Last week, the Network for Public Education (NPE) published Chartered for Profit II: Pandemic Profiteering, a new report exposing the ongoing abuse of the public interest by the operators of for-profit Education Management Organizations (EMOs).

Some background…

In a Washington Post column last July, the executive director of the Network for Public Education, Carol Burris congratulated the U.S. Department of Education for imposing new rules to strengthen federal regulation of the federal Charter Schools Program, which has, since 1994,  awarded millions of dollars in federal grants for the startup and expansion of charter schools: “These new regulations are an essential first step in making sure that fewer tax dollars go to schools that never open, schools that quickly close, and for-profit operators. Unscrupulous individuals who used the program for their enrichment will find it more difficult to do so. ”

In December, just before Congress recessed for the holidays, however, Senator Tim Scott (R-S.C.), under pressure from the National Alliance for Public Charter Schools and other charter school lobbyists, offered a resolution to nullify the rules the Department of Education finalized in July for the purpose of strengthening oversight of the Charter Schools Program.

On December 14, 2022 the U.S. Senate rejected Sen. Scott’s proposal to block the Department’s new rules. Realizing that the work to make the charter school sector accountable must continue, however, last week the Network for Public Education published Chartered for Profit II: Pandemic Profiteering. It is notable that supporters of America’s public schools—concerned about all the ways for-profit Education Management Organizations (EMOs) divert tax dollars for personal gain—are more than matching the doggedness of the charter school lobby.

What’s in NPE’s new report?

In Chartered for Profit II: Pandemic Profiteering, the Network for Public Education tracks the many abuses of the public interest by for-profit charter school operators since NPE published Chartered for Profit: The Hidden World of Charter Schools Operated for Financial Gain two years ago:

“In this follow-up report on the charter for-profit sector, we chronicle its expansion during the years of the COVID-19 pandemic…. According to our research…. The percentage of students attending a charter school designed to produce a profit for its management company soared… (T)he total student enrollment in charter schools during the second year of the pandemic (the 2021-2022 school year) was 3,676,635. Student enrollment in for-profit-run charter schools jumped to 731,406 that year. That means that 20 percent of all charter school students… were enrolled in a charter school managed by a for-profit management corporation by the pandemic’s end. More disturbing is that 27 percent of the students attending for-profit-run schools were enrolled in low-quality virtual charter schools that teach students either exclusively or primarily online.” (emphasis in the original).

Although the new federal rules instituted last summer will stop federal grants from flowing to for-profit charter schools and to the nonprofit charter schools which are fully managed by for-profit Education Management Organizations, the new federal rules will not protect the public from lack of regulation in state laws. Charter schools, operating now in 45 states, are set up and primarily regulated in state law. Therefore, lack of oversight is largely a problem residing in state legislatures where the charter sector maintains a powerful lobby. Some states are especially permissive of for-profit charter schools: “Although most states allow for-profits to manage their charter schools, five states presently have a sizeable for-profit footprint. In three of the five states—Florida, Michigan, and Ohio—charters run-for-profit make up the majority of the charter sector.” In Michigan, 70% of charter schools are operated for-profit; In Florida, 52%; in Ohio 52%; in Nevada 40%; and in Arizona, 38%.

Education Management Companies typically take over small independently operated nonprofit schools or find nonprofit agencies to start up charter schools that will then be fully operated by the larger corporations.  In the new report, we learn more about Oklahoma’s notorious Epic Charter Schools, three of whose leaders were arrested in June of 2022 for shady financial dealings even as the online chain increased its enrollment “by over 31,000 students between 2019-2020 and the 2020-2021 school years alone.”  We learn about the five largest for-profit, brick and mortar Education Management Organizations: Academica, National Heritage Academy, Charter Schools USA, ACCEL, and Leona; and about the two biggest for-profit online academies: Stride K12 and Pearson’s Connections Academy.  We also learn that many Education Management Organizations are much smaller: “Micro-for-profits (EMOs that manage one or two schools) (now) comprise nearly half of all for-profit EMOs.”

How do the for-profit Educational Management Companies make a profit? “(T)he owners of EMOs extract profit thanks to the absence of oversight and regulation.  State governments fail to protect taxpayers from sweetheart deals, sweeps contracts, and related party transactions….”

• “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 a family member, colleagues, or friends..” NPE traces sweetheart deals for example at Arizona’s Charter One empire. Glenn Way began sponsoring charter schools under the brand, “American Leadership Academy,” from his position as a state legislator in Utah, but, “Because he would be up against a charter cap in Utah, Way moved to Arizona, where for-profit entities can open and operate an unlimited number of schools under the nation’s loosest charter school laws.”  Way founded Charter One L.L.C., as a for-profit EMO to manage the American Leadership Academy schools, founded Schoolhouse Development to rent school facilities to his schools at exorbitant leasing rates, started a construction company to provide construction and building services, and launched an apparel company to provide school uniforms. “Way’s charter empire is now moving beyond Arizona into Nevada, North Carolina, and South Carolina.”
• “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 such an arrangement, the board of the nonprofit charter school being managed by the EMO has no way to track whether the funds are being used to provide services for students or whether they are being siphoned into profits for the EMO. NPE reports that, “National Heritage Academies… runs more than 100 schools with sweeps contracts.” ACCEL Schools runs its 54 schools with sweeps contracts. ” Florida’s Charter Schools U.S.A., the third largest for-profit chain, operates its schools with sweeps contracts, as does the Leona Group, based in Michigan.”
• Sweetheart real estate deals are how “the real money is made.” “The five biggest for-profit management companies—Academica, National Heritage Academy, Charter Schools U.S.A., ACCEL, and Leona—have related real estate corporations with contracts that put the EMO in charge of lease relationships.” The report abounds with examples.  Here is one: “The largest EMO is Academica, based in Miami, Florida. Academica’s owner is a real estate developer, Fernando Zulueta, who opened the first charter, Somerset, as part of a housing development he had constructed… Over 100 active corporations linked to Fernando Zulueta and his family members… include real estate corporations, holding companies, and finance corporations, as well as sub-chains both within and outside of Florida… The connection between Fernando Zulueta’s real estate holdings and his for-profit managed charter schools goes beyond the state of Florida. According to the State Public Charter School Authority, Academica Nevada pays the lease on behalf of the charter school Mater Academy Mountain Vista of Nevada to Stephanie Development L.L.C. The managing members of Stephanie Development are Fernando and Ignacio Zulueta and Robert and Clayton Howell. Robert Howell is the manager of Academica Nevada.”

NPE outlines all the ways that states should strengthen their regulation for-profit management of charter schools. Finally the Network for Public Education presses the federal government further to expand its regulations: to “require all charter schools that receive federal funds to provide the name and corporate status of any entity that provides management services as well as the names and services provided by all vendors that are related corporations of the EMO.”  Further, NPE recommends that, “charter schools run by EMOs via a sweeps contract not be eligible to receive any federal funds.  Sweeps contracts are a blatant violation of the spirit of federal law, which permits only non-profit schools to be recipients of federal funds.”

The Network for Public Education reminds readers that, “In the for-profit charter market, every customer who walks through the door comes in with ample cash provided by taxpayers.”