Series: Evaluating Charter Schools Questions About Public Transparency and Private Profits

Update, Feb. 24, 2015: Here's a further response from the Audubon Center of the North Woods.

Nestled in the woods of central Minnesota, near a large lake, is a nature sanctuary called the Audubon Center of the North Woods. The nonprofit rehabilitates birds. It hosts retreats and conferences. It’s home to a North American porcupine named Spike as well as several birds of prey, frogs, and snakes used to educate the center’s visitors.

It’s also Minnesota’s largest regulator of charter schools, overseeing 32 of them.

Charter schools are taxpayer-funded, privately run schools freed from many of the rules that apply to traditional public schools. What’s less widely understood is that there are few hard-and-fast rules for how the regulators charged with overseeing charter schools are supposed to do the job. Many are making it up as they go along.

Known as “authorizers,” charter regulators have the power to decide which charter schools should be allowed to open and which are performing so badly they ought to close. They’re supposed to vet charter schools, making sure the schools are giving kids a good education and spending public money responsibly.

But many of these gatekeepers are woefully inexperienced, under-resourced, confused about their mission or even compromised by conflicts of interest. And while some charter schools are overseen by state education agencies or school districts, others are regulated by entities for which overseeing charters is a side job, such as private colleges and nonprofits like the Audubon wildlife rehabilitation center.

One result of the regulatory mishmash: Bad schools have been allowed to stay open and evade accountability.

“Almost everything you see come up as charter school problems, if you scratch past the surface, the real problem is bad authorizing,” said John Charlton, spokesman for the Ohio Department of Education.

In 2010, an investigation by the Philadelphia Controller’s Office found lavish executive salaries, conflicts of interest and other problems at more than a dozen charter schools, and it faulted the authorizer – the School District of Philadelphia’s charter school office – for “complete and total failure” to monitor schools. In 2013, more than a dozen Ohio charter schools that had gained approval from various authorizers received state funding and then either collapsed in short order or never opened at all.

“Considerable state funds were lost and many lives impacted because of these failures,” the Ohio Department of Education wrote in a scathing letter last year to Ohio’s charter-school regulators. The agency wrote that some authorizers “lacked not only the appropriate processes, but more importantly, the commitment of mission, expertise and resources needed to be effective.”

Aside from such dramatic implosions, it’s hard to tell how many authorizers are doing at this important public function. They’re generally not required to say much about the details of their decision-making.

Take Minnesota’s Audubon Center. As a group, the schools overseen by the center fall below the state average on test scores. The group has several persistently low performers, acknowledged David Greenberg, Audubon’s Director of Charter School Authorizing, and a few years back, made the tough call to close one. But test scores offer a limited window into how a regulator is performing. The center works with several schools serving high-need students in Minneapolis, and high-need students tend to have lower test scores. A full picture requires a more holistic evaluation – one that the Minnesota Department of Education is just starting this year.

In the early years of the charter movement, charter supporters focused on creating more authorizers, in order to spur the creation of more schools. That’s still true in some states, where charters are taking off. But as the movement has matured, there’s been a realization that “having too many authorizers undercuts quality,” in the words of the National Association for Charter School Authorizers, a trade group for charter regulators. NACSA has worked to educate states and individual authorizers on what good oversight looks like, while promoting measures such as “default closure” to help bypass authorizers that may be reluctant to close chronically underperforming schools.

While there are promising signs, NACSA acknowledges there’s still a long way to go. “It feels like whack-a-mole, but in the long term, you’re getting closer,” said Alex Medler, the group’s vice president of policy and advocacy. Even if states have some strong authorizers, weak ones can undermine the whole system, as underperforming schools can find refuge with them.

“It’s not how many are good, it’s are there any bad ones left?” Medler said. “If you’re running a bad school, you look for the presence of bad authorizers. You ignore the good authorizer.”

Consider Indiana, a state that has sought to strengthen charter-school accountability in recent years. On one hand, the Indianapolis Mayor’s Office is widely regarded as a strong charter-school regulator. The schools it oversees have as a group performed better on state tests than Indianapolis Public Schools, and the office has made some tough calls, revoking charters when it sees fit and flagging suspected cheating at its schools.

On the other hand, there’s Trine University, a small private college in rural Northeast Indiana and a charter-school regulator that has taken on schools that left other authorizers, in some cases after those regulators had sought to close them.

One of Trine’s schools is a charter operated by Imagine, a national charter-school operator trailed by a track record of questionable financial dealings at schools in multiple states. In 2006, Imagine had sought approval from the Indianapolis Mayor’s Office, which roundly rejected those charter applications, noting that “the evidence regarding the performance of Imagine Schools nationwide is limited and mixed,” according to internal notes from the mayor’s office. Staffers also raised concerns about the fees the schools would have to pay to Imagine.

So Imagine tried again with Ball State University, another regulator, got approvals, and began operating several persistently lagging schools until Ball State toughened up and sought to close seven schools at once, including three Imagine schools. The remaining Imagine school – which had gotten progressively worse over the years, going from a C to a D to an F – then jumped ship to Trine University.

As it so happens, Trine University’s charter school office is headed by Lindsay Omlor, who prior to this job had spent six years working for Imagine. Asked about Trine’s decision to take on the Imagine school, Omlor said her office was aware of the school’s scores and “together we have developed and implemented a rigorous improvement plan.” She defended the decision to take on schools that other authorizers were poised to close, saying that authorizing is not “one size fits all,” and that schools should “have the opportunity to pursue an authorizer who may be a better fit with their mission.”

This type of “authorizer hopping” is a big problem, said David Harris, who spent five years as a charter regulator in Indiana and now serves as CEO of The Mind Trust, an education reform group that incubates charter schools. Harris believes the state legislature erred in giving Trine and other little-known private colleges the ability to regulate charter schools. “They are the weakest link. They’re keeping schools open that other authorizers are trying to close down. In some cases, I don’t even think they understand the purpose of authorizing.”

It’s not just Trine. In the esoteric world of charter authorizing, there’s long been confusion and tension over the basic role of authorizers. Are they charter-school watchdogs, or are they there to provide support?

In Ohio, many charter authorizers fall on the “support” end of the spectrum. Some go so far that they sell “support services” – back-office services, for instance, or even professional development – to the very schools they regulate. It’s a way for these groups to make additional revenue on top of the fees they’re allowed to charge the schools.

“It creates a conflict of interest,” said Terry Ryan, president of the Idaho Charter School Network, who previously worked as an authorizer at The Thomas B. Fordham Institute, an education think tank in Ohio. “Authorizers shouldn’t be doing any of that, because as soon as they do, they’re compromising their ability to hold schools accountable.”

Even the lingo around charter-school regulation points to divergent approaches. In most states, groups overseeing charter schools are called “authorizers” to convey their decision-making role in approving or closing schools. But in Ohio and other states, they’re referred to as charter “sponsors.”

“Sponsor is too soft, like an advocate,” said Brandon Brown, director of charter schools in the Indianapolis Mayor’s Office. Indiana did a find-and-replace in its state charter law in 2013 and swapped out the word “sponsor.” “We wanted folks to understand we’re here to provide accountability. We’re not necessarily charter school advocates.”

But in many states, those lines can blur. And some entities such as colleges or nonprofits – by virtue of relying on donations as a source of revenue – may be particularly susceptible to outside influence or the blurring of mission.

Grand Valley State University, a public university in Michigan, is one of the largest charter-school authorizers in the state. Roughly one-third of the charter schools it oversees are run by a single operator, National Heritage Academies, a powerful for-profit firm with 80 schools across nine states. But that’s not the extent of the relationship between the university and the company.

NHA’s founder and chairman, J.C. Huizenga, serves as a director at the Grand Valley State University Foundation. And though he’s not an alumnus, he’s in a special class of donors that have given $1 million or more to the university, which also oversees more of his schools than any other regulator in the state.

Timothy Wood, Grand Valley State University’s Special Assistant to the President for Charter Schools, told ProPublica, “We have a large number of NHA schools in our portfolio for one reason only – performance.”

But academic performance has been mixed at the NHA schools under Grand Valley’s watch, with a few recognized for high or improved performance and twice as many flagged for having some of the highest achievement gaps in the state. And although charter-school boards are supposed to be in control of schools and have the power to hire and fire contractors such as NHA, the Detroit Free Press reported last year that regulators at Grand Valley State University repeatedlybacked NHA over board members who had concerns about the company.

“I am convinced that Grand Valley and National Heritage are hooked at the joint,” one former board president, Sandra Clark-Hinton, told ProPublica. She resigned the board of an NHA charter school in 2010, feeling disempowered and frustrated both by NHA and by Grand Valley’s lockstep support of the company.

Asked about conflicts of interest, Grand Valley’s Timothy Wood stated, “There is absolutely no conflict of interest regarding National Heritage Academies and Grand Valley. We handle all applications the same.” J.C. Huizenga’s relationship is with the Grand Valley Foundation, which Wood said, “is a completely separate entity from the university itself.” (The university’s own website says “The foundation is the umbrella organization and recognition society for all who give to the university.”)

National Heritage Academies, asked about Huizenga’s gifts to the university, also didn’t make a distinction. A spokeswoman for National Heritage Academies, Jennifer Hoff, responded with a statement: Huizenga “seeks nothing in return nor does he attempt to direct how his gifts are spent.” She added, “His generosity to Grand Valley State University began well before Mr. Huizenga involved himself with education reform and certainly preceded his involvement with charter schools.”

To the extent that there’s been attention paid to avoiding conflicts of interest, self-dealing or other ethical quandaries in the charter sector, it’s been focused on the school level, said Paul O’Neill, an education attorney and founder of Tugboat Education Services, a consulting firm that does work with charters, authorizers, and other groups. “For authorizers,” he said, “it’s been very off the cuff. It’s not formalized, and I think that’s a mistake.”

Often, charter-school regulators simply lack the resources and expertise. To tackle financial issues and spot potential fraud, for instance, authorizers need people on staff who truly understand audits, accounting, and can ask the right questions of charter schools and the large, national firms that often contract with schools, said Greg Richmond, president of the National Association for Charter School Authorizers.

“Many authorizers don’t have that, and they are totally overmatched by the folks doing this for a living,“ Richmond said. Numbers from Richmond’s group indicate, for instance, that more than half of the nation’s charter-school regulators oversee only a single school. “Many, many agencies that are authorizers do not allocate enough staff or the right staff to do this work.”

In extreme cases, lack of expertise or capacity has led to charter-school regulation being further outsourced. One of Ohio’s biggest charter-school regulators is St. Aloysius Orphanage, a Catholic mental-health center in Cincinnati that technically oversees 43 charter schools. Under Ohio law, it’s eligible to regulate charter schools because it’s a nonprofit. Yet the charity contracts out regulatory work to a for-profit vendor, Charter School Specialists.

Charter School Specialists reviews the schools’ finances and conducts school site visits on behalf of St. Aloysius. It writes the required annual report on behalf of St. Aloysius, running through how the charter schools are doing. But Charter School Specialists also sells services to charter schools, such as handling accounting, payroll or even providing schools with treasurers. In other words, it’s a for-profit middleman paid by both the regulator and the regulated.

For the former orphanage, authorizing brought in $2.6 million in fees paid by charter schools, the group’s 2013 tax filing shows. In the same year, St. Aloysius paid Charter School Specialists $1.5 million, leaving the nonprofit an extra $1.1 million. It’s not clear exactly what St. Aloysius has done to earn the difference – though Dave Cash, president of Charter School Specialists, said St. Aloysius “bears ultimate responsibility for all major decisions” and “provides an additional level of expertise and analysis.” St. Aloysius Orphanage did not respond to requests for comment.

There are indications that this unusual oversight arrangement may not be working. In 2013, eight charter schools that were approved by the former orphanage opened, only to quickly fold, with “financial viability” listed as the official reason. The state lost $1.7 million in taxpayer dollars it had already given to the schools, and the state auditor is now scrutinizing St. Aloysius. The funds so far have not been recovered.

Recognizing its problem with weak oversight, Ohio has begun to administer in-depth evaluations and assign ratings to charter school regulators, which officials hope will give them a way to identify and weed out bad ones. For a state with about 65 authorizers, though, evaluating all of them will take years. Officials say they expect to complete about 10 evaluations each year.

In Minnesota, where a similar process has been in the works, ratings for four authorizers are expected to be made public in May, with the process extending into 2017. The Audubon Center’s rating is scheduled to be issued in December.