NEWARK— Newark Prep Charter School opened last year with 150 students, a dozen teachers and big ambitions to become among the first schools in the state to offer classes taught online.

It hired K12 Inc., a for-profit online learning giant, to handle the start-up and offer many of the services the high school would provide.

A contract obtained by The Star-Ledger shows the publicly traded company — which operates charter schools for thousands of students in 27 states and made $30 million in the last school year — selected Newark Prep’s principal, drafted its budget and leased it furniture and equipment.

In return, Newark Prep paid the company nearly half a million dollars, or 17 percent of the $2.8 million it received last school year to educate students, according to financial data provided by the school’s board of trustees. This year, as the student body grows, the fees could take up to 40 percent of the school’s revenue, according to the contract.

New Jersey law allows for-profit companies to play a big role in public schools.

One thing they can’t do is run the place.

But charter school experts and one lawmaker said it’s sometime hard to tell if the rules are being followed, and K12’s involvement with Newark Prep is one of those instances.

"Technically, on the books, K12 is just a contractor hired by Newark Prep Charter School, but in reality it is running the school, soup to nuts," said Luis Huerta, a Columbia University Teachers College professor who studies the impact of virtual charter schools across the country.

In addition, Assembly Education Committee Chairman Patrick Deignan (D-Middlesex) called the steep fees and the terms of the contract "deeply troubling."

"The fact that decisions about hiring and contracts have been taken away from the public and are now in the hands of private enterprise concerns me very much," he said.

Members of Newark Prep’s Board of Trustees, however, dispute Deignan’s assertions and said they make all final decisions at the school. They selected K12 as a vendor because of the company’s "superb curriculum" and its past experience launching charter schools in urban areas.

A letter written on behalf of the seven-member board called the $489,848 the school paid K12 last school year a "tremendous bargain" because the company allowed the school to postpone payment of other fees it was scheduled to pay last year.

"The board, principal and school business administrator set all policies and run the school," the letter states. "K12 is a vendor. They make suggestions and provide support, but that’s all."

But when asked to describe a specific responsibility it handles without any guidance or assistance from K12 Inc., the board could not name one.

A TYPICAL DAY

Newark Prep Charter School students gather each morning during the school year at a glass office tower on Broad Street. They spend part of the day in a large, open room seated at work stations with desktop computers where they complete assignments online, sometimes for hours at a time.

The rest of the day is spent in traditional classrooms where students work with teachers and interact with peers just as they would at a regular school.

David C. Fuller, who served as Newark Prep’s principal last year, said he was not familiar with the terms of the agreement between Newark Prep and K12 Inc., but called Newark Prep "an independent school powered by K12."

Fuller said K12 Inc.’s online curriculum is one of a kind because it allows students to zip through lessons they find easy and get one-on-one attention from Newark Prep teachers when they’re stumped by a difficult assignment.

"They can excel at their own pace," said Fuller, who ran virtual academies for K12 Inc. based in Texas and Louisiana before moving to New Jersey.

Newark Prep Principal Sonn Sam said K12 Inc.’s experience starting charter schools in other cities makes it the best vendor to provide services for his school.

"It is great being able to deal with one entity in providing many important services to the school — far better than having to juggle many relationships," said Sam, who previously worked as a principal at a traditional city high school.

UNDER SCRUTINY

K12 Inc.’s practices have been scrutinized in other states in recent months.

A preliminary report by the Florida Education Department’s inspector general found the company asked employees to teach subjects not covered by their certification and inflated its enrollment. An online charter school in Colorado recently severed its relationship with the company after state auditors found K12 Inc. overcharged the state for students whose enrollment could not be verified.

The company also recently settled a class action lawsuit brought by its shareholders for $6.75 million. The complaint alleged K12 Inc. misled investors about the school’s academic success and overcharged states, including Colorado, for students who had dropped out of its virtual schools but were never removed from the rolls. Some claims were dismissed before the settlement was announced.

Newark Prep’s creation comes as charter schools continue to blossom throughout the state. And with their increasing number comes increased attention. Nowhere is the focus more intense than in Newark, which has 20 charters, the most in the state.

Newark Mayor Cory Booker, a Democratic candidate for U.S. Senate, is a vocal supporter of charter schools, but he declined to comment on Newark Prep’s contract with K12 Inc. Cami Anderson, superintendent of the city’s school district, also declined to comment.

CONTRACT CONFUSION

Seemingly contradictory clauses in the contract cement K12’s authority over important decisions that affect the school’s academic success and the company’s bottom line, said Huerta, of Columbia.

For example, the contract stipulates that Newark Prep’s board must oversee K12 Inc.’s work, but it also requires K12 to implement whatever school policies it deems necessary for the success of its proprietary online curriculum.

The contract, which was drafted by K12., states that Newark Prep Charter School and the company are "independent contractors," pursuant to New Jersey laws and regulations, yet K12 is free to use the school’s name "in press releases, on its website, or in other marketing materials."

The document also states in a section titled "exclusivity" that the school cannot consider hiring another curriculum contractor or breaking its agreement with K12 without giving 18 months’ notice or getting permission from the company.

If the company expects the school’s state aid to decline dramatically, however, it can cancel the contract with 60 days’ notice.

Newark Prep is one of nine charter schools among 87 charter schools across the state that contracts with a management company, but only two other schools — Camden Community Charter School and Central Jersey Arts Charter School — work with for-profit companies.

The fees K12 charges Newark Prep for its services are another measure of the company’s influence at the school, experts and lawmakers say.

To lease computers for students and teachers, the school paid the company $109,425. To access K12’s online courses, Newark Prep paid $207,640. To repay a loan from the company, the school paid $100,000. And for other technology services, Newark Prep paid $72,782. Together, last school year’s fees were $489,847.

But as Newark Prep’s enrollment increases and its annual budgets grow, the school will be required to pay back the $628,029 in additional fees K12 waived last year, according to the contract.

Though some of the fees Newark Prep owes K12 will vary year to year, the administrative service fee and the technology service fee are fixed at 15 percent and 7 percent of the school’s total revenue each year. When the school is at capacity with students in grades 9-12, those fees alone could top $2 million annually, based on enrollment projections.

ONE TEACHER'S VIEW

A Craigslist ad initially drew teacher Robbie Garland, 33, to work at Newark Prep. She said she had never heard of K12 or online schools before she applied.

Garland said the company’s online lessons are a great fit for students who love to read and can sit and focus on work for hours at a time, but that the model has not served all the school’s students well.

"I wouldn’t be keen on steering my kids to an online school," said Garland, a mother who lives in Wood-Ridge.

Garland said Newark Prep students don’t always have access to the one-on-one attention Fuller spoke of. She said she was responsible for assisting more than 60 students at once.

"I only have two eyes," Garland said. "If I’m trying to give individualized tutoring, and another student needs help on something else, and then I need to discipline another student, I’m only able to stay with each one for five or 10 minutes."

In June, Education Commissioner Christopher Cerf halted the opening of the state’s first two fully virtual charter schools, citing legal concerns and insufficient evidence that web-based schooling helps students achieve academic success. Both schools had planned to contract with K12.

Cerf declined to comment on Newark Prep’s affiliation with K12.

A spokesman for the state Education Department said charter schools and traditional public schools contract with private companies for a range of services, including textbooks, technology and special education. K12 is one among many contractors and should not be singled out, said Mike Yaple, a spokesman for the state Education Department.

Earlier this year, the New Jersey Education Association, the state’s largest teachers union, filed a lawsuit alleging that Newark Prep and another hybrid charter school serving Newark students, Merit Prep, violate the state’s charter school law.

The case is expected to be heard by a Superior Court judge later this year.

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