-profit organization that would operate the school—the Roger Bacon Academy, founded by Baker Mitchell. The issues cited by the IRS included:

  • Mitchell and another RBA employee were named as serving on the CDS Board of Directors.
  • The two organizations shared a bank account.
  • CDS occupied office space on land owned by another of Mitchell’s corporations.

After some minor changes to its operations, and although many of the issues the IRS had cited as “clear conflict of interest” were still relevant, CDS was granted nonprofit status and therefore was eligible to operate as a charter school in N.C. The question remains why the IRS was willing to turn a blind eye to the issues it found.

In 2012, CDS applied to operate a new charter school, Douglass Academy. The application says that RBA would be contracted to manage the school. The person listed as submitting the application is Barbra Jones with a title of “Headmaster.” The address and telephone number listed there are those of RBA. When she signed the application, Jones does not list the title of headmaster but that of her role at RBA: Coordinator of Community Relations and New School Development. Although a minor point, this clearly points to the very vague firewalls that may or may not exist between the two organizations; they share staff to the point where the person in question is not clear which organization she is representing.

The most recent IRS Form 990 available on GuideStar also shows the CDS annual income at slightly less than $11 million, which is about $400,000 more than the annual expenses that year. The organization’s assets/fund balance is listed at slightly more than $2 million. Payments made to RDA that year (2012) as listed under “Transaction with Interest Parties” total more than $4 million. These payments are for such items as “Management Fee,” “Back Office Support,” and rental for the school and for administrative offices. While serving as an officer of the nonprofit organization, a for-profit corporation Mitchell owned was offered contracts amounting to almost 40 percent of the nonprofit’s expenses. Despite questions about the level of his involvement in both RBA and CDS, Mitchell is still serving as Secretary of the CDS Board. Although this may not be illegal, it certainly calls into question how closely aligned these two organizations are, and if it is the right thing to do.

In August of this year, Gov. McCrory of North Carolina signed into law a requirement that charter schools abide by the NC Open Meetings Law and Public Records Act. In his press release, he stated, “I have also asked Chairman Bill Cobey and members of our State Board of Education (SBE) to ensure that contracts with private entities also provide transparency on salaries and other personnel information.” A lawsuit filed by a local TV news station states that CDS has not complied, and that information about the relationship with RBA does not include the salaries of people who have been assigned to manage the charter schools. Mitchell is quoted as saying “there is no statutory basis” for the demand for transparency, despite it having been written into law by the Republican governor. The case is pending, but his comments demonstrate a cavalier attitude by Mitchell.

The unhealthy coziness described here is not limited to Mitchell’s internal dealings at CDS and RBA. Mitchell’s CV, as posted on the RBA website, states that he was appointed to the North Carolina Public Charter School Advisory Council in 2011, He served on the council and its replacement until his resignation earlier this year. This council was responsible for reviewing and making recommendations about charter school applications. Doing the math, it was during Mitchell’s tenure on that council that CDS, on whose board he sits, submitted the application to operate Douglass Academy with RBA, which Mitchell owns, named to manage the school.

The minutes of that council’s meeting, in which a subcommittee’s recommendations about Douglass Academy were reviewed, states that Mitchell abstained from voting. He is not listed as having recused himself or as having removed himself from the meeting room during the discussion. The subcommittee’s recommendation was that the application should be tabled because it was lacking in several areas, and that CDS should be called in for an interview. In fact, Mitchell abstained on the vote for many of the charter school applications at that meeting.

In the subsequent meeting, when CDS was interviewed about Douglass Academy, the minutes suggest the council’s questions were addressed and a unanimous vote was taken to allow the school to operate as a charter school. It is unclear if Mitchell was present during the interview but recused himself from the vote.

The list of concerns about Mitchell and his pattern of stepping into ethical grey areas goes on and on. As with the lawsuit filed by the TV news station, and an earlier demand that he step down from CDS’s Board, some are beginning to challenge his actions. (When questioned on the matter by ProPublica, Mitchell was dismissive: “It’s so silly. Undue influence, blah blah blah.”)

Still, there does not appear to be a concerted effort to provide adequate levels of oversight and accountability, either from the board of CDS or from any regulatory bodies. So it appears that Mitchell has the right to do these things, but one must ask if they are, in fact, the right things to do.—Rob Meiksins