July 13, 2024


Science It Works

What’s The Matter With For Profit Charter School Management?

The House Appropriations Committee has caused a stir with one tiny paragraph in its 198-page health, labor and education spending bill.

SEC. 314. None of the funds made available by this Act or any other Act may be awarded to a charter school that contracts with a for-profit entity to operate, oversee or manage the activities of the school.

The presence of for-profit operators in the charter school sector has long been a concern for critics, with almost all states outlawing a charter school strictly run for profit. But charter school operators have long worked a variety of loopholes, keeping the sector a highly profitable one, and most of those loopholes involve a non-profit charter school hiring a for-profit business.

We are not talking about contracting services like school buses or cafeteria management; these kinds of side functions are frequently contracted out both in charter and public schools, but they are not the school’s primary activities.

The bill is clear and specific about targeting for-profit entities that “operate, oversee or manage the activities of the school.”

Sometimes the money comes from the real estate side of the charter business. There is such a thing as a business that specializes in charter schools and real estate. In some states, the government will help finance a real estate development if it’s a charter school, and in general developers have noted an abundance of cash. Though, as one charter real estate loan bond financier told the Wall Street Journal, “There’s a ton of capital coming into the industry. The question is: Does it know what it’s doing?” Many states have found a problem with charters that lease their buildings from their own owners as well.

One example of a real estate operator making money from the real estate side was Carl Paladino of Buffalo. Paladino worked with charter operators via flipping properties and making “leaseback” deals, as detailed in a report from the Alliance for Quality Education. Paladino not only profited from the schools, but from investments in surrounding properties. He was not shy about any of it. On the question of making money from working with charters, the Buffalo City News quoted him: “If I didn’t, I’d be a friggin’ idiot.”

While many charters may contract out critical functions such as curriculum, the extreme cases are what are called “sweeps” contracts, in which the charter management organization (CMO) fully runs the school in exchange for as much as 95{13aab5633489a05526ae1065595c074aeca3e93df6390063fabaebff206207ec} of the revenue that comes in. A report that the Network for Public Education issued earlier this year details many of the creative ways that CMO’s turn a profit. CMO’s come in a variety of sizes, from chain operations running many schools all the way down to mom-and-pop CMOs that run a single school.

These arrangements can become convoluted. In Florida, one charter founder moved on and off the board of directors regularly to allow payments from his school to himself, and while the school was having trouble paying teachers, it was paying his company tens of thousands of dollars to license the school logo.

One could argue that outlawing for-profit charters actually made things worse, and that what would have been clear and open attempts to profit from a school are now hidden behind multiple operational layers.

But all of this still leaves a simple question—what’s wrong with having charter schools managed, directly or indirectly, for profit?

Certainly the presence of so much money in a largely unregulated industry is an invitation to bad actors, and while most charter school operators are ethical and honest, a disturbing number of fraudsters are attracted to the sector. And it’s important to remember that the money in play here is taxpayer money.

Yet taxpayers often find that their dollars have become not just profit, but assets for someone else. This report from the National Education Policy Center lays out how the public can end up paying for a building—more than once—and that building is still privately owned.

The battle over ownership can be a problem for the charter school itself. As shown in this decision from the Ohio Supreme Court, the CMO may very well own all of the classroom equipment and resources; if the CMO pulls out or ends its contract, the school that it serviced can become an empty shell.

That issue underlines one of the other issues of the hidden for-profit charter world; these organizations are businesses and make decisions for business reasons—not educational ones. As Carl Paladino put it, if they aren’t making a profit, they’re friggin’ idiots. Every year brings multiple stories of students and families left adrift—sometimes mid-year—because the business operating their school decided the business case for continued operation was too weak. When your favorite restaurant or department store closes, that may be upsetting, but when your child’s school closes, that’s disruptive and damaging. For-profit businesses cannot offer the kind of stability that families need and deserve.

The root issue with for-profit charters is simple—the more money they spend on serving the needs of students, the less profit they get to keep. And because the revenue stream is mostly fixed and immutable, the only way to “generate” more profits is to spend less of that revenue on the students. For-profit charter management will naturally tend toward an adversarial relationship with the people it’s supposed to serve, and face an unending struggle over how to measure success.