The Charter School Business

AP Photo/The Topeka Capital-Journal, Ann Williamson

Tong Athwai, 16, studies during his Intro to Algebra class at the Highland Park Success Academy in Topeka, Kansas. 

Rutgers University professor Bruce Baker is a longtime expert on charter schools, which are in the crosshairs of a nationwide debate over school performance standards. Recently, Baker, and his colleague Gary Miron, authored a study about the ways in which individuals, companies, and organizations profit through laws and regulations governing the charter school sector. In an interview with The American Prospect, Baker discusses some of the most egregious policy problems, and steps that governments could take to fix them. What follows is an edited transcript.

Rachel Cohen: Your report explores what you call, “The Business of Charter Schooling.” Has this been studied much before?

Bruce Baker: I don't think it's been systematically studied because I don't think there are many unified data sources for this information—it’s more like investigative reporting. I had been repeatedly asked to look into charter school real estate deals and things like that but getting good data just isn't easy. This was really just a first cut at summarizing the business practices and financial transactions occurring in the charter sector, and what policy structures encourage or permit these things to happen.

RC: You say that current laws and policies governing charters are increasing the privatization of public schooling. What do you mean?

BB: I want to be careful on this issue of ‘privatization’ because I don't think the intent of our report was to say that public policy is promoting privatization, or that privatization is necessarily bad or good. But there is a long line of case law that carefully parses under what circumstances, and in what settings, certain activities of charter schools are public or private. I’ve coauthored law review articles where we discuss extensively how the charter school industry claims it is “private” when dealing with questions of employee rights, student discipline policies, student handbooks, or contracts, and “public” in other respects.

The idea put forth in our report is that there are certain policy structures, and in some cases lack of policy controls, that are permitting more extensive degrees of privatization in some states. Sometimes it just makes business sense for charter operators, good or bad, or it affords them a way to do something more quickly or cheaply. But I think that some actors in the charter world such as Imagine Schools, White Hat, and Charter Schools USA, are taking advantage of these opportunities in ways that are self-enriching and not in the public interest.

RC: What are some examples?

BB: Sometimes charter providers take actions that are illogical and inefficient from a public policy standpoint, but it might simply be what they have to do to get by. For example, sometimes charter providers create third-party entities, and then pay rent for the school facilities to these new entities. Since charters can't directly purchase land themselves, these third-party entities allow them to take advantage of tax incentives and to carry revenue-bond debt to purchase property. Unfortunately, because they're doing this through revenue bonds, they're getting a crappier interest rate than a district might get and they have to spend a greater part of their operating funds to get facilities. That’s one example of how policy basically backs a charter school into engaging in inefficient activities.

In other cases, charter providers may engage in ethically suspect, but perhaps not illegal, behavior. For example Imagine Schools runs its own property acquisition arm, Schoolhouse Finance. Similarly, Charter Schools USA, a for-profit company, runs Red Apple Inc., and acquires properties to lease them back to the charter school. And in some cases it does actually become illegal. In Kansas City a court ruled that Imagine Schools went over the line with self-dealing, because they overcharged themselves so much in lease payments. [These leases are being paid for with public dollars.]

RC: You note that many public school districts have privatized services for years. What makes what’s happening in the charter sector different?

BB: The modern era of privatized contracted school management started out in the 1990s, as traditional school districts would engage in contracts with private organizations to run schools. But in these cases, the contracted manager works for a local board of education, and is paid through a district budget. So at least at the top level of the organization, the district and the board of education know the details of that private contract.

Rutgers University professor Bruce Baker. 

Whereas if you look at some states, sometimes it may be private entities that actually authorize charter schools, and charters are established through boards of private citizens who then might contract a private company to run their school. The opportunities to shield disclosure, at multiple levels of the hybrid, publicly funded, privately managed and governed system, are dramatically increased in the charter sector. 

RC: You note that school districts, many of them starving for cash, have been selling off their public assets—such as school facilities and land—to the charter sector. If one day, the public sours on charter schools, and wants to return to traditional public education—might this not be possible?

BB: Yes, the turnaround would just be too expensive. Maybe 15 years down the line it will be different, but as it stands now, the case for spending sufficiently on a system of public schooling is just not strong. Despite the economic turnaround, most states are still spending less and less on schools.

If you start thinking how much short-run expense would be required to even acquire new urban land to educate students, and then to develop suitable facilities—well, it’s very high. And in some cases, the land and buildings that are being used by charter operators are actually owned by for-profit real estate investment trusts. They're certainly not going to sell land and buildings back to cities below market value just to support the public good.

I think we do need to be paying more attention to the capital available to educate the children we're responsible for educating. If we sell it off, and change our minds about charters down the line, we are screwed.

RC: You recommend instating far greater financial reporting requirements. How would this help?

BB: Any entity, private or public, engaged in the delivery of school services should have to report their expenditures. Right now we have to go fishing through IRS 990 forms—if the manager is nonprofit—and it gets very messy. I'd like to see charter financial data reported into a publicly accessible system. Some states do a much better job of this, but you really have to fish for these little pieces of information here and there to try and pull it all together. There’s got to be better accounting for the overlapping financial relationships, so that people can understand how money is being passed between interested parties.

RC: People often talk about charter networks like KIPP, but it seems like there are far bigger networks that slip under the radar. Your research suggests that these networks come with more problems or ethical concerns.

BB: There are certain charter schools we hear about in the media—like KIPP, Uncommon Schools, and Success Academy. And I have my own concerns about the pedagogy and compliance with students' rights issues at those schools, but when you start looking nationally, what we see is that the dominant players operating charter schools in many states are Imagine, which has found itself in court for self-dealing, White Hat, which was just involved in an Ohio Supreme Court case, National Heritage Academies, Mosaica, Charter Schools USA … and in many states, and nationally in the aggregate, these are much bigger than KIPP or Achievement First, etc. 

These networks are not the names we hear about when we hear about the next big study to show how well charters are doing. These are not the networks we hear charter advocates saying we need to expand. Rather we see advocates saying that if we just remove caps and deregulate we’ll see a lot more networks like KIPP. That’s not the case. It hasn’t been the case. And it won’t be the case.

RC: School choice advocates often say that more money is able to “get down to the classroom level” in charter schools, because we do away with large district bureaucracies. This was a common theme in Dale Russakoff’s recent book, The Prize. Is it true?

BB: It's a complete mischaracterization. It's one of those cases where the public rhetoric and the research that's been done really over quite a long period of time are entirely at odds. There are numerous studies that have looked at the administrative overhead expenses of charters and found them to be very high. The vast majority of charters have relatively low total classroom instructional expenses, and studies have consistently found that the proportions spent on administration and other centralized expenses are much higher in charters.

My graduate student, Mark Weber, wrote about the misuse of data in Dale Russakoff’s book.

RC: What recommendations in your report do you expect to garner the most opposition?

I would expect to get significant pushback from the various types of private entities that have enjoyed their current opportunities to shield disclosure.  

We also make the case for a centralized, publicly governed authority to manage facilities, or perhaps even all capital resources. Allocating public space to charter operators both reduces the potential for inefficient expense by charter operators and maintains the public's interest in its public assets.

Some public school advocates, who are fairly anti-charter, have been opposed to the idea of “co-location” which is where a charter and a district school share space within the same building. It has led to some problems, but when I look at the big picture, it’s a hell of a lot better for the public to maintain the public facilities and allow charter operators to use them, rather than sell them off.

I fear this report is going to be seen as us saying all charters are evil, or bad, or money grabbing. What we're saying is there are good charters but also bad ones, and the bad ones are bigger than you think. Charters represent a significant portion of our public school system system and we've got to figure out how to make them work better for the public interest.

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