Thomas Ultican: EMOs Generating Profits and Harm
Thomas Ultican recently posted a look at the new Network for Public Education report on charter profiteering. Reposted with permission.
Carol Burris, Darcie Cimarusti and the gang at Network for Public Education (NPE) just published “Charter for Profit: Pandemic Profiteering.” This is an update to their 2021 report “Chartered for Profit: The Hidden World of Charter Schools Operated for Financial Gain.” Both reports describe and document how the vast majority of for-profit charter schools hide their true nature when “By law, only the state of Arizona allows for-profit entities to be licensed to run charter schools.”(Page 3) The industry work around is to found schools as non-profit entities, but use a for-profit Education Management Organization (EMO) to run them.
To determine how many students were attending charter schools controlled by for-profit EMOs was no easy task. To confirm an EMO’s status the authors utilized state business search engines. Once confirmed, the team used EMO websites for their lists of schools which were compared with the relevant states list of charter schools. EMOs that did not have a website required a deeper search for documentation. (Page 34)
In December 2022, Professor of Education Policy at Michigan State University Josh Cohen did an evaluation for the National Education Policy Center of a September 2022 Thomas B. Fordham Institute’s study. That study attempts to justify the for-profit charter sector. However, Cohen found the study itself did not match the rosy conclusions in the forward by Fordham executives Amber Northern and Michael Petrilli. In fact, it showed for-profits having lower student achievement, lower graduation rates, and higher absentee rates. Furthermore, students in for-profit virtual charters quickly fell significantly behind students in brick-and-mortar schools.
Education Management Organizations
The current NPE study reports,
“At the beginning of the 2022-2023 school year, we identified 1,305 charter schools, run by one of 150 EMOs. This is an increase since our 2021 report, which identified 1,138 for profit-run charter schools run by 141 EMOs. …
“During these two school years – as the pandemic wore on – the percentage of charter schools run by for-profits jumped from 15 percent to about 16.6 percent of the charter sector.” (Page 10)
Those 150 EMOs were identified as belonging to one of three groups. The organizations with one or two charter schools could be labeled micro-EMOs. The small or mid-sized EMOs are constituted by three to nineteen schools while the large EMOs manage twenty or more schools.
The Covid-19 spread was very good to the for-profit charter industry. “As the pandemic wore on – the percentage of charter schools run by for-profits jumped from 15 percent to 16.6 percent ….” (Page 10)
Most states allow for-profits to manage charter schools; however five states have a very large for profit footprint. Three of the states – Michigan, Florida and Ohio – have a majority of their charters managed by for-profit companies.
Accessing those Sweet Taxpayer Dollars
For the last several years, it appears that the for-profit charter industry has been perfecting profiteering by applying insider deals, sweeps contracts and sweetheart business deals.
The NPE report defined: “Insider deals, formally referred to as related party transactions, occur when those who have control of a charter school’s decision-making process award contracts to their own companies or those owned by family members, colleagues, or friends. (Page 12)
An example of this type of profiteering comes from Arizona and APEX Charter Services solely owned by Raena Janes. Her for-profit EMO manages nine charter schools. The schools are overseen by two non-profit boards; the Arizona Community Development Corporation and Liberty Traditional Charter Schools, Inc. However, the non-profit boards both consist of Raena Janes, her employees and her business partners.
Much more about the details of this Byzantine business structure can be found by clicking on the LittleSis Map below. In 2018, I attended a presentation by Darcie Cimarusti on using the LittleSis data base and oligrapher. Since then Darcie has become a master at using these facilities. In the map below she lays out the connections that have allowed Janes and a very small group of accomplices over the last 12 years to extract $33 million from Arizona’s state education budget for their own pockets. APEX’s complicated structure caused an Arizona state audit to state, “
“During consideration of the service agreement the Director disclosed her duality of interest and recused herself from discussion or voting on approval of the agreement. The disinterested members of the Board approved the agreement. “
However, there are no disinterested members of the Board. As Darcie documented all of the board members have a stake in APEX being profitable.
Click here to Access the Map of Documented Insider Dealing at APEX
The NPE report gives several more examples of insider dealing.
Sweeps contracts are another vehicle for EMOs to build profits. The report says, “A sweeps contract is an arrangement in which a charter school turns over all or nearly all of its public funding to an operator who then runs the school.”
In 2014, ProPublica published “When Charter Schools Are Nonprofit in Name Only.” This prescient article focused on the actions of National Heritage Academies an EMO which today manages more than 100 schools. It reported,
“In Michigan, where NHA is the largest charter-school operator, state education regulators have voiced … frustrations about the degree to which these private firms are shielded from having to answer to the public about how money is spent.
‘“I can’t FOIA National Heritage Academies,’ said Casandra Ulbrich, Vice President of the Michigan State Board of Education, referring to the right to request public documents from public agencies. ‘I don’t know who they’re subcontracting with, I don’t know if they’re bid out. I don’t know if there are any conflicts of interest. This is information we as taxpayers don’t have a right to.’’’
Another seeps contract example from the NPE report is ACCEL Schools the fourth largest EMO with 54 schools of which the majority are in Ohio. In 2017, Akron Preparatory Schools signed a sweeps contract with ACCEL. The NPE report described the contract as muscular noting,
“From beginning to end, it not only details the sweeping services that ACCEL will provide but also makes it clear that the decision-maker will be the for-profit, not the board. ACCEL is the ‘exclusive custodian’ of all revenues, choosing the bank into which the funds are deposited and managing the accounts. The 18 percent fee from revenue received ensures that ACCEL makes a profit.” (Page 17)
The third big profit driver for EMOs is sweetheart real estate deals. Burris et.al shared, “When we began our investigations into chartering for profit, we were told that ‘the real money’ is made in real estate.” Academica, National Heritage Academy, Charter Schools USA, ACCEL, and Leona are the five largest for-profit EMOs. The all use related real estate corporations and employ contracts that put the EMO in charge of lease relationships. (Page 17)
The second largest EMO in the country is National Heritage Academies (NHA). NHA’s real estate arm is the Charter Development Company (CDC). Both NHA and CDC are owned by J.C. Huizenga, whose father and uncle created the huge multinational company Waste Management. The NPE paper reports,
“In 2021, Charter Development Company began selling off schools to a nonprofit called Campus Partners 1, which appears to have been formed for the sale. Campus Partners secured one billion in bond funding from La Paz County in Arizona. The president of the board of Campus Partners 1 was Huizenga’s personal attorney. The sale allows Huizenga to profit from the sale of the schools while still managing the lease and facilities through Huizenga’s Charter Development Company. This real estate deal will potentially net up to one billion dollars from the sale of schools that had been paid for with tax dollars. Even after the sale, the schools will pay the lease via CDC to the new nonprofit, meaning the taxpayer will continue to foot the bill for the buildings over and over again.” (Emphasis added) (Page 21)
This is just one of the outlined real estate swindles setup to fleece taxpayers and purloin education dollars. The report goes into more detail about this deal and shares several more outrageous episodes.
Some Observations
Clearly the charter school industry has been corrupted by greed. In statehouses across America, it appears that education laws are being deliberately written to facilitate fraud and charter industry lobbyists work hard to keep it that way. Charter schools do clearly outperform voucher schools but that is not saying much.
Josh Cohen is a researcher who has been studying vouchers since the beginning of the millennium. At one time he was pro-voucher but his own research and that of others changed his mind. In a recent article he wrote, “Large-scale independent studies in D.C., Indiana, Louisiana, and Ohio show that for kids who left public schools, harmful voucher impacts actually meet or exceed what the pandemic did to test scores.” The article is well sourced and yes he did claim that testing data shows that the negative affects of voucher schools engenders worse learning loss than the pandemic.
Since voucher schools are substandard and charter schools are fraud centers that under-perform public schools, why do we have them? I believe it is because school choice is a racist and authoritarian agenda aimed at ending universal free public education in America. Obviously, choice has zero to do with improving education in America.