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PORTSIDE  April 2011, Week 2

PORTSIDE April 2011, Week 2

Subject:

Charter Schools Outsource Education to Management Firms, With Mixed Results

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Mon, 11 Apr 2011 00:14:34 -0400

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Charter Schools Outsource Education to Management 
Firms, With Mixed Results
by Sharona Coutts
ProPublica 
April 6, 2011
http://www.propublica.org/article/charter-schools-outsource-education-to-management-firms-with-mixed-results

Since 2008, an Ohio-based company, White Hat Management,
has collected around $230 million to run charter schools
in that state. The company has grown into a national
chain and reports that it has about 20,000 students
across the country. But now 10 of its own schools and
the state of Ohio are suing, complaining that many White
Hat students are failing, and that the company has
refused to account for how it has spent the money.

The dispute between White Hat and Ohio, which is
unfolding in state court in Franklin County, provides a
glimpse at a larger trend: the growing role of private
management companies in publicly funded charter schools.

Contrary to the idea of charters as small, locally run
schools, approximately a third of them now rely on
management companies -- which can be either for-profit
or non-profit -- to perform many of the most fundamental
school services, such as hiring and firing staff,
developing curricula and disciplining students. But
while the shortcomings of traditional public schools
have received much attention in recent years, a look at
the private sector's efforts to run schools in Ohio,
Florida and New York shows that turning things over to a
company has created its own set of problems for public
schools.

Government data suggest that schools with for-profit
managers have somewhat worse academic results than
charters without management companies, and a number of
boards have clashed with managers over a lack of
transparency in how they are using public funds.

White Hat has achieved particularly poor results, with
only 2 percent of its students making the progress
expected under federal education law. The company
declined comment on the performance of its schools.

White Hat was established in 1998 by a prominent Akron
businessman, David L. Brennan, who was a key advocate
for introducing charter schools into Ohio. Like most
charter schools, White Hat's Hope Academies and
LifeSkills Centers are primarily funded by the state
based on the number of pupils they enroll. The contracts
between White Hat and the schools now suing allow the
company to collect virtually all funds and use them to
run the schools.

When White Hat was establishing some of its first
schools, a principal invited James Stubbs, a former NASA
electronics technician, to join the board of White Hat's
Hope Academy Chapelside.

Stubbs, who sent his three children to Hope Academies
and eventually sat on a number of White Hat school
boards, said it took several years before some boards
began to question why the schools continued to perform
poorly. He said that when members started demanding more
detailed accounting, the schools and the company began
to clash.

"Ultimately, the board is responsible for what happens
to the money," Stubbs said. He said that when White Hat
refused to disclose, it put the board in what he saw as
an untenable situation. "The management company gets all
the money but none of the blame when things go wrong."

Charles R. Saxbe, the attorney representing White Hat in
the lawsuit, said the company has complied with its
legal and contractual requirements. He said that public
funds become private once they enter White Hat's
accounts.

"If I'm Coca-Cola, and you're a Coca-Cola distributor or
a Coca-Cola purchaser," said Saxbe, "that doesn't
entitle you to know the Coke formula or find any
financial information you'd be interested in learning
from the Coca-Cola company. And that's kind of what
they're demanding."

"Governing boards are purchasing the service and
whatever it takes to deliver that service from White
Hat," Saxbe said. "And if White Hat loses money, that's
their risk. And if they make money, that's their
upside."

But the boards say that students, not White Hat, carry
the greatest risk-the risk of failing in school.

"We give the management company 96 percent of the
revenues from the state, and they do not have a
transparent means for us to see what's happening with
the money," said Stubbs. "What I am concerned about is
students not doing well under this management company,
and that can't continue," he said.

The Ohio Department of Education agreed. It joined the
lawsuit [1] last fall and asked the court to help the
"group of public schools break free from dominance by
private interests."

"Things have not gone well under White Hat's direction,"
the department argued in a court motion. "Most of the
schools have received the equivalent of D's and F's on
their State report cards and their performance has
declined during the term of the agreements."

In fact, White Hat schools across the country are
performing poorly, according a report [2] by the
National Education Policy Center, a nonpartisan research
organization based at the University of Colorado,
Boulder. Of the 51 schools White Hat managed in 2010,
only one met a key standard established by the No Child
Left Behind law-called "Adequate Yearly Progress."
According to the report, that is by far the worst
performance of any large for-profit management company.
The company did not answer questions on the performance
of its schools.

Adequate yearly progress is a "crude indicator" of
success, according to Gary Miron, professor of education
at Western Michigan University, who co-wrote the report.
But he said it does at least show whether schools are
meeting state standards.

"When you compare 2 percent of White Hat schools meeting
AYP, that's just something that cries out that there's
something awry here," he said. "Even schools in poverty
are going to have a much higher rate of meeting AYP."

Despite the poor performance and the lawsuits, White Hat
is still managing the schools under a contract extension
that expires this summer.

Because White Hat owns most of the schools' property and
employs the staff, the boards worry that they could not
survive a sudden rupture with the company.

"A big part of the argument here is being able to follow
the money," said James D. Colner, an attorney
representing the schools. "We have no idea whether
they're earning a reasonable profit or not. We have no
idea whether the money is being efficiently or
effectively spent for our students," he said.

As federal and state governments pour billions of
dollars into charter schools, boards across the country
have increasingly turned to companies such as White Hat.
Roughly a third of all charter schools now contract with
"full service" management companies, which control
hiring and firing, enrollment and curriculum at these
public schools, according to Miron.

Yet the results have been decidedly mixed, with
increasing complaints that some companies have put
profit ahead of education and have often become
unaccountable to the school boards that are supposed to
represent the interests of the community and children.

"I'm seeing increasing problems with boards not having
access to information," said Miron. "The boards have
less authority because so many things are sewn up by the
management company."

While a lack of transparency does not always lead to
poor performance, experts see it as a red flag for
possible problems.

About half of charter schools with for-profit management
companies met their adequate yearly progress targets,
according to the National Education Policy Center's
report, which used the most recently available
information. By comparison, 63 percent of charter
schools overall and 67 percent of regular public schools
met the benchmark in 2009 [3], according to the National
Alliance for Public Charter Schools, an industry group.

"There's not always a direct link between how well a
school is managed and how well kids learn, but often a
school that is mismanaged will have bad academic
results," said Alex Medler, vice president of policy and
research at the National Association of Charter School
Authorizers, a nonpartisan group that advises policy-
makers and regulators. "Transparency is a symptom of
healthiness that lets a bunch of other mechanisms work
the way they should."

There can be good reasons for charter school boards to
hire management companies. "The idea is to make a
contract with someone who has the skills to hire people,
find a building and put a school together," said Henry
Levin, Professor of Economics and Education at Columbia
University's Teachers College. And indeed, some charter
schools overseen by management companies have
flourished.

But oversight of the industry has lagged, resulting in a
patchwork of state and district regulation, which
experts say is failing to safeguard the interests of
children and taxpayers.

Some states do not directly oversee either the company
or the board and do not regulate the terms of their
contracts. In many cases, the bulk of the oversight is
left to "authorizers," organizations empowered to green-
light charter schools. Some states have many
authorizers-which can include tiny nonprofit
organizations-while others entrust the task to public
universities, local districts or other specially created
entities, many of which lack the resources needed to
effectively carry out their role, according to
Columbia's Levin.

That's led to what Levin called "a lot of confusion."

"There's an awful lot of diversity in these companies,"
he said. "And most of them are proprietary, so we really
don't know how they're operating."

Schools in other states have also asked the courts to
help them rein in what they see as unaccountable
management companies.

In Florida, Paragon Academy of Technology and Sunshine
Elementary Charter School fired the Leona Group, a
Phoenix-based management company, in August 2009 when
Leona unilaterally dismissed the school's principal and
made other management decisions without seeking board
approval, according to legal filings.

The Leona Group promptly sued in Florida state court in
Broward County, arguing that the schools had wrongly
terminated the agreement and that the company had loaned
the schools $180,000 to keep them afloat. Michael R.
Atkins, the management company's general counsel, said
Leona is seeking to recoup those funds and wants a
resolution that allows the schools to continue to
operate.

The schools counter-sued, arguing that Leona "failed or
refused" to produce a range of documents, including
staff and teacher contracts, and bank account
statements. Leona ignored requests to return their
property, including "the master key for the school
facilities and all electronic and hard-copy school
records and documentation," according to the schools'
complaint.

Two board members of Leona-managed schools in Florida
told ProPublica that they had trouble finding out how
Leona was spending their money from the time the company
took over the schools in May 2008.

"It was very difficult and very confusing," said Mark
Gotz, who has served on the boards of numerous charter
schools in Florida and considers himself a charter
school advocate. "I would ask questions about the
numbers, what they related to, what numbers were
relative to what services were being provided, and in
the information that was given to us, neither myself nor
the accountant for Leona could dig it out."

Leona said it could not comment on the board members'
claims, saying they involved employees who have since
left the company. According to a spokeswoman, Leona has
contracts with 50 schools across five states, serving
18,300 students. A number of Florida schools that once
worked with Leona no longer contract with the company-
including two schools in Pompano Beach that settled
litigation with Leona late last year.

Even when schools and companies are able to settle their
disputes, the lawsuit settlements are often
confidential, leaving many questions unresolved.

The Rochester Leadership Academy Charter School was
closed in 2005 by the State University of New York, for
poor academic performance. In August 2009, the charter
school's board sued National Heritage Academies Inc.,
the school's for-profit management company, in Monroe
County, NY, arguing the company failed to provide the
"management, operation, administration, accounting and
education" it promised under the contract and caused the
school to lose its charter-effectively killing the
school.

The school claimed that National Heritage, which
operates 67 schools with 42,000 students in eight
states, had "failed to account and conduct financial
reporting" and cost the school over $2 million.

The parties reached a confidential settlement last
March. As local TV news report [4]ed, parents and
community members were angered that they were not told
what had happened with whatever funds, if any, that had
been recovered from National Heritage.

The school's former director could not be reached, and
lawyers for the school and National Heritage told
ProPublica that the confidentiality agreement prevented
them from commenting on any aspect of the case.

Despite the difficulties encountered by some schools,
many have positive relationships with their management
companies. A key factor is the presence of a strong and
independent school board, according to Medler, of the
National Association of Charter School Authorizers.

"The independent group holds the management company
accountable," he said. It makes no difference whether
the company is for-profit or nonprofit, he said, so long
as the board's interest is "the success of the school,
not the success of the management company."

Recent events at Imagine Wesley International Academy in
Atlanta, GA, illustrate the difference that a strong
board can make.

Imagine has been featured in local and national news
reports about problems at its schools. It was the focus
of a New York Times story [5] that raised questions
about how Imagine's founders, Dennis and Eileen Bakke,
were spending public funds, and about their related
company, Schoolhouse Finance, which had numerous real
estate transactions involving the schools.

The problems at the company led to conflicts with school
boards and hampered its efforts to open schools in
states including Florida and Texas, according to the
Times story.

In 2009, the Georgia Department of Education determined
that Imagine's school boards were not truly independent.
The company was forced to reconstitute its boards,
which, in the case of Wesley, actually improved the
relationship between the company and the school,
according to David Walker, a business attorney who
became chair of Wesley's board in the summer of that
year.

"There were a lot of things that were out of whack when
we came on board," Walker said. The school was paying
for teachers, benefits, the lease, as well as a
percentage for Imagine's fees, but it wasn't clear what
services Imagine performed for the fees, and many
aspects of the agreement were ambiguous, he said.

Imagine's spokeswoman did not comment directly on
Wesley, but she said the company operates within
industry standards for administrative costs.

The new board, which includes attorneys and
professionals, as well as active parents, renegotiated
the management agreements and the leases, listing
specific services that Imagine must provide to the
school, and how much each will cost.

Walker said his two daughters are flourishing at Wesley,
which offers Chinese-language as well as single-gender
classes.

"We're happy with what's going on at Wesley," he said.
"The charter school allows the community to have so much
input on their child's education. I'm more comfortable
sending them to Wesley instead of some of the best
private schools."

Clarification: We have added language to better explain
that some management companies that work with charter
schools are non-profits.

___________________________________________

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on the left that will help them to interpret the world
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