Charter schools exploit lucrative loophole that would be easy to closeCharter schools exploit lucrative loophole that would be easy to close
While critics charge that charter schools are siphoning money away from public schools, a more fundamental issue frequently flies under the radar: the questionable business practices that allow people who own and run charter schools to make large profits.
Charter school supporters are reluctant to acknowledge, much less stop, these practices.
Given that charter schools are growing rapidly – from 1 million students in 2006 to more than 3.1 million students attending approximately 7,000 charter schools now – shining a light on these practices can’t come too soon. The first challenge, however, is simply understanding the complex space in which charters operate – somewhere between public and private.
Unregulated competition
Charters were founded on the theory that market forces and competition would benefit public education. But policy reports and local government studies increasingly reveal that the charter school industry is engaging in the type of business practices that have led to the downfall of other huge industries and companies.
Charter schools regularly sign contracts with little oversight, shuffle money between subsidiaries and cut corners that would never fly in the real world of business or traditional public schools – at least not if the business wanted to stay out of bankruptcy and school officials out of jail. The problem has gotten so bad that a nationwide assessment by the U.S. Department of Education warned in a 2016 audit report that the charter school operations pose a serious “risk of waste, fraud and abuse” and lack “accountability.”
Self-dealing
The biggest problem in charter school operations involves facility leases and land purchases. Like any other business, charters need to pay for space. But unlike other businesses, charters too often pay unreasonably high rates – rates that no one else in the community would pay.
One of the latest examples can be found in a January 2019 report from the Ohio auditor-general, which revealed that in 2016 a Cincinnati charter school paid $867,000 to lease its facilities. This was far more than the going rate for comparable facilities in the area. The year before, a Cleveland charter was paying half a million above market rate, according to the same report.
Why would a charter school do this? Most states require charter schools to be nonprofit. To make money, some of them have simply entered into contracts with separate for-profit companies that they also own. These companies do make money off students.
In other words, some “nonprofit” charter schools take public money and pay their owners with it. When this happens, it creates an enormous incentive to overpay for facilities and supplies and underpay for things like teachers and student services.
