The House Appropriations Committee has: caused a stir with a small paragraph in his 198 page health, labor and education expense account.
SEC. 314. None of the funds made available by this Act or any other Act may be allocated to a charter school that has a contract with a for-profit entity to operate, oversee, or manage the school’s operations.
The presence of for-profit operators in the charter school sector has long been a concern of critics, with nearly all states banning a charter school that is run solely for profit. But charter school operators have long had several loopholes, keeping the industry highly profitable, and most of those loopholes involve a non-profit charter school hiring a for-profit company.
We are not talking about contracting services like school buses or cafeteria management; these types of side jobs are often outsourced, both in charter schools and public schools, but they are not the primary activities of the school.
The bill is clear and specific about targeting for-profit organizations 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 company that specializes in charter schools and real estate. In some states, the government will help fund a real estate development if it is a charter school, and in general developers have noticed an abundance of cash. Although, as a real estate bond lender, told the Wall Street Journal“There’s a lot of capital coming into the industry. The question is, does it know what it’s doing?” Many states have found a problem with: charters leasing their buildings including their own owners.
An example of a real estate operator who made money on the real estate side was Carl Paladino of Buffalo. Paladino partnered with charter airlines through property turnaround and making “leaseback” deals, as detailed in a report from the Alliance for Quality Education. Paladino not only benefited from the schools, but also from investments in surrounding properties. He wasn’t ashamed of anything. As for the issue of making money working with charters, the Buffalo City News quoted him“If I didn’t, I’d be a fucking idiot.”
While many charters may outsource critical functions such as the curriculum, the extreme cases are mentioned “wipes” contracts, with the charter management organization (CMO) running the school entirely in exchange for as much as 95% of the revenue coming in. A report that the Network for Public Education Released earlier this year, it details many of the creative ways CMOs make profits. CMOs come in a variety of sizes, from chain operations that run many schools to mom-and-pop CMOs that run a single school.
These arrangements can get complicated. in Florida, a charter founder has moved regularly on and off the board to allow payments from his school to himself, and while the school struggled to pay teachers, it paid his company tens of thousands of dollars license the school logo.
You could argue that banning for-profit charters has actually made matters worse, and that what clear and overt attempts to profit from a school are now hidden behind multiple layers of operations.
But all this still leaves open a simple question: What’s wrong with letting charter schools directly or indirectly run for a profit?
The presence of so much money in a largely unregulated industry is certainly an invitation to bad actors, and while most charter school operators are ethical and honest, a disturbing number from fraudsters be attracted to the industry. And it’s important to remember that the money at stake here is tax money.
Yet taxpayers often find that their dollars have turned into not only profits, but also assets for someone else. This report from the National Education Policy Center explains how the public can pay for a building – more than once – and that building is still privately owned.
The struggle for ownership can be a problem for the charter school itself. As shown here Ohio Supreme Court decision, the CMO may very well own all the equipment and resources in the classroom; if the GMO pulls out or terminates its contract, the school it served could become an empty shell.
That problem underscores one of the other problems of the hidden for-profit charter world; these organizations are businesses and make decisions for business reasons, not educational reasons. As Carl Paladino put it, if they don’t make a profit, they are idiots. Each year brings several stories from students and families are adrift— sometimes mid-year — because the company running their school decided the business case for continuing the business was too weak. When your favorite restaurant or department store closes, it can be shocking, but when your child’s school closes, it’s disruptive and damaging. For-profit businesses cannot provide the kind of stability that families need and deserve.
The crux of the problem with for-profit charters is simple: the more money they spend on meeting student needs, the less profit they’re allowed to keep. And because the income stream is largely fixed and unchanging, the only way to “generate” more profit is by spending less of that income on the students. For-profit charter management will naturally tend to have a hostile relationship with the people it is supposed to serve, and engage in an endless battle over how to measure success.