California Strikes Major Blow to For-Profit Charter Schools

One of the major critiques of charter schools, although not the only one, is that they allow private entities to profit off the education of children.  Some say the possibility of profits is a good idea because it brings new players into the education "market," incentivizes efficiency, and creates competition that might drive down the cost of quality education.  In theory, I suppose that is possible, but in reality, we have seen far more evidence to the contrary.  And the possibility of profit taking without sufficient state oversight also opens the door to downright corruptions.  Preston Green has done an excellent job of tracking scandal and corruption in the charter school sector.  I argue here, however, that what we call "corruption" is often actually legal when charters do it.  The self-serving contracts and leases are the type of behavior that would land public school officials in jail, but which are relatively common with some charter school operators.

That is what makes California's new statute barring for-profit charter school operators so significant.  On their face, most charter schools are non-profit.  Many states will not issue a charter to a for profit entity.  If Big Box Stores, Inc., for instance, applies to operate a charter in Kentucky, they state will reject it.  This, however, does relatively little to block for profit entities.  All Big Box Stores, Inc. needs to do is form a non-profit.  They can call it Big Box Academies.  If Big Box Academies gets a charter, it can then simply enter into a contract with Big Box Store, Inc. to supply all the labor and supplies for the charter school.  In fact, non-profit charters regularly turn over their entire budget to for-profit management companies.  Those companies can then take as much profit as they can manage.  As Tom Kelley has shown, they develop "sweeps" contracts that are so egregious that the charter schools are probably running afoul of non-profit rules.

California's new charter law takes a big bite out of this problem.  It makes it clear that only non-profits can receive a charter in the state.  It also prohibits those non-profit charters from transferring responsibility and management to a for-profit entity.  The law states:

On and after July 1, 2019, a petitioner that submits a charter petition or a charter school that submits a charter renewal or material revision application shall not operate as, or be operated by, a for-profit corporation, a for-profit educational management organization, or a for-profit charter management organization. For purposes of this section, a for-profit educational management organization and a for-profit charter management organization are entities that manage or operate a charter school.

“Operate as, or be operated by,” as referenced in paragraph (1), means services provided by a for-profit corporation to a charter school that include any of the following:

(i) Nominating, appointing, or removing board members or officers of the charter school.

(ii) Employing, supervising, or dismissing employees of the charter school, including certificated and noncertificated school personnel.

(iii) Managing the charter school’s day-to-day operations as its administrative manager.

(iv) Approving, denying, or managing the budget or any expenditures of the charter school that are not authorized by the governing body of the charter school.

(v) Providing services to a charter school before the governing body of the charter school has approved the contract for those services at a publicly noticed meeting.

A charter school shall not enter into a subcontract to avoid the requirements of this paragraph.

 

This legislation is an even bigger deal because California has more charter school students than any other state--over 600,000.  The next highest number is 315,000 in Texas.  North Carolina, the state with the 10th most charter school students, only has 91,000.  So this new bill in California is a major blow to for-profit operators nationally.

 

With that said, there is still more to be done to ensure that non-profit charters are acting like non-profits.  The California law stops charters from acting purely as shell companies for outside entities, but they don't stop non-profit charters from paying their upper level staff and management unreasonably high salaries while paying their teachers unreasonably low ones. They also don't stop non-profit charters from entering into unreasonable leases.  As Tom Kelley has shown, exorbitant leases appear to be one of the biggest profit-taking mechanisms.  No non-profit acting in its and its students' own best interests would every enter into some of these lease agreements.  California's new statute prohibits for-profit management, but it does not prohibit lease deals that are not on the up-and-up.  To be clear, the point of leasing out one's land is to make money.  So leases that send profits to landlords are not inherently problematic.  But California should not think its job is done with this statute.  It still needs to exercise enough oversight to ferret out problematic contracts and leases and ensure that state money is spent on students.