Chartering for Thee [& all that comes with it] but Not for Me?

Posted on May 2, 2015



I’m currently in the middle of several research projects which, as they sit on my plate, are not directly related, but intersect. In one set of projects, I have worked with colleagues Preston Green and Joseph Oluwole to better understand how the increasingly complex public-private structures emerging in the charter school sector alter the rights of various constituents – parents, taxpayers, students and employees. We have published two law review articles on these topics:

Separately, I’m involved in a number of projects more central to my own primary area of research involving better understanding variations in schooling resources across schools, districts and children. This includes past work on New York City, Texas and Ohio charter schools, where one of the products of that work will finally appear in the journal Education Finance and Policy this summer. Currently, I continue to explore variations in school site expenditures, including staffing and instructional staffing expenditures by operator type and location – within and across the mix of charter and district providers.

Finally, I’m also trying to finally get a better handle on capital financing issues related to charter schooling in order, if nothing else, to be able to provide instructive summaries of the various mechanisms commonly used, comparison to traditional district municipal financing, and the cost, efficiency and legal rights issues across the various mechanisms. This turns out to be an ugly, messy endeavor, which is why I’ve tried so hard to avoid it so far.

I also love making maps. It’s just fun to see how policies play out in geographic space and with respect to demography.  This post is mainly about maps. But it’s those maps that really heightened my concern over questions I’ve raised previously regarding the distribution of lost rights (law review papers above).

Charter schooling – or more specifically “Chartering” – is pitched most specifically as a solution for long failed “urban” (in quotes for a reason) schools. Point of clarification. I consider “charter schooling” a phrase that represents the original “movement” which through various state statutory structures permitted the start up of independently governed and operated, publicly financed schools. “Chartering” is a more aggressive policy intervention whereby state and local policy makers engage more directly in promoting the expansion of charter schooling by converting district schools to charters, closing district schools to pave the way for charter expansion, transferring district capital assets to charter operators, and generally dismantling the public district in order to expedite its replacement with a “portfolio” of charter operators.

The assumption of the most aggressive “chartering” advocates (or relinquishers – a particularly twisted/warped framing) is that aggressive steps are needed and with all deliberate speed (no time to worry about understanding the law, history, or even why current problems exist) to “save ‘urban’ lives:”

Again, a core assumption of the movement is that we’ve tried everything, including pouring massive sums of money into urban districts – more than they could ever possibly even need – to achieve reasonable outcomes. But we haven’t.

To the extent we ever have put in effort to improve resources, it has actually produced positive results – more broadly and consistently positive than “chartering” as a movement.Evidence consistently points to the importance of financial resources for improving schooling quality.

Yes, some specific charter operators have produced impressive test score gains. Interestingly, these also tend to be very well resourced charter operators, often spending 50% more than district schools, providing substantially longer school days and years, paying their teachers more and providing them smaller class sizes and much smaller total student loads. That is, those highly successful charter operators (as opposed to the dreadfully failing ones) may in fact be providing greater support for the assertion that money matters than for the assertion that “chartering” matters.

As I’ve explained time and time again on this blog, there are many features of “chartering” that require much closer scrutiny – and more systematic evaluation (more so than media or blog reports of “scandal”).  Here are but a few “features” of chartering (and to an extent, “charter schooling”) that I’ve either discussed previously, or are emerging as part of my (or others) current studies.

Feature 1: Compromising the Legal Rights of Taxpayers, Employees and Children

As I’ve explained in previous posts, these particular issues vary by state, due both to differences in language of state charter school laws and to relevant case law. But, as we explain in our law review articles above, there remain, in nearly every circumstance, significant differences in rights of various constituents under traditional Local Education Agency governance than under mixed-private-public governance. [more on this table in this post]

Chartering vs. Traditional District Schooling

Dimension Local Education Agency Privately Governed Charter (Non-State Actor)
Governance Governed by public officials (with all rights & immunities)Elected or appointedNecessarily subject to open public records & open meetings lawsNecessarily required to comply with public bidding requirements

Necessarily required to disclose publicly employee contracts

Governed by appointed (self-appointed) board of private citizensMay not be subject to open records or meetings lawsMay not be required to engage in public contract/bidding requirements

Private appointed board may hire private management firm

Finance Required to disclose finances (reported relatively consistently in most state data systems, including detailed AFRs (annual financial reports) & public posting of budgets) Usually required to report expenditure of public funding. State data systems spotty and inconsistent on charter school revenue/spending data (may be required to disclose IRS filings [form 990])
Disclosure Public officials subject to open meetings laws.All documents/employee contracts/financial documents & communications between officials subject to open records laws. Board members & managers may not be subject to open meetings. Many documents/contracts with private manager, etc. considered private/proprietary.
Employees Public employees with key constitutional and statutory protections Private employees, forgoing certain rights to bring legal challenges against their employer
Students Retain rights to not have their government (school) infringe on various constitutional and statutory rights, and to uphold key statutory obligations. Students may forgo numerous rights under privately governed discipline codes.

Recent Evidence on Children’s Rights in New York City Charter Schools

Specifically pertaining to the treatment of children under charter school discipline policies, Advocates for Children found the following:

  1. 107 of the 164 NYC charter school discipline policies we reviewed permit suspension or expulsion as a penalty for any of the infractions listed in the discipline policy, no matter how minor the infraction. By contrast, the New York City Department of Education’s (DOE) Discipline Code aligns infractions with penalties, limiting suspension to certain violations and prohibiting expulsion for all students under age 17 and for all students with disabilities.6
  2. 82 of the 164 NYC charter school discipline policies we reviewed permit suspension or expulsion as a penalty for lateness, absence, or cutting class, in violation of state law.
  3. 133 of the 164 NYC charter school discipline policies we reviewed fail to include the right to written notice of a suspension prior to the suspension taking place, in violation of state law.
  4. 36 of the 164 NYC charter school discipline policies we reviewed fail to include an opportunity to be heard prior to a short-term suspension, in violation of the U.S. Constitution, New York State Constitution, and state law.
  5. 25 of the 164 NYC charter school discipline policies we reviewed fail to include the right to a hearing prior to a long-term suspension, in violation of the U.S. Constitution, New York State Constitution, and state law.
  6. 59 of the 164 NYC charter school discipline policies we reviewed fail to include the right to appeal charter school suspensions or expulsions, even though state law establishes a distinct process for charter school appeals.
  7. 36 of the 164 NYC charter school discipline policies we reviewed fail to include any additional procedures for suspending or expelling students with disabilities, in violation of federal and state law.
  8. 52 of the 164 NYC charter school discipline policies we reviewed fail to include the right to alternative instruction during the full suspension period, in violation of state law.

http://www.advocatesforchildren.org/sites/default/files/library/civil_rights_suspended.pdf?pt=1

Indeed, many of these policies were found to be non-compliant. And thus, corrective action may be in order. Perhaps a review of district schools’ policies would also turn up violations. But it seems likely that expansion of charter schooling in the city has actually led to a proliferation of non-compliant, student rights-trampling, discipline policies. And policies that may explain (likely explain) disproportionate suspension rates.

Given the prevalence of these policies found in NYC Charter Schools (which are among the better resourced, well established schools in the nation), one might easily argue these policies to be a “feature” not an outlier, or bug of “urban chartering.”

Selling off Public Assets & Draining Operating Resources

This is an area I’m just beginning to get a handle on, and much of the evidence in this area is anecdotal, but as it comes together, it points to a handful of common models involving charter governance, land deals and facilities lease arrangements. One of my big concerns is that, among other things, public assets including valuable land and school facilities are being “relinquished” as district school enrollments drop – often these days because district officials themselves are forcibly closing their schools and handing them over to charter operators – or, sending out pamphlets to parents telling them that the charter schools are better, so choose them, not us. In many cases, citywide enrollments are remaining relatively constant. That is, the number of children that need to be served isn’t changing. Children are being shifted from district schools to charter schools. District facilities (land and buildings representing the investment of taxpayers over decades) are being sold at bargain rates, and there’s no turning back. Many urban districts now lack the capital assets to serve the children they would be responsible for serving, were the charter sector to suddenly collapse. (2013_njeda_teamacademycharterschool_pos , http://njparcels.com/property/0714/1801/15 , http://njparcels.com/sales/0714_2570_1 , http://njparcels.com/property/0714/2569/1 , http://njparcels.com/property/0714/2570/1 , and Elsewhere).

Then there are these particularly suspect (and illegal) examples, which involve complicated intersections of governance and land/real estate and facilities financing.

Imagine/Renaissance Deal

In a case decided in Federal District Court in August, 2014, it was found that Imagine Schools Inc. had engaged in several suspect governance and finance arrangements. Generally, in terms of governance, the court explained:

Imagine Schools recruited the board members, arranged for the board members to apply for the charter and then entered into an Operating Agreement with the Renaissance Board that required the Board to give Imagine Schools all of the tax revenues that the Board was entitled to receive as a charter school. Under Missouri law, Imagine Schools could not obtain that revenue stream itself absent the formation of the Renaissance Board.

In short, there is no evidence that Imagine Schools made any effort to recruit an independent board or to strengthen the independence of the Renaissance Board once selected. In fact, it is the policy of Imagine Schools to control the board rather than vice versa, as evidenced by the statement of Dennis Bakke, the owner and founder of Imagine Schools. Mr. Bakke clearly believed that the Renaissance Academies belonged to Imagine Schools and that the job of the Renaissance Board was to go along with Imagine Schools’ decisions unless Imagine Schools was engaging in illegal activity. In fact, Mr. Bakke encouraged his executives to limit and discourage board member control of “Imagine’s” charter schools by obtaining pre-signed, undated resignation letters from board members at the time they joined the a board so that board members could be expelled at any time he or she asserted too much authority. Id. It is therefore not a surprise that Mr. Rogers, with all his experience as a public school administrator, did not understand that the in contrast to the status of the Renaissance Board, Imagine Schools is one of the nation’s largest charter school management companies and specializes in managing the operations of charter schools.

This case also involved a facilities leasing twist whereby the initial property owner (SchoolHouse Finance) of the facility leased to the school was an arm of the management company (Imagine) itself. Among other things, the court found that the property owner had gouged the charter school, charging a 2% higher rate than appropriate.  The court explained that Imagine used its SchoolHouse Finance arm to flip the property: “SchoolHouse Finance sold the buildings to EPR Properties, a real estate investment trust, in order to free itself up to make more real estate purchases for other charter schools it was starting. EPR Properties then leased the properties back to SchoolHouse Finance for an annual rental rate of approximately 10 percent of the total development cost of the properties. SchoolHouse itself had been charging 12%.  The court mandated repayment of the additional 2% that had been cumulatively charged by SchoolHouse, accepting as reasonable the rate charged by EPR.

Chester Community Charter School

An audit of Chester Community Charter School in Pennsylvania revealed similar issues.

“Chester Community Charter School (Charter School) improperly received $1,276,660 in state lease reimbursements for buildings that were ineligible for those payments. We question these buildings’ eligibility since one for the Charter School’s Founders previously owned them and later transferred them to a related nonprofit (Nonprofit) established for the sole purpose of supporting the Charter School We also found that the Charter School’s Founder was the buildings’ landlord until October 2010. Furthermore, this same individual started a for profit Management Company for which he is currently its Chief Executive Officer (CEO). This Management Company runs the Charter School, and the Management Company and the Nonprofit are located at the same address. These ownership transfers and questionable transactions among associated individuals and entities created circular lease arrangements among related parties sharing ownership interest in the buildings.” (p. 12)

In October 2010, the Charter School Founder/Management Company CEO sold the buildings to a newly created Nonprofit that he and some associates created with the primary purpose of leasing the properties back to the Charter School. The buildings were sold to the Nonprofit for $50.7 million and financed through a municipal bond.” (p 12-13)

At that time, a new 30 year lease agreement was created between the Charter School and the Nonprofit effective October 9, 2010 to August 31, 2040. According to the Nonprofit’s Internal Revenue Service tax returns (2010, 2011, and 2012), all of the Nonprofit’s reported income and expenses have been related to the Charter School’s leased buildings. (p. 13)

Yes, these are cases where institutions went beyond the scope of permissible behavior, got caught and ended up paying a price. But it is through these cases, litigation and audits that we better understand the legally employable mechanisms that set the stage for these actions.

A common mechanism in each case is the some private entity is created to take on bond debt to acquire some land and facility (be it previously public property or not). That entity renovates the property to be minimally suitable for running a charter school and that entity may also serve as the leasing agent for the first few years in which the charter operates. Amazingly, in the Kansas City (Renaissance charter) case, that leasing agent was found to have gouged the school even more so than than the for profit entity to which the property was later flipped.

Notably, several charter schools around the country have lease arrangements with EPR. [http://www.eprkc.com/portfolio-overview/public-charter-schools-list/ ] As an example, one of the few schools in New Jersey with an EPR lease (or at least listed on the EPR site) is Camden Community Charter School (affiliated with Chester Community Charter School), the school that reports by far the highest administrative expenses (likely significantly influenced by contracted lease payments) of any in the state of New Jersey. CCCS spends a reported $5,325 per pupil on administration, or 43.6% of its total spending.  Similar cases/arrangements have been reported widely from Michigan to Ohio to St. Louis. These are simply the emerging models for facilities acquisition and management in charter schooling in many places. They are what they are. It is conceivable that these mechanisms can be used in mutually beneficial ways. And it’s possible that they can be abused as in the examples above. It’s also possible that a traditional district could sell it’s own buildings to EPR to raise cash, and then lease them back from EPR on a triple net lease. I’d love to know if any actually do?

These capital financing deals are pretty much a “feature” of the system, not an outlier, or bug.

Again, my concern is that we are allowing these practices to become the standard for “chartering”, largely unchecked if not endorsed and promoted, by policy. But would other communities allow the same? Do they want the same? Or is this some grand experiment we are willing to test out only on certain communities? On other people’s children?

And Who’s Lucky Enough to Lose those Rights & Assets?

Let’s take a spacial and racial look at the distribution of “chartering” using the 2013 Common Core of Data Public School Universe Survey. In the following maps of major metropolitan areas:

  • Large Red Circles = Schools with >80% Black Enrollment
  • Large Blue Circles = Schools with >80% White Enrollment
  • Large Green Circles = Schools with >80% Hispanic Enrollment
  • Smaller dots = more integrated schools
  • Yellow Stars = Charter Schools

 Baltimore and Washington, DC

Balt_DC

Detroit

DetroitPhiladelphia

PhillyNew York City/Newark, NJ

NY MetroOhio

Ohio

Lots of yellow stars on big red dots. Not so many on big blue dots.

What Needs to be Done Right Now

I will have much more to say about these issues as my current batch of research projects progresses. I’m still trying to sort through it all. But certainly even in the short run, these issues need a closer look.

They need a closer look in part because they so disproportionately affect low income, urban and minority communities.  At the very least in the short term:

1. states must tighten charter school laws to guarantee that local constituents, including parents, students, taxpayers and employees have the rights afforded them that would be afforded to anyone by their relationship to a predominantly publicly financed elementary/secondary school.

2. states must scrutinize carefully any new/forthcoming or recent past transfers of public assets (land, buildings) by local public districts and establish policies to protect taxpayers against future such transfers and ensure that local public districts retain the capacity to serve the public good.

3. states must also scrutinize any/all facilities lease arrangements.

That’s a short list for now. There will be much more to come later this Summer.

Cheers.

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