Jennifer Dixon

DetroitFreePress

What the 2011 law says: The charter contract must include “a requirement that the board of directors of the public school academy shall prohibit specifically identified family relationships between members of the board of directors, individuals who have an ownership interest in or who are officers or employees of an educational management organization involved in the operation of the public school academy, and employees of the public school academy. The contract shall identify the specific prohibited relationships consistent with applicable law.”

In September 2005, Emma Street Holdings bought property on Sibley Road in Huron Township for $375,000. Six days later, Emma Street sold the parcel to Summit Academy North, a charter school, for $425,000.

Who made the quick $50,000 at the school’s expense? The founders of Emma Street, two men with close ties to the school — one was president of Summit’s management company, the other was married to Summit’s top administrator.

The deal is emblematic of how friends, relatives and insiders can find ways to cash in on the nearly $1 billion a year state taxpayers spend on Michigan’s charter schools.

■ Full coverage:Free Press special report: State of charter schools

John Chamberlin, professor emeritus of public policy at the University of Michigan, blames Michigan lawmakers for not enacting tougher laws:

“They should be faulted as much as the people who had the conflicts and salted away money. When you say, ‘Line up here and you can scam the state,’ you shouldn’t be surprised if people line up and scam the state.” ■ Related:Tangled web at two charter schools shows shortcomings of state law ■ Related:Pittsfield Township charter school kept revenue streams in the family

Michigan’s charter school law had no prohibitions on conflicts of interest or self-enrichment until 2011, 17 years after the first charter schools opened.

The new provision, which took effect in 2012, has a big weakness: It only prohibits board members from serving if relatives work for the school or have a financial stake or job with the school’s management company.

It does not prohibit a host of other insider relationships. Boards are free to give contracts to friends and relatives of the school’s administrators and founders. Privately owned management companies that run charter schools don’t have to disclose whom they’ve hired as employees or vendors, so they are free to hire board members’ friends. School founders are not prohibited from running both a school and its management company.

The new law also does not bar a transaction such as the Summit land deal.

So conflicts persist and Michigan remains vulnerable to those who would take advantage of the loopholes.

■ PDF: Deeds show property is flipped to school

The law does say charter contracts signed by schools and authorizers — public universities, community colleges and school districts — must spell out which relations are prohibited. But critics say many authorizers do not aggressively root out conflicts. Gary Miron, a Western Michigan University professor who has studied charter schools extensively, said authorizers often are “assertive only after someone points out flaws.”

Dan Quisenberry, president of the Michigan Association of Public School Academies, which represents charter schools, defended Michigan’s system of oversight as a model for the country.

“If somebody is trying to open a charter school because they want to benefit from it in an improper way, they aren’t going to get authorized,” he said in a statement. “And if a situation ever does come up where an improper conflict of interest is spotted, the system is in place for the authorizers to immediately rectify it. The evidence is there that authorizers have and continue to intervene if a conflict is determined or perceived.”

But the state has no systematic method for uncovering conflicts of interest at charter schools.

Schools have found ways around Michigan’s conflict-of-interest rules

The Free Press discovered that over the years many have found ways to beat the system:

■ At Old Redford Academy in Detroit, authorized by Central Michigan University, the school’s founder runs the school and its management company and is business manager for a foundation that raises money for the school.

■ At the Multicultural Academy, authorized by Bay Mills Community College, members of the founder’s family were paid to provide meals and maintenance to the school in Pittsfield Township. Family members still rent the building to the school or collect a management fee for running it.

■ And Summit North and its sister school, Summit Academy, authorized by Central Michigan, gave construction, tutoring and janitorial contracts worth millions to companies owned by relatives of the schools’ top administrator. These dealings went on for years before CMU acted in 2008.

Michigan’s current charter law does not prohibit these kinds of conflicts.

Preston Green, a professor at the University of Connecticut and an education law expert who has written extensively about charters, said the Michigan Department of Education should have clear authority to revoke an authorizer’s power to open new schools if the authorizer has allowed too many conflicts of interest.

Michigan needs to “set standards for authorizers and how their schools perform, with the threat that you can no longer be an authorizer if you don’t get this right. Close their bad schools — and they get no more new schools,” Green said.

From school authorizers to management companies, officials can move from job to job

The authorizers sometimes have their own conflicts of interest, the Free Press found. Several top authorizer officials have taken jobs at management companies that run their schools or other charters.

Miron said that when officials are angling for jobs, that raises questions about whether they’re acting in the best interest of taxpayers.

He noted some industries have regulations to prohibit or slow the revolving door as a means of stopping “the ability of the private interest to corrupt.”

Michigan does not prohibit this revolving door or require a waiting period when an authorizer employee leaves to work for a management company. Among those doing so:

■ Mary Kay Shields, former chief deputy director of charter schools at Central Michigan, left for CS Partners.

■ Lawrence Wells, former chief of the Ferris State charter office, left for Choice Schools Associates.

■ Don Cooper, former director of public policy at the CMU charter office, left for National Heritage Academies.

■ Ed Richardson, former chief of the Grand Valley charter office, left for NHA (but no longer works there).

“There’s a very, very cozy relationship between the two (authorizers and management companies),” Miron said. “It’s not right. It’s happening in so many of the relationships in this sector.”

Greg Richmond, president and CEO of the National Association of Charter School Authorizers, said Michigan’s authorizers should have their own ethics policies for top staff members and trustees, including annual financial disclosures, because they are awarding charter contracts worth millions of dollars.

The association’s best practices call on authorizers to require schools to disclose potential or existing conflicts between the board and management company or any businesses affiliated with the management company. Michigan does not require private management companies to disclose their vendors or other business relationships.

A role model for Michigan? Massachusetts has much stricter laws

Massachusetts, which has 80 charters compared with Michigan’s roughly 296, requires school board members to file yearly disclosure forms with the state and the city or town clerk where the school is located. Under penalty of perjury, board members must disclose whether they or their immediate family members have financial interests in any charter school or with anyone doing business with a charter school.

Massachusetts has “a very strong ethics law,” said Cliff Chuang, associate commissioner of the Massachusetts Department of Elementary and Secondary Education. The department’s board is the only authorizer in the state. Massachusetts has one for-profit company that runs three charters, with the rest either self-managed or run by nonprofit companies.

Massachusetts’ State Ethics Commission, the state’s inspector general and attorney general have the authority to investigate a charter school or its board for potential wrongdoing, including ethical violations or conflicts.

By contrast, Michigan’s auditor general has no authority to audit charter schools — or any local unit of government — the state’s overall approach is nowhere near as aggressive, and Michigan authorizers are filling the void piecemeal.

Grand Valley, with 47 charters, relies on board members to disclose conflicts as part of the application process to be on the board.

Since 1999, Central Michigan, the state’s largest authorizer with 64 charters, has had a stronger policy than the state — on paper. It prohibits charter board members, employees and their respective spouses and immediate family members from having any ownership, employment or contractual agreement with any management company that works for the school.

Yet Central does not prohibit the revolving door of school officials taking jobs with management companies — and critics point out it didn’t act on conflicts at Summit for years.

“Conflicts of interest are inherently suspicious,” said Chamberlin, the U-M professor. “Not all of them are fatal, but conflicts of interest need to be justified and managed if they can be, and ultimately prohibited if they can’t be managed ... and disclosure and transparency is a first step.”