Ohio's Charter Schools: Part III
Fraud and Legalized Corruption

Barbara Brothers, PhD


Recently, the Detroit Free Press published an extensive investigative series of articles on the one-billon-dollar charter school operations in that state—"How Michigan Spends $1 Billion but Fails to Hold Schools Accountable." As in Ohio, most of Michigan's charters are for-profit, and as is true for Ohio, Michigan legislators fail to hold the charters accountable for financial practices and academic outcomes. The year-long investigation found "wasteful spending, conflicts of interest, poor performing schools," and not even the "worst of the worst" were closed. In May of 2014, the Center for Popular Democracy and Integrity in Education published a report on problems in for-profit education companies. The list includes everything from documented embezzlement to data scrubbing (for Ohio charters included in the list, see Appendix F).

As is true of legislators in Ohio and Michigan, so it is of Florida legislators, as the Florida League of Women Voters documents in their study of charter schools. The League of Women Voters of Greater Las Cruces, NM, points out in their study of Virtual Charter Schools, one significant part of the charter school industry, that the "learning companies have problematic political and business relationships" and that "Adequate Yearly Progress (AYP) measures, state performance rankings and graduation rates of full-time virtual schools lag significantly behind traditional public schools."

What is the State of Ohio's response to reports of corruption in charter schools? Why are they reluctant to hold them accountable for their performance and spending of taxpayer dollars? In June, the FBI raided 19 Concept School locations in Illinois, Indiana, and Ohio, including the group's Des Plaines headquarters. Search warrants showed they were seeking records concerning Concept's use of the federal E-rate program and companies hired under that program, which helps pay for high-tech upgrades. Contractors facing scrutiny in an ongoing federal investigation of Concept Schools have been paid nearly $1 million over the past 3 years for work at 3 Chicago Public Schools-funded campuses run by the Des Plaines-based charter operator. According to the Chicago Sun-Times, the agents also were looking for records regarding top Concept officials.

These schools operated by Concept schools are associated with the Turkish cleric named Fethullah Gulen, who lives in exile in Pennsylvania and is the honorary chairman of the Niagara Foundation. Concept Schools, managed from the Des Plaines office, operates 19 schools under the names of Horizon Academy and Noble Academy in Ohio. The schools are staffed in part by employing Turkish citizens holding H-1B visas. The Vindicator, a Youngstown newspaper, reported that as "early as 2002, state audits found thousands of public dollars 'illegally expended' to finance the U.S. citizenship process of Turkish employees...Help with legal and immigration fees also extended to their children and families, including the spouses of the directors."

Recently in The Columbus Dispatch, an article by Denis Smith, former overseer of charter schools for the Ohio State Department of Education, notes that at a "State Board of Education meeting this week, four former charter-school teachers testified on alleged unlawful conduct at Horizon Science Academy Dayton High School, including what The Dispatch described as "test cheating, attendance tampering, sexual misconduct and other misdeeds..." The State Board of Education announced that it was investigating the teachers who might lose their licenses, and only under pressure did they decide to investigate the Dayton school even though the FBI probe had received major news coverage. (See Appendix G for Gulen school problems in California.)

There is "no ban on using public funds earmarked for charter schools for political campaign donations." What results is legalized corruption. For example, we learn that the Niagara Foundation, a Gulen operation, "has receptions for legislators [such as the recent one in Ohio] and arranges trips to Turkey for legislators." Cliff Rosenberger, who is expected to become speaker of the Ohio House in January, is the recipient of a trip to Turkey. In the case of the Gulen Schools, the political favors can be done under the name of the Niagara Foundation, a non-profit corporation, which illustrates the importance of the public and its officials being able to clearly and easily identify a school, such as Horizon Science Academy or Summit Academy, with its Education Management Organization and then with its sponsor.

Taxpayers' losses to the unregulated charter school Industry in Ohio are in the millions of dollars. These unregulated businesses and their corporate owners who have passed themselves off as educators owe more than $31 million to that state for charters that have closed and been referred to Attorney General Mike DeWine's office for tax collection. Of that, $30.5 million remain uncollected as reported last February on NBC 4 Columbus by investigative reporter Duane Pohlman. As William Phillis points out, "That's $30.5 million in taxpayer dollars that have remained uncollected by the state's Attorney General. For scale, that is more than the state ends up sending to 128 of Ohio's 612 school districts."

In June of this year, The Columbus Dispatch reported that in William Lager's race for Ohio House Speaker, Lager and David Brennan, founder of White Hat Management, gave one of the candidates a combined amount of $36,500. Political contributions have been integral to the success of charter operators. In 2011, The Columbus Dispatch reported that Brennan was behind extensive charter-school changes to accountability, which drew heavy fire even from several charter-school advocates alarmed at the removal of accountability measures. Batchelder identified Brennan as the prime source for the changes. Brennan's campaign contributions were listed as $217,000 to House Republicans and $177,000 to Senate Republicans for the most recent two-year election cycle.

This year's midterm budget bill contained further cash for Brennan (HB483) through the provision that allows dropout-recovery schools that are privately run but publicly funded to collect $5,000 per student until age 30. Brennan received the lucrative contract in spite of the extraordinary poor performance of his schools. Six years ago, the Scripps Howard News Service reported that "taxpayers pay millions of dollars every month to educate tens of thousands of students who rarely or never attend class in privately-operated charter high schools. ...For-profit companies operate schools in 30 states and in Washington, D.C. Hargrove cites Ohio as being hardest hit by the ghost school trend, paying $29.9 million a year for absent students who were enrolled at 47 dropout-recovery schools. The nation's single worst truancy rate—according to government records—was at a Cincinnati campus, where 64 percent of enrolled students were not in class." A former principal of Life Skills Center, a White Hat Management school, said that he spent less than $1 million and took in $3 million. A Salem, MA, for-profit company owner is quoted in the report as saying, "Ohio is the profit-making EMO capital of America." More recently, the Akron Beacon Journal has reported on the failure of the "dropout recovery" charter schools. Hargrove was astonished that no one had gone to jail, as Phillis reports. Instead, House Republicans rewarded Brennan's lack of success with a place in the budget, a line item that was initially opposed by the House and Senate that would have given the funding to community colleges and vocational programs to provide job training.

When we look at Virtual Charters in Ohio, the same pattern emerges as for bricks-and-mortar for-profit schools—No accountability. Failing performance. Huge profits. Large contributions to their supporters in the Ohio legislature. William Lager operates ECOT, a Virtual School. In May 2014, The Columbus Dispatch reported that Lager contributed $266,121 to House and Senate Republicans during the first 16 months of this election cycle. In 2013, Lager contributed $208,378.06 to political campaigns. That computes to about $15 per pupil for the 13,836 clients enrolled in this business operation. Check the Secretary of State's website to review the campaign contributions of Lager, ECOT CEO, CEO of Altair Learning Management, and CEO of IQ Innovations. Documented is the fact that Lager made political contributions totaling over $700,000 from 2010 through the first half of 2013 to Ohio lawmakers.

Like Brennan, Lager recently received a bonus of nearly $3 million from State of Ohio taxpayer money—the Straight A Fund that was "to put more dollars in the classroom" to try "new approaches" that would be "cost-effective." It is hard to imagine that any application from Lager would not be rejected with the following recommendation: To be cost effective, cut overhead, and pay yourself less!

In August of 2013, three new e-schools were approved. Mosaica Online Academy, Provost Academy, and Insight School bring the number of e-schools to 26. The state ban was lifted with no real standards approved as ordered by the moratorium in 2005. The standards developed by the governor and state school superintendent were not adopted by the legislature. Instead, they used those written by the industry: No "attendance-keeping or budgeting," no requirement for "functioning hardware and software before they [students] could be considered enrolled (The Columbus Dispatch, August 19, 2013).

Ohio Virtual Academy (owner/management K12, Inc.) received $85,061,142.53 in FY 2013-14 alone. Electronic Classroom of Tomorrow (ECOT) took $96,088,432.91 from public school districts. Since their introduction, the total of Ohio taxpayer dollars paid to these two e-schools is $1,115,626,932.94. The management company of K12, Inc. is a for-profit company founded in 1999 by convicted junk-bond king Michael Milliken and Ronald Packard, a hedge fund banker who makes a multimillion-dollar salary. According to the Center for Media and Democracy's PR Watch, "CEO Ronald Packard was named in a 2012 class action suit citing his alleged false statements regarding student performance and K12, Inc.'s "aggressive tactics" to recruit and enroll students in [an] effort to cover up the 40-60 percent turnover rate (the parties reached a tentative $6.75 million settlement agreement in March 2013)." In spring of 2014, it was announced that the NCAA schools would no longer accept credits from Virtual Academies. The State Board of Education took no action or made no announcement. Is this information readily available to parents exercising the right to choose?

Failed charters that were questionable in the first place continue to be reauthorized. Charter schools remain officially closed only when the sponsor is not willing to continue and when no new sponsor was found. One such example occurred this summer when VLT Academy in Cincinnati was unable to secure a new sponsor. For more specific examples of charter abuse and fraud in Ohio, see Appendix H.

Charters were originally billed as necessary to producing a better product—educated children—through competition and choice. Technology would replace teachers. But the track record of virtual schools proves the opposite: "Our findings are clear," said Miron, an NEPC [National Education Policy Center] fellow, "Children who enroll in a K12 Inc. cyberschool, who receive full-time instruction in front of a computer instead of in a classroom with a live teacher and other students, are more likely to fall behind in reading and math." Their report analyzed federal and state data sets for Arizona, Arkansas, Idaho, Ohio, and Pennsylvania as well as reports of such pro-charter funded groups as CREDO of Stanford University. Their analysis of revenue, expenditures, and student performance showed that students were more likely to drop out and were much less likely to meet federal education standards. They criticized K12's poor academic results and high administration costs.

Investigative journalists have been warning the public about the influence of money on our legislatures from the for-profit charter school Education Management Organization corporations. That influence is felt throughout the country as ALEC writes Public School Acts (see Appendix H). Nor is it just state legislatures that have responded to the lobbying of the charter industry. Our Federal Government gives huge tax breaks to companies building charter schools. The program began in 1995 when the Charter Schools Program provided $4.5 million to fund nine applicants to build charter schools. The Community Renewal Tax Relief Act of 2000 included the New Markets Tax Credit that supports investors in charter-school construction to collect a return of 9 percent over 7 years. In addition, there is EB-5, a federal program that enables foreign investors (China, Nigeria, Russia, Australia, Turkey) to get immigration visas by investing $500,000 or more to build charter schools.

For these schools of choice, we lack information about who really operates them. For example, you now know who operates Horizon Science Academy in Youngstown, but you must be more than computer literate to get that information. The sponsor and the management company are not clearly identified even to school treasurers who make the payments to the community school. Shopping or choosing a school for your child is like hearing slogans to buy Wheaties, the Breakfast of Champions, and having to conduct a computer search to find out who produces the cereal and what's in it. In addition, there are no packaging regulations nor advertising oversight to verify charter claims.

Choice is not choice without credible information; otherwise, the parent is playing a game of Blind Man's Bluff who can respond only to the siren songs of market advertisements. Parents lack reliable performance data to make an informed choice just as taxpayers lack information on what the charter experiment is costing them. What data there is can be found only by someone who can access the information from the State Board of Education's website, and even then that information is incomplete. In June 2014, Horizon Science Academy Cleveland High posted this announcement on its website: "This year HSA is proud to report that we had a 100% graduation rate, with all 83 seniors completing the necessary requirements." The school didn't mention that 84 Class of 2014 students disappeared along the way. As usual with statistical claims like this, one needs to ask 100 percent of what. With no oversight and no regulation, the for-profit schools can make whatever unsubstantiated claims their advertisements put forth. A great deal of effort has to go into challenging the exaggerated claims.

Part I | Part II | Part III | Part IV | Appendices

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