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Truthout...
Charter Schools
Outsource Education to Management Firms, With Mixed Results
by Sharona Coutts, ProPublica
Sunday 10 April 2011
Since 2008, an Ohio-based company, White Hat Management, has collected
around $230 million to run charter schools in that state. The company
has grown into a national chain and reports that it has about 20,000
students across the country. But now 10 of its own schools and the
state of Ohio are suing, complaining that many White Hat students are
failing, and that the company has refused to account for how it has
spent the money.
The dispute between White Hat and Ohio, which is unfolding in state
court in Franklin County, provides a glimpse at a larger trend: the
growing role of private management companies in publicly funded charter
schools.
Contrary to the idea of charters as small, locally run schools,
approximately a third of them now rely on management companies -- which
can be either for-profit or non-profit -- to perform many of the most
fundamental school services, such as hiring and firing staff,
developing curricula and disciplining students. But while the
shortcomings of traditional public schools have received much attention
in recent years, a look at the private sector’s efforts to run schools
in Ohio, Florida and New York shows that turning things over to a
company has created its own set of problems for public schools.
Government data suggest that schools with for-profit managers have
somewhat worse academic results than charters without management
companies, and a number of boards have clashed with managers over a
lack of transparency in how they are using public funds.
White Hat has achieved particularly poor results, with only 2 percent
of its students making the progress expected under federal education
law. The company declined comment on the performance of its schools.
White Hat was established in 1998 by a prominent Akron businessman,
David L. Brennan, who was a key advocate for introducing charter
schools into Ohio. Like most charter schools, White Hat’s Hope
Academies and LifeSkills Centers are primarily funded by the state
based on the number of pupils they enroll. The contracts between White
Hat and the schools now suing allow the company to collect virtually
all funds and use them to run the schools.
When White Hat was establishing some of its first schools, a principal
invited James Stubbs, a former NASA electronics technician, to join the
board of White Hat’s Hope Academy Chapelside.
Stubbs, who sent his three children to Hope Academies and eventually
sat on a number of White Hat school boards, said it took several years
before some boards began to question why the schools continued to
perform poorly. He said that when members started demanding more
detailed accounting, the schools and the company began to clash.
“Ultimately, the board is responsible for what happens to the money,”
Stubbs said. He said that when White Hat refused to disclose, it put
the board in what he saw as an untenable situation. “The management
company gets all the money but none of the blame when things go wrong.”
Charles R. Saxbe, the attorney representing White Hat in the lawsuit,
said the company has complied with its legal and contractual
requirements. He said that public funds become private once they enter
White Hat’s accounts.
“If I’m Coca-Cola, and you’re a Coca-Cola distributor or a Coca-Cola
purchaser,” said Saxbe, “that doesn’t entitle you to know the Coke
formula or find any financial information you’d be interested in
learning from the Coca-Cola company. And that’s kind of what they’re
demanding.”
“Governing boards are purchasing the service and whatever it takes to
deliver that service from White Hat,” Saxbe said. “And if White Hat
loses money, that’s their risk. And if they make money, that’s their
upside.”
But the boards say that students, not White Hat, carry the greatest
risk—the risk of failing in school.
“We give the management company 96 percent of the revenues from the
state, and they do not have a transparent means for us to see what’s
happening with the money,” said Stubbs. “What I am concerned about is
students not doing well under this management company, and that can’t
continue,” he said.
The Ohio Department of Education agreed. It joined the lawsuit [1] last
fall and asked the court to help the “group of public schools break
free from dominance by private interests.”
“Things have not gone well under White Hat’s direction,” the department
argued in a court motion. “Most of the schools have received the
equivalent of D’s and F’s on their State report cards and their
performance has declined during the term of the agreements.”
In fact, White Hat schools across the country are performing poorly,
according a report [2] by the National Education Policy Center, a
nonpartisan research organization based at the University of Colorado,
Boulder. Of the 51 schools White Hat managed in 2010, only one met a
key standard established by the No Child Left Behind law—called
“Adequate Yearly Progress.” According to the report, that is by far the
worst performance of any large for-profit management company. The
company did not answer questions on the performance of its schools.
Adequate yearly progress is a “crude indicator” of success, according
to Gary Miron, professor of education at Western Michigan University,
who co-wrote the report. But he said it does at least show whether
schools are meeting state standards.
“When you compare 2 percent of White Hat schools meeting AYP, that’s
just something that cries out that there’s something awry here,” he
said. “Even schools in poverty are going to have a much higher rate of
meeting AYP.”
Despite the poor performance and the lawsuits, White Hat is still
managing the schools under a contract extension that expires this
summer.
Because White Hat owns most of the schools’ property and employs the
staff, the boards worry that they could not survive a sudden rupture
with the company.
“A big part of the argument here is being able to follow the money,”
said James D. Colner, an attorney representing the schools. “We have no
idea whether they’re earning a reasonable profit or not. We have no
idea whether the money is being efficiently or effectively spent for
our students,” he said.
As federal and state governments pour billions of dollars into charter
schools, boards across the country have increasingly turned to
companies such as White Hat. Roughly a third of all charter schools now
contract with “full service” management companies, which control hiring
and firing, enrollment and curriculum at these public schools,
according to Miron.
Yet the results have been decidedly mixed, with increasing complaints
that some companies have put profit ahead of education and have often
become unaccountable to the school boards that are supposed to
represent the interests of the community and children.
“I’m seeing increasing problems with boards not having access to
information,” said Miron. “The boards have less authority because so
many things are sewn up by the management company.”
While a lack of transparency does not always lead to poor performance,
experts see it as a red flag for possible problems.
About half of charter schools with for-profit management companies met
their adequate yearly progress targets, according to the National
Education Policy Center’s report, which used the most recently
available information. By comparison, 63 percent of charter schools
overall and 67 percent of regular public schools met the benchmark in
2009 [3], according to the National Alliance for Public Charter
Schools, an industry group.
“There’s not always a direct link between how well a school is managed
and how well kids learn, but often a school that is mismanaged will
have bad academic results,” said Alex Medler, vice president of policy
and research at the National Association of Charter School Authorizers,
a nonpartisan group that advises policy-makers and regulators.
“Transparency is a symptom of healthiness that lets a bunch of other
mechanisms work the way they should.”
There can be good reasons for charter school boards to hire management
companies. “The idea is to make a contract with someone who has the
skills to hire people, find a building and put a school together,” said
Henry Levin, Professor of Economics and Education at Columbia
University’s Teachers College. And indeed, some charter schools
overseen by management companies have flourished.
But oversight of the industry has lagged, resulting in a patchwork of
state and district regulation, which experts say is failing to
safeguard the interests of children and taxpayers.
Some states do not directly oversee either the company or the board and
do not regulate the terms of their contracts. In many cases, the bulk
of the oversight is left to “authorizers,” organizations empowered to
green-light charter schools. Some states have many authorizers—which
can include tiny nonprofit organizations—while others entrust the task
to public universities, local districts or other specially created
entities, many of which lack the resources needed to effectively carry
out their role, according to Columbia’s Levin.
That’s led to what Levin called “a lot of confusion.”
“There’s an awful lot of diversity in these companies,” he said. “And
most of them are proprietary, so we really don’t know how they’re
operating.”
Schools in other states have also asked the courts to help them rein in
what they see as unaccountable management companies.
In Florida, Paragon Academy of Technology and Sunshine Elementary
Charter School fired the Leona Group, a Phoenix-based management
company, in August 2009 when Leona unilaterally dismissed the school’s
principal and made other management decisions without seeking board
approval, according to legal filings.
The Leona Group promptly sued in Florida state court in Broward County,
arguing that the schools had wrongly terminated the agreement and that
the company had loaned the schools $180,000 to keep them afloat.
Michael R. Atkins, the management company’s general counsel, said Leona
is seeking to recoup those funds and wants a resolution that allows the
schools to continue to operate.
The schools counter-sued, arguing that Leona “failed or refused” to
produce a range of documents, including staff and teacher contracts,
and bank account statements. Leona ignored requests to return their
property, including “the master key for the school facilities and all
electronic and hard-copy school records and documentation,” according
to the schools’ complaint.
Two board members of Leona-managed schools in Florida told ProPublica
that they had trouble finding out how Leona was spending their money
from the time the company took over the schools in May 2008.
“It was very difficult and very confusing,” said Mark Gotz, who has
served on the boards of numerous charter schools in Florida and
considers himself a charter school advocate. “I would ask questions
about the numbers, what they related to, what numbers were relative to
what services were being provided, and in the information that was
given to us, neither myself nor the accountant for Leona could dig it
out.”
Leona said it could not comment on the board members’ claims, saying
they involved employees who have since left the company. According to a
spokeswoman, Leona has contracts with 50 schools across five states,
serving 18,300 students. A number of Florida schools that once worked
with Leona no longer contract with the company—including two schools in
Pompano Beach that settled litigation with Leona late last year.
Even when schools and companies are able to settle their disputes, the
lawsuit settlements are often confidential, leaving many questions
unresolved.
The Rochester Leadership Academy Charter School was closed in 2005 by
the State University of New York, for poor academic performance. In
August 2009, the charter school’s board sued National Heritage
Academies Inc., the school’s for-profit management company, in Monroe
County, NY, arguing the company failed to provide the “management,
operation, administration, accounting and education” it promised under
the contract and caused the school to lose its charter—effectively
killing the school.
The school claimed that National Heritage, which operates 67 schools
with 42,000 students in eight states, had “failed to account and
conduct financial reporting” and cost the school over $2 million.
The parties reached a confidential settlement last March. As local TV
news report [4]ed, parents and community members were angered that they
were not told what had happened with whatever funds, if any, that had
been recovered from National Heritage.
The school’s former director could not be reached, and lawyers for the
school and National Heritage told ProPublica that the confidentiality
agreement prevented them from commenting on any aspect of the case.
Despite the difficulties encountered by some schools, many have
positive relationships with their management companies. A key factor is
the presence of a strong and independent school board, according to
Medler, of the National Association of Charter School Authorizers.
“The independent group holds the management company accountable,” he
said. It makes no difference whether the company is for-profit or
nonprofit, he said, so long as the board’s interest is “the success of
the school, not the success of the management company.”
Recent events at Imagine Wesley International Academy in Atlanta, GA,
illustrate the difference that a strong board can make.
Imagine has been featured in local and national news reports about
problems at its schools. It was the focus of a New York Times story [5]
that raised questions about how Imagine’s founders, Dennis and Eileen
Bakke, were spending public funds, and about their related company,
Schoolhouse Finance, which had numerous real estate transactions
involving the schools.
The problems at the company led to conflicts with school boards and
hampered its efforts to open schools in states including Florida and
Texas, according to the Times story.
In 2009, the Georgia Department of Education determined that Imagine’s
school boards were not truly independent. The company was forced to
reconstitute its boards, which, in the case of Wesley, actually
improved the relationship between the company and the school, according
to David Walker, a business attorney who became chair of Wesley’s board
in the summer of that year.
“There were a lot of things that were out of whack when we came on
board,” Walker said. The school was paying for teachers, benefits, the
lease, as well as a percentage for Imagine’s fees, but it wasn’t clear
what services Imagine performed for the fees, and many aspects of the
agreement were ambiguous, he said.
Imagine’s spokeswoman did not comment directly on Wesley, but she said
the company operates within industry standards for administrative costs.
The new board, which includes attorneys and professionals, as well as
active parents, renegotiated the management agreements and the leases,
listing specific services that Imagine must provide to the school, and
how much each will cost.
Walker said his two daughters are flourishing at Wesley, which offers
Chinese-language as well as single-gender classes.
“We’re happy with what’s going on at Wesley,” he said. “The charter
school allows the community to have so much input on their child’s
education. I’m more comfortable sending them to Wesley instead of some
of the best private schools.”
Read it with links at Truthout
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