When Charter Schools Are Nonprofit in Name Only
This post has been updated to include a response from National Heritage Academies.
A couple of years ago, auditors looked at the books of a charter school in Buffalo, New York, and were taken aback by what they found. Like all charter schools, Buffalo United Charter School is funded with taxpayer dollars. The school is also a nonprofit. But as the New York State auditors wrote, Buffalo United was sending " virtually all of the School's revenues" directly to a for-profit company hired to handle its day-to-day operations.
Charter schools often hire companies to handle their accounting and management functions. Sometimes the companies even take the lead in hiring teachers, finding a school building, and handling school finances.
In the case of Buffalo United, the auditors found that the school board had little idea about exactly how the company – a large management firm called National Heritage Academies – was spending the school's money. The school's board still had to approve overall budgets, but it appeared to accept the company's numbers with few questions. The signoff was "essentially meaningless," the auditors wrote.
In the charter-school sector, this arrangement is known as a "sweeps" contract because nearly all of a school's public dollars – anywhere from 95 to 100 percent – is "swept" into a charter-management company.
The contracts are an example of how the charter schools sometimes cede control of public dollars to private companies that have no legal obligation to act in the best interests of the schools or taxpayers. When the agreement is with a for-profit firm like National Heritage Academies, it's also a chance for such firms to turn taxpayer money into tidy profits.
"It's really just a pass-through for for-profit entities," said Eric Hall, an attorney in Colorado Springs who specializes in work with charter schools and has come across many sweeps contracts. "In what sense is that a nonprofit endeavor? It's not."
Neither National Heritage Academies nor the Buffalo United board responded to requests for comment. (Update: NHA spokeswoman Jennifer Hoff said in an emailed statement, “Our approach relieves our partner boards of all financial, operational, and academic risks – a significant burden that ultimately defeats many charter schools. Freed from burdens like fundraising, our partner boards can focus on governance and oversight … NHA and its partner schools comply fully with state and federal laws, authorizer oversight requirements, and education department regulations – including everything related to transparency.”)
While relationships between charter schools and management companies have started tocome under scrutiny, sweeps contracts have received little attention. Schools have agreed to such setups with both nonprofit and for-profit management companies, but it's not clear how often. Nobody appears to be keeping track.
What is clear is that it can be hard for regulators and even schools themselves to follow the money when nearly all of it goes into the accounts of a private company.
"We're not confident that sweeps contracts allow [charters schools and regulators] to fully fulfill their public functions," said Alex Medler, who leads policy and advocacy work at the National Association of Charter School Authorizers, a trade group for charter regulators. The organization discourages the arrangements. "We think this is an issue that needs attention."
Officials have gotten glimpses of questionable spending by some firms using "sweeps" contracts.
Take the case of Brooklyn Excelsior Charter School, another National Heritage Academies school. In 2012, state auditors tried to track the $10 million in public funding given to the school, only to conclude they were " unable to determine ... the extent to which the $10 million of annual public funding provided to the school was actually used to benefit its students." From what auditors could tell, the school was paying above-market rent for its building, which in turn is owned by a subsidiary of National Heritage When Charter Schools Are Nonprofit in Name Only - ProPublica: