Jennifer Dixon

DetroitFreePress

Michigan taxpayers pour nearly $1 billion a year into charter schools — but state laws regulating charters are among the nation’s weakest, and the state demands little accountability in how taxpayer dollars are spent and how well children are educated.

A yearlong investigation by the Detroit Free Press reveals that Michigan’s lax oversight has enabled a range of abuses in a system now responsible for more than 140,000 Michigan children. That figure is growing as more parents try charter schools as an alternative to traditional districts.

In reviewing two decades of charter school records, the Free Press found:

Wasteful spending and double-dipping. Board members, school founders and employees steering lucrative deals to themselves or insiders. Schools allowed to operate for years despite poor academic records. No state standards for who operates charter schools or how to oversee them.

And a record number of charter schools run by for-profit companies that rake in taxpayer money and refuse to detail how they spend it, saying they’re private and not subject to disclosure laws. Michigan leads the nation in schools run by for-profits.

“People should get a fair return on their investment,” said former state schools Superintendent Tom Watkins, a longtime charter advocate who has argued for higher standards for all schools. “But it has to come after the bottom line of meeting the educational needs of the children. And in a number of cases, people are making a boatload of money, and the kids aren’t getting educated.”

According to the Free Press’ review, 38% of charter schools that received state academic rankings during the 2012-13 school year fell below the 25th percentile, meaning at least 75% of all schools in the state performed better. Only 23% of traditional public schools fell below the 25th percentile.

Advocates argue that charter schools have a much higher percentage of children in poverty compared with traditional schools. But traditional schools, on average, perform slightly better on standardized tests even when poverty levels are taken into account.

In late 2011, Michigan lawmakers removed limits on how many charters can operate here —opening the door to a slew of new management companies. In 2013-14, the state had 296 charters operating some 370 schools — in 61% of them, charter boards have enlisted a full-service, for-profit management company. Another 17% rely on for-profits for other services, mostly staffing and human resources, according to Free Press research.

Michigan far exceeds states like Florida, Ohio and Missouri, where only about one-third of charters were run by a full-service, for-profit management company in 2011-12, according to research by Western Michigan University professor Gary Miron, who has studied charters extensively.

While the Free Press found disclosure issues with both for-profit and nonprofit companies, the state’s failure to insist on more financial transparency by for-profits — teacher salaries, executive compensation, vendor payments and more — is particularly troubling to charter critics because the for-profit companies receive the bulk of the money that goes to charter schools. In some cases, even charter school board members don’t get detailed information.

Without that, experts say there is no way to determine if a school is getting the most for its money.

“There needs to be a lot of transparency ... so that the board knows the company isn’t double-dipping, triple-dipping,” said Greg Richmond, president and CEO of the Chicago-based National Association of Charter School Authorizers.

Charter defenders dismiss criticism that charters are not transparent enough and say the schools provide an excellent education. Indeed, the Free Press found innovative and high-performing charter schools. Out of 214 charter schools ranked in 2012-13 by the state, 27 were in the top 25% of all schools in Michigan.

“They have contributed very positively to the education system in Michigan, and they’ll continue to,” said Dan Quisenberry, president of the Michigan Association of Public School Academies, a charter advocacy organization. Charter board members “swear an oath of office, just like every other public official, and they’re highly accountable to parents for academic outcomes and fiscal outcomes.”

But critics have another view. Miron said Michigan charter schools have become “a private system of education without public oversight.”

Often no consequences for poor performance

Michigan’s laws are either nonexistent or so lenient that there are often no consequences for abuses or poor academics. Taxpayers and parents are left clueless about how charter schools spend the public’s money, and lawmakers have resisted measures to close schools down for poor academic performance year after year.

The Free Press found that questionable decisions, excessive spending and misuse of taxpayer dollars run the gamut:

■ A Sault Ste. Marie charter school board gave its administrator a severance package worth $520,000 in taxpayer money.

■ A Bedford Township charter school spent more than $1 million on swampland.

■ A mostly online charter school in Charlotte spent $263,000 on a Dale Carnegie confidence-building class, $100,000 more than it spent on laptops and iPads.

■ Two board members who challenged their Romulus school’s management company over finances and transparency were ousted when the length of their terms was summarily reduced by Grand Valley State University.

■ National Heritage Academies, the state’s largest for-profit school management company, charges 14 of its Michigan schools $1 million or more in rent — which many real estate experts say is excessive.

■ A charter school in Pittsfield Township gave jobs and millions of dollars in business to multiple members of the founder’s family.

■ Charter authorizers have allowed management companies to open multiple schools without a proven track record of success.

Michigan’s first charter schools opened in 1994, based on a simple formula that exists to this day:

The boards of school districts, community colleges and state public universities can charter, or authorize, a school. Michigan gives charter schools an amount equal to or slightly less than the school district in which they are located. Authorizers can keep as much as 3% for oversight. The rest goes to the school. And individual school boards are responsible for running the school.

But many school boards let management companies handle the money and make the decisions. That’s reality, regardless of what charter enthusiasts anticipated when the first schools opened. And thestate exercises little control over whether a charter school is well run and high-performing, or not. Oversight is a patchwork with 40 authorizers.

“Michigan has one of the least restrictive environments for charter schools in the entire nation,” said Casandra Ulbrich, vice president of the state Board of Education, which sets education policy and advises lawmakers.

“We basically opened the door to all types of different charter schools, most of which are run by for-profit management companies, and it’s led to a lot of issues, primarily ... financial oversight and transparency.”

Charter schools have been controversial from the start. The Michigan Legislature passed the state’s charter law in 1993, a key piece of then-Republican Gov. John Engler’s education reforms. Legal challenges quickly followed.

William Collette, an Ingham County circuit court judge, ruled the law unconstitutional in 1994. In a recent interview, he said he was concerned that the state had lost its power to make sure charter schools “were not violating the principal of separation of church and state, and not teaching ideology.”

“There was very little oversight, or any way of tracking the way charter schools were going to use the funding” from the state, Collette said.

A Court of Appeals panel upheld Collette’s ruling, but the Michigan Supreme Court overturned it in 1997.

State law sets no qualifications for charter applicants

In Michigan, anyone and everyone can apply to open a charter school. There are no state guidelines for screening applicants.

And in many cases, authorizers have given additional charters to schools managed by companies that haven’t demonstrated academic success with their existing schools.

Central Michigan University, for example, gave two additional charters to schools managed by the for-profit Hanley-Harper Group Inc. in Harper Woods, before its first school had any state ranking and despite test scores that showed it below statewide proficiency rates in reading and math. The school’s first ranking, released last year, put it in the 14th percentile, meaning that 86% of schools in Michigan did better academically.

“We have a product, yes, we are trying to sell and constantly working to make ... better and better and better,” company founder Beata Chochla, who has run several small businesses, including janitorial and home health care, told the Free Press in an interview.

Ferris State University has authorized a fourth Hanley-Harper school, expected to open this fall in Oak Park.

“We were convinced they had a good plan,” Ferris State’s interim charter schools director Ronald Rizzo said, adding that critics who believe an operator should have a successful academic track record before adding schools are “welcome” to their views.

Authorizers also have been slow to close poor performers. Among the oldest and poorest performing schools in metro Detroit:

■ Hope Academy, founded in Detroit in 1998, ranked almost rock-bottom — in the first percentile — in 2012-13.

■ Commonwealth Community Development Academy, founded in Detroit in 1996, ranked in the third percentile.

Both schools are authorized by Eastern Michigan University, which said in a statement that it is not satisfied with either. Yet just last year, EMU renewed Hope Academy’s charter.

“That’s a shocker,” Western Michigan’s Miron said. “It just shows that our system is broken.”

No guidelines for when a charter should be revoked

Michigan law provides no statewide standards for how the boards of school districts, community colleges and public universities that authorize charter schools should monitor a charter’s performance, or when a charter should be revoked. Michigan has 40 authorizers — from rural districts with one charter to Central Michigan University with 64 — and, as a result, standards and oversight are inconsistent.

Minnesota, by comparison, has clear performance standards for its authorizers and requires them to apply to the state Department of Education for approval to grant school charters. Minnesota law also requires a review of an authorizer’s performance at least every five years, including an analysis of the academic, operational and financial performance of its schools.

The Minnesota reviews begin in 2015 and will determine whether authorizers are meeting state requirements. Under the state’s current system, authorizers deemed less than satisfactory would be prohibited from adding charters or expanding existing ones.

Michigan law does allow the state superintendent of education to stop an authorizer from opening new schools. But there’s a loophole: The authorizer can keep existing schools, and those schools can open new campuses. The Michigan Department of Education has never prohibited an authorizer from opening new charters and says it needs the Legislature to write specific guidelines for when it can act, or let MDE write those rules.

Taxpayer money can be hidden from public view

Management companies insist — without much challenge from the state — that taxpayer money they receive to run a school, hire staff and pay suppliers is private, not subject to public disclosure.

Quisenberry, the president of the Michigan charter schools association, said school expenditures are “appropriately public” while “things that would be related to the company itself and its internal operations are appropriately private.”

Greg Lambert, an NHA representative, spelled out the company’s position to the board of the Detroit Enterprise Academy in 2010 when several members were demanding more transparency.

“Mr. Lambert stated that the public dollars became private when they were received by NHA. He further indicated that because NHA is a private company, the information need not be disclosed,” according to minutes of the meeting. Lambert has since retired.

In practice, it is difficult to know how charter management companies are spending money except in broad categories. They typically don’t disclose total employee compensation or salaries of those making more than $100,000, despite a state law saying all school districts — which include charters — must post that on their websites. Detailed budgets are difficult to find. And unlike traditional school districts, the management companies usually don’t disclose their vendors, contracts and competitive bid documents. The schools don’t have to disclose management fees.

“We’re having a big debate over whether we’re putting enough money into public education,” said John Austin, president of the state Board of Education. “But with many schools, we don’t know where the money we’re spending now is going, who’s getting rich, and at what price to the taxpayer.

“And worst, we’re not seeing good educational outcomes.”

Mixed results academically, less spending in the classroom

Charter schools in general spend more on administration and less in the classroom than traditional districts.

A Free Press analysis based on 2012-13 data found traditional schools spend an average of $6,985 per student in the classroom, and charter schools spend $4,893. At traditional schools, administration costs an average of $1,090 per student, compared with $1,894 in charter schools.

Unlike traditional districts, charter schools cannot seek millages to pay for buildings; they must pay for their campuses out of state per-pupil funding. But some school boards have not shopped around for the best deal and pay above fair-market value for their facilities, particularly if they rent from their management company.

Charters also haven’t met the expectation that they would raise achievement in schools with high poverty, a barometer of student performance and a factor in school rankings. The isolated success of some charter schools — like some traditional schools — serves to heighten frustration among educators that more far-reaching progress hasn’t been made.

The Detroit Edison Public School Academy, a charter school on the city’s east side, is outpacing most Detroit schools — and state proficiency rates — on standardized tests. It ranks in the 77th percentile. Yet it remains an exception.

“The theory of charters was if you remove elected school boards, a centralized bureaucracy and powerful unions, that you would get better student achievement. The evidence so far, in Michigan and around the country, is ... some charters work and some don’t,” said Lou Glazer, president of Michigan Future Inc., a think tank that financially supports nine schools in Detroit, including eight charter schools

“On average, if there are gains, they’re marginal at best.”

Loopholes in Michigan law allow insider deals and nepotism

Neither the state nor school authorizers have been aggressive in policing charter schools for sweetheart dealings and nepotism.

State law prohibits board members from serving if relatives work for the school, or if they have an ownership interest in, or significant role with, its management company.

But those management companies are free to hire friends of board members or school founders. And charter boards are free to give contracts to friends and relatives of school officials. That can create multiple conflicts of interest — and raise questions about whether decisions are made in the best interests of the school.

Downriver, two charters doled out millions of dollars’ worth of business to relatives of the schools’ administrator. At a charter school in Pittsfield Township, multiple members of the founder’s family were school vendors or employees. And schools in Ecorse and Southfield bought property at inflated prices from companies whose owners included the president of their management company.

The examples of self-dealing through the system are “outrageous and unfortunately far too common,” said Miron of Western Michigan, which does not authorize charter schools.

Authorizers, management companies work closely — too closely?

The proliferation of schools run by management companies in Michigan also has brought with it cozy relationships between the companies and their schools’ authorizers.

Many companies approach authorizers directly to open new schools — and at least one authorizing official, Grand Valley State University’s Tim Wood, said he actively recruits national management companies, both for-profit and nonprofit.

Both authorizers and management companies often have a hand in recruiting board members, who critics say can’t be truly independent.

Richmond, of the National Association of Charter School Authorizers, said authorizers should not approve schools with boards chosen by the management company because these board members tend to “act like employees of the management company doing what the boss tells them.”

“If you have an independent board, and authorizers should make sure they do, that board should be appropriately requiring a fair amount of transparency about how this money is spent — enough transparency to make sure they, the board, are not being double-charged for expenses.”

Michigan authorizers say they don’t get involved in that level of detail because boards by law have primary responsibility for negotiating leases, management agreements, budgets and other financial information pertaining to day-to-day operations.

But with boards that leave decision-making up to management companies, the question becomes: Who’s monitoring how taxpayer money is spent?

Said Cindy Schumacher, who oversees Central Michigan University’s charter schools office: “We don’t really have a relationship with the management companies. It’s up to the boards to determine what the structure is.”

Richmond, whose organization is pro charter, said even if a charter school does deliver academic excellence, that’s no excuse if taxpayers are gouged.

“I can’t think of any other area of public or private enterprise that would agree to be ripped off by someone as long as they were providing a nice product.”

Austin, the state board president, said too many authorizers are facilitating “management company-created schools ... companies running schools making lots of money and delivering very poor and mediocre education, which is the business that they are in. And that’s not the business we should be in terms of education policy in Michigan.”

He said the state board has tried to “insist on transparency,” but the Legislature has resisted. Lawmakers also have opposed prohibiting management companies with poor academic track records from opening new schools.

“We should not let more bad schools to be created,” Austin said, “when we have enough challenges improving education in all our schools.”

What’s there to hide, anyway? Critics call for open records

State Superintendent Mike Flanagan, who runs the Michigan Department of Education and chairs the state Board of Education, said Michigan’s Legislature must insist on more transparency.

But Miron said the trend in Michigan and nationwide seems to be toward less transparency — such as the types of management agreements negotiated by National Heritage Academies.

The company takes 95% or more of the per-pupil taxpayer funding that its schools receive from the state, with 3% going to the authorizer and 2% or $35,000, whichever is less, given to the school board to spend at its discretion. NHA pays the bills and keeps whatever is left as profit.

NHA and its supporters say their agreements are no different than contracts given by a traditional school district to a private company to provide maintenance or transportation. They say that vendor is not required to reveal how much it pays its janitors or bus drivers, or other details of its spending.

“I think it’s a fair analogy, because the school is hiring NHA to do an educational service,” said Grand Valley’s Wood.

But there’s a big difference, say many other experts: The traditional school district that hires a janitorial company isn’t handing over almost all of its state funding to a private company.

Richmond said authorizers should ensure that a management contract spells out precisely what services the company will provide and its compensation, including fees and bonuses. Such disclosures are among the national charter association’s best practices.

Said Flanagan: “If everyone is doing the right thing, they shouldn’t have a problem with being open.”