Reign of Error: The Hoax of the Privatization Movement and the Danger to America's Public Schools

by Diane Ravitch

  The first of the for-profit charter chains was the Edison Schools, established in 1992. Although Edison turned out not to be as profitable as its backers expected, there are now many national for-profit charter chains, such as Imagine Schools Inc., National Heritage Academies, Mosaica, and the Leona Group. Probably the most profitable are the cyber-charter chains. A cyber-charter or virtual school does not have school buildings. It delivers instruction to students at home via computers. The parents of the children are their “learning coaches.” These schools may draw students from across an entire state or even across state lines. The largest chains of cyber-charters are K12 Inc. and Connections Academy. Connections is owned by the mega-giant educational testing and publishing firm Pearson. The senior vice president of Connections was co-chair of the ALEC education task force that drafted model legislation promoting virtual schools.

  Advocates of charter schools claim they produce better academic results than traditional public schools and cost less because of lower overhead. Neither of these promises has been fulfilled. The academic results of charter schools are inconsistent, which is unsurprising because the sector itself is so variable. Some charter schools get consistently high test scores, and some get low test scores. Even charters within the same network can differ widely in results (like those in the KIPP network or Harlem Children’s Zone’s Promise Academies). Most studies consistently conclude that on average the academic results of charters are no better than those of traditional public schools serving the same sorts of students.23 Nor have charter schools produced cost savings.

  A 2012 study of charter schools in Michigan concluded that they spend more on administration and less on instruction than traditional public schools. (Other states may have different patterns; Michigan has a very large proportion of charters that operate for profit.) While both groups of schools get similar state funding, charters spend nearly $800 more per pupil per year on administration and $1,140 less on instruction than traditional public schools. “As a share of total expenditures, Michigan’s districts devote 60.5 percent to instruction, while charters devote only 47.4 percent.” Some of the charters’ higher administrative costs were attributed to the EMO’s management fees; the charters reduced the cost of instruction by paying lower salaries to those teachers who had credentials similar to those who worked in public schools, while relying primarily on a less experienced teaching force that turned over frequently. The self-managed charters in Michigan spend about $300 less per pupil than EMO charters. The authors concluded that “if one were searching for a contemporary reform to shift resources from classroom instruction to administration, it is hard to imagine one that could accomplish this as decisively as charter schools have done in Michigan.”24

  Currently, thirty-three states permit schools to be operated by for-profit organizations and paid for with taxpayer dollars. The number of for-profit EMOs grew from five to ninety-nine between 1995 and 2010, and enrollment grew from 1,000 to nearly 400,000.25 It is important to recognize how unusual this is in American history. Aside from an experimental program here and there, such as Education Alternatives Inc. and the Edison Project, both launched in the early 1990s, for-profit public schooling has been virtually unknown across nearly two hundred years of American education. Today, states such as Michigan, Indiana, Arizona, and Florida welcome for-profit charter schools. Even in states that do not permit for-profit schools, like Ohio, charter schools are allowed to contract out their management and/or services to for-profit operators, and often the boards of the charters are financially entangled with the operators who make a profit. In Michigan, at least 80 percent of the charter schools operate for profit. Erik Kain, a columnist at Forbes, wrote: “Four out of five charter schools in Michigan are run by for-profit corporations. Let that sink in a minute. This should be deeply, deeply troubling for anyone thinking about their child’s future education, or the future of this country.” Kain somberly observed, “The corporate takeover of public education is underway.”26

  Charter management corporations make handsome profits in Ohio, even though state law does not permit for-profit corporations to obtain a charter. However, state law permits the board of a nonprofit charter to hire a for-profit entity to manage its school. The Republican legislator who wrote the charter law opened a business to lobby for charters after she retired from the legislature, and she also works for her daughter’s for-profit business, which oversees forty-five charter schools. The Toledo Blade wrote in an editorial, “When charter schools emerged on the Ohio educational scene more than a decade ago, they were hailed by many, including this newspaper, as a potentially innovative and lower-cost alternative to the state’s disturbingly mediocre public school system. What was not envisioned is that charter schools—officially known as community schools—would become cash repositories to be siphoned of sponsorship and management fees, in some cases by politically connected individuals.”27

  The Akron businessman David Brennan owns a charter chain called White Hat Management, which operates some fifty schools in six states, thirty of them in Ohio. Since 1999, White Hat has collected nearly $1 billion in revenues from the state for its charter schools. Brennan and his family members have donated millions of dollars to the state’s politicians. Lobbyists for White Hat have played a significant role in writing charter legislation. Like many other states, Ohio gives schools a letter grade, based on test scores and other measures. In 2010–11, no White Hat charter school in Ohio earned a grade higher than C; most received a D or an F. In 2010, the boards of ten White Hat charter schools sued the corporation in an effort to compel it to open its financial books. White Hat collects 96 percent of the state funds, and the boards complained that they did not know how the money was spent. A judge ruled in favor of disclosure, but White Hat appealed the decision, claiming that as a private company it is not obliged to disclose its profits, losses, or revenues. It owns everything in the building, including the furniture, computers, and student files, which were purchased with public funds. Under Ohio charter law, if there is a dispute between the school board and the management company, the management company can fire the school board. A curious arrangement.28

  In 2012, despite its unimpressive academic record, the state awarded White Hat two additional charter schools.29

  For-profit charter chains have been subject to criticism because of issues of power, control, and money. The New York Times described how Imagine Schools Inc. takes complete control when it is invited to manage a school and that “regulators in some states have found that Imagine has elbowed the charter holders out of virtually all school decision making—hiring and firing principals and staff members, controlling and profiting from school real estate, and retaining fees under contracts that often guarantee Imagine’s management in perpetuity.” Imagine seeks to dominate the board that hired it and dictate the terms of its engagement. The corporation typically charges a management fee of 12 percent of all revenues, plus additional charges as determined by the company. Imagine’s real estate dealings are complex and profitable. It buys school properties, sells them to real estate investment trusts, leases them back, and charges rent to the charter schools it manages. An Imagine-managed charter school in New York City paid the company $10,000 a month more in rent than Imagine paid the owner of the building. In Nevada, an Imagine charter paid 40 percent of its state revenues for rent. In 2012, Missouri closed six Imagine charters in St. Louis for poor performance, abruptly displacing thirty-eight hundred children, about 11 percent of the district’s enrollment. When Georgia closed two Imagine schools, the Entertainment Properties Trust lost $72 million, experienced a drop in its stock price, and learned a lesson about the unpredictability of investing in charter schools.30

  Imagine is not the only for-profit corporation that profits by charging exorbitant rental fees. National Heritage Academies (NHA), a Michigan-based for-profit charter operator, manages two charter schools in Brooklyn, New York. NHA leased a school building for $264,000 a year and bills its client
Brooklyn Dreams Charter School a whopping $2.67 million for rent and related expenses. NHA also manages Brooklyn Excelsior Charter School, which was audited by the state comptroller in 2012. NHA leases the building from a company that it owns. The school pays NHA $2.57 million annually in rent, plus additional expenses that bring the cost of occupancy to $3.2 million, which was nearly a third of the school’s $10.2 million in annual revenues. The auditor complained that the school was paying $800,000 more in rent each year—a total of $4 million over the life of the five-year lease—than was recommended by independent appraisers.31

  Investing in charter school construction presents another opportunity for profit. In 2011, the tennis star Andre Agassi entered into a partnership with Los Angeles–based Canyon Capital Realty Advisors to create a fund of $750 million to finance the construction of charter schools across the nation. Investors were assured that they could do good and make a profit at the same time. The model for this venture was Agassi’s own charter—the Andre Agassi College Preparatory Academy in Las Vegas—which opened in 2001. Agassi told the media and investors, “I’m interested in seeing this school duplicated and used as a blueprint, a model for how our education system should be in this country.” Agassi portrayed the charter as an elite school for the city’s neediest students. Its goal is to “prepare all of its students to attend and to compete at the top 100 colleges and universities in the nation.” As a celebrity athlete, Agassi had no difficulty raising tens of millions of dollars to construct a state-of-the-art facility with ample resources; one billionaire made a gift of $18 million to Agassi’s charter school.32

  But the reality of the school did not match its image. In its first decade of operation, it had six principals; a local reporter noted that “teachers, principals and staff come and go like visiting teams.” Some classes had four or five different teachers in the same year. According to former teachers, “The constant turnover creates a chaotic learning environment.” The school’s proficiency rates on state tests were about the same as the district, but it served fewer English-language learners and special education students. Students in its first three graduating classes took thirty-seven Advanced Placement tests but passed only four. In 2010, the principal of the middle school was investigated for a cheating scandal, and the state department of education invalidated the scores. The cheerleading coach was arrested on suspicion of running an international prostitution ring. Former teachers and security guards described a school without discipline, where high staff turnover contributed to student misbehavior. The school spent more per pupil than regular public schools. It is not a model or blueprint for any other school.33

  Typically, nonprofit EMOs manage their schools and charge the state an administrative fee for their services. In some cases, the nonprofit management fee is no different from the fee of a for-profit. In New York City, for example, the Success Academy Charter Schools chain has a board that includes very wealthy Wall Street hedge fund managers. Eva Moskowitz, the CEO and founder of the Success Academy Charter Schools chain, is paid a salary and bonuses of about $400,000 annually. The organization is not-for-profit but charges a management fee of 15 percent, or $2,000 per student, which is comparable to the hefty fees charged by for-profit charter chains.34

  Arizona has sometimes been called the Wild West of the charter movement, and for good reason. With state encouragement, the charter sector of more than five hundred schools enrolls nearly 15 percent of Arizona’s school-age children, a far larger proportion than any other state. Under Arizona law, charters receive public money with minimal oversight. The result is not pretty. The Arizona Republic investigated the tax returns and audits of the state’s fifty largest nonprofit charters and found that more than a dozen engaged in questionable self-dealing. It discovered some $70 million in contracts that schools had awarded to board members and administrators. The investigation did not include any for-profit charter operators, which are not required by law to disclose their spending or revenues.35

  Nearly 90 percent of the state’s charters have sought and obtained permanent exemption from state laws that require them to seek competitive bids for goods and services. In some instances, a nonprofit charter outsourced its management to a for-profit corporation owned by a board member of the charter. Because the for-profit companies are not required to disclose their spending, that part of the operation cannot be investigated.

  Nothing in Arizona state law prohibits a charter from doing business with board members or staff members. In one nonprofit charter chain called Great Hearts, the newspaper reported, the schools purchased nearly $1 million in books from a textbook company owned by a board member.

  In 1998, Michael and Olga Block founded Arizona’s Basis charter schools, which are known for their rigorous curriculum and outstanding results. In 2009, the Blocks established a for-profit corporation to supply the six Basis charters with “most everything they need to operate: school directors, teachers, accounting, technology, human resources, public relations and Michael and Olga Block.” The nonprofit corporation signed a ten-year agreement with the for-profit. Michael remained on the board of the nonprofit, while Olga resigned. According to The Arizona Republic, “The nonprofit paid the Blocks’ company $9.8 million out of $13.7 million in total spending.” Under state law, the state may audit the charter school but not the for-profit corporation hired to run the school.

  Arizona law does not prohibit a charter from having a board consisting of members of only one family. A school in Peoria, Arizona, has a three-member board: the president and the secretary are married to each other, and the third member is their son. From 2007 to 2011, the school paid nearly half a million dollars to a business owned by the same family to provide curriculum, business consulting, maintenance, and other services. The school also awarded a contract for landscaping to the son and grandson of board members.

  Two Arizonans started an online charter school in 2002 as a nonprofit, for which they are both board officers and salaried employees. The same two people created and own a for-profit called the American Virtual Academy that develops curriculum and software. From 2007 to 2011, the nonprofit paid the for-profit $42.3 million for its services.

  The Espiritu charter schools, according to The Arizona Republic, are “a mesh of relatives.” The three schools are situated on one property in Phoenix. Armando Ruiz is the founder of Espiritu and a board member as well as a member of another nonprofit that Espiritu pays to handle nonacademic functions such as sports, technology, bookkeeping, and parental involvement. The schools pay rent to a third nonprofit that owns the land, whose board consists of Ruiz’s brother, sister, and nephew. Nine members of the Ruiz family collect salaries from and serve on the boards of the nonprofits.

  Oakland’s American Indian Public Charter School became a favorite of corporate reformers and received national publicity for its achievements. It was a middle school that originally served American Indians and had low scores. In 2000, Ben Chavis took over the school and changed its policies and its demographics. Almost all its students were poor, yet the school consistently posted some of the state’s highest test scores. Admirers hailed the school as a low-cost, no-frills model for the nation. Governor Arnold Schwarzenegger visited the school to offer his praise. The Bush administration honored it as a National Blue Ribbon School. Conservative foundations sent grants. David Whitman’s book, Sweating the Small Stuff, singled out Chavis for his politically incorrect paternalism; Whitman described the middle school as “one of the great educational turnaround stories in recent history.” (After the book’s publication, Whitman became chief speech writer for Secretary of Education Arne Duncan.) The school practiced harsh discipline and no-excuses regimentation. Chavis became known for his public use of abusive language and racial epithets. He sneered at unions and quickly fired teachers who did not measure up to his expectations. Chavis opened two more charter schools in Oakland, including a high school. Skeptics pointed out that the schools’ autocratic leader had changed the demographics s
o that most of the students were Asian Americans, and very few were American Indians. But nothing ended the media adulation of the schools until an audit in 2012 raised questions about $3.8 million that had been diverted to businesses owned by Chavis and his wife, the schools’ financial administrator. Chavis stepped away from the schools’ leadership but continued to collect hundreds of thousands of dollars annually in rental fees, because he owned the buildings in which the schools were located. As a charter leader, Chavis wanted public funding with no oversight at all, not over admission policies or disciplinary policies or finances.36

  The great hope of charter entrepreneurs is that they will eventually develop a replicable, inexpensive model that will raise the test scores of poor children and close the achievement gap between poor and affluent students and between racial groups. In a PBS documentary, the correspondent John Merrow asked why America—which had pioneered the mass-produced automobile with the Ford Model T—had not been able to mass-produce high-quality schools. He sought the answer in the Rocketship charter chain, which began its operations in San Jose, California, in 2006 and hoped eventually to enroll one million children. Its business plan was straightforward: cut costs by putting large numbers of children in front of computers for an hour a day, supervised by low-wage, part-time aides. This “blended learning” model is described as “personalized instruction” because the software adjusts the questions to the ability level of each student; the model enables the school to reduce the number of teachers and save $500,000 a year. Three-quarters of the Rocketship teachers are from Teach for America, and half have less than two years of experience. The students, well practiced in point-and-click assessments, get high test scores. The schools offer no music or art. The model is cheap and replicable.37