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How Charter Schools Fleece Taxpayers

In government, if I help myself to taxpayer dollars, we call that embezzlement and I go to jail. In the private sector, if I help myself to taxpayer dollars, we call that innovation and I get hailed as a visionary exponent of public-private partnership. That’s the lesson of a Nov. 17 investigation by Anne Ryman of the Arizona Republic into the state’s charter schools.

In her examination of Arizona’s 50 largest nonprofit charter schools and all of Arizona's nonprofit charter schools with assets exceeding $10 million, Ryman found “at least 17 contracts or arrangements, totaling more than $70 million over five years and involving about 40 school sites, in which money from the non-profit charter school went to for-profit or non-profit companies run by board members, executives or their relatives.” That says to me that in Arizona, at least, charter-school corruption isn’t the exception. It’s the rule. And that’s just in the nonprofit charter schools. Documentation for the for-profit schools is not publicly available. What are the odds that charter-school proprietors operating in the dark are less inclined to enrich themselves at public expense?

The self-dealing is entirely legal. All you have to do is get yourself an exemption from state laws requiring that goods and services be bid competitively. Clearly these exemptions aren’t difficult to acquire, because 90 percent of Arizona’s charter holders—not 90 percent of the charter schools surveyed by the Arizona Republic, but 90 percent of all the state's charter schools—have acquired permanent exemptions from state competitive bidding requirements. No exemption has ever been withdrawn by the state. If you are a charter-school officer and you stand to benefit personally from some financial transaction with the school, you may not vote on whether to make the purchase. But that’s about the only rule.

The result? “The schools’ purchases from their own officials,” Ryman writes, “range from curriculum and business consulting to land leases and transportation services. A handful of non-profit schools outsource most of their operations to a board member’s for-profit company.” A nonprofit called Great Hearts Academies runs 15 Arizona charter schools. Since 2009, according to Ryman, the schools have purchased $987,995 in books from Educational Sales Co., whose chairman, Daniel Sauer, is a Great Hearts officer. And that doesn’t count additional book purchases made directly by parents. Six of the Great Hearts schools have links on their Web sites for parents who wish to make such purchases. The links are, of course, to Educational Sales Co. Since 2007 Sauer has donated $50,400 to Great Hearts. You can call that philanthropy, or you can call that an investment on which Sauer’s company received a return of more than 1800 percent. I’m not sure even Russian oligarchs typically get that much on the back end.

It's happening in other states, too. In 2011 Christopher Magan and Margo Rutledge Kissell told a strikingly similar story about Dayton’s Richard Allen Schools in the Dayton Daily News. That article led to an investigation by Ohio’s state auditor and, in this instance, the recovery of some funds. This past May, a San Bernardino County school district shut down the Adalanto Charter Academy because (according to the San Bernardino County Sentinal) “much of the academy’s academic imperative was suborned to the mercenary intent of those involved at the school.” (Details here.) A 2008 Washington Post investigation by David S. Fallis and April Witt “found conflicts of interest involving almost $200 million worth of business deals, typically real estate transactions, at more than a third of the District's 60 charter schools.”

Arizona is perhaps extreme in the amount of latitude it grants charter school officials to enrich themselves, but indifferent enforcement of more strict legal prohibitions has the same effect. In D.C., for instance, a city official told Fallis and Witt that the relevant statute was enforced “on a case-by-case basis,” i.e., hardly ever. A Nov. 18 Post story further reported that private schools participating in the city’s voucher program—which in many cases are indistinguishable from charter schools—don’t even have to report to the city how many publicly funded students they have, or how well they’re performing. So in addition to providing ample opportunities for self-enrichment, at least some public-private experiments in K-12 education are free of any tedious public obligation to demonstrate that anybody on the premises is learning anything at all. The more doctrinaire education reform advocates, one senses, would just as soon not know.