Thursday, November 20, 2014

Charter School Power Broker Turns Public Education Into Private Profits

Speaking of charter schools running amok, here's an excellent article by Marian Wang of ProPublica (an outstanding organization dedicated to in-depth journalism), exposing how a businessman named Baker Mitchell has set up four charter schools named Roger Bacon Academy in North Carolina that, while technically nonprofit, "about $19,000,000 of the $55,000,000 he has received in public funds has gone to his own for-profit businesses, which manage many aspects of the schools."
This is exactly the scam K12 runs in states that don't allow for-profit charter schools: set up nonprofit schools, but make sure the boards are totally captive to the for-profit entity and then siphon off most of the money. This is a total disgrace and the Republicans who support and enable the growth of these schools, spouting clichés about the free market, should be ashamed of themselves.
I'm a hedge fund manager, so I don't need a lecture about the virtues of the free market and capitalism. I get it. But a smart, well-enforced legal and regulatory framework is needed to rein in the abuses and excesses of the free market: companies that would pollute the environment, produce dangerous products or operate dangerous facilities, bilk taxpayers, take on too much leverage (witness the banks), etc. Just look at China…
What K12 and Mitchell are doing gives the entire charter school movement – in fact, the entire ed reform movement – a black eye and a bad name. Here's John Merrow's summary of Wang's article:

Of course you've heard of the notorious criminal Jesse James [1], but you may not be familiar with Baker Mitchell. He's a businessman who has figured out a completely legal way to extract millions of dollars from North Carolina in payment for his public [2] charter schools.

I read on the internet that Mr. Mitchell is the salt of the earth, a successful entrepreneur from Texas who decided to devote his retirement years to improving the lives of disadvantaged children, when he might have chosen to go fishing and play golf. He's a "Liberty Leader" who uses "his energy and charitable dollars to change education for the better — to drive education paradigms back to more traditional, classical methods with their proven records of accomplishment and success." All that must be true because I read it on the internet. [3]

So Mr. Mitchell, now 74, moved from Texas to North Carolina and opened some charter schools to help children. He now has four and has been talking about opening more.

And why wouldn't he? Even though none of his publicly-funded schools is set up to run 'for profit,' about$19,000,000 of the $55,000,000 he has received in public funds has gone to his own for-profit businesses, which manage many aspects of the schools. That information, and more, can be found in Marian Wang's brilliant reporting for Pro Publica.

Here's a short excerpt:

Every year, millions of public education dollars flow through Mitchell's chain of four nonprofit charter schools to for-profit companies he controls.

The schools buy or lease nearly everything from companies owned by Mitchell. Their desks. Their computers. The training they provide to teachers. Most of the land and buildings. Unlike with traditional school districts, at Mitchell's charter schools there's no competitive bidding. No evidence of haggling over rent or contracts.

The schools have all hired the same for-profit management company to run their day-to-day operations. The company, Roger Bacon Academy, is owned by Mitchell. It functions as the schools' administrative arm, taking the lead in hiring and firing school staff. It handles most of the bookkeeping. The treasurer of the nonprofit that controls the four schools is also the chief financial officer of Mitchell's management company. The two organizations even share a bank account.

Pro Publica reports that Roger Bacon Academy rents land, buildings and equipment from Coastal Habitat Conservancy LLC, which Mr. Mitchell also owns. Until last year, he also sat on the charter school Board of Trustees.

Mr. Mitchell seems to have experienced a learning curve. At first he billed his own charter schools for only two line items: 'Building and equipment rental' and 'Management fees,' for a total of just $2,600,878 in FY2008 and $2,325,881 in FY2009.

But apparently he was learning how the system works. In FY 2010 he added an innocuous sounding line item, "Allocated costs," for which he billed $739,893, cracking the $3,000,000 barrier.

In FY2011 he added more line items:

Staff development & supervision: $549,626
Back office & support: $169,357
Building rent-classrooms: $965,740
Building rent-administration offices: $82,740, and
Miscellaneous equipment rent: $317,898. 

The grand total for FY2011 was $3,712,946.

Jesse James was shot by a member of his own gang; if he were alive today, he might be dying from envy.

Mr. Mitchell broke the $4,000,000 barrier in FY2012, when the same line items totaled $4,137,382.

According to the audited financial statements for FY2013, Mr. Mitchell's companies received $6,313,924, as follows:

16% management fee: $2,047,873
Administrative support: $2,796,943
Building and equipment rental: $1,474,108

Dig into the audited statements (here and here) and you get some idea of where the $6,313,924 did not go. For example, the schools spent only $16,319 on staff development [4], which works out to less than three-tenths of one percent. They report spending just $28,060 on computers and technology, which is also about three-tenths of one percent.

Are you curious to know where the money comes from? In FY2013 Mr. Mitchell's schools collected nearly$9,000,000 from North Carolina and the federal government. Local school districts paid Mr. Mitchell's schools anywhere from $4095 to $1,712,328, depending upon the number of students from that district.

Don't forget charitable contributions. Mr. Mitchell's schools report receiving a whopping $93 in donations.

Of course the entire $15,000,000 that has gone to Mr. Mitchell's companies has not been profit; surely there were legitimate expenses, such as building maintenance, insurance, utilities and so forth. That's a logical leap, but we have to infer because he does not have to disclose spending. These are public dollars (all but that whopping $93 donation), but the public has no right to know how its money is being spent because the charter schools aren't actually spending the money; his for-profit businesses are. Non-disclosure is fine with him, as Pro Publica reported.

Charter School Power Broker Turns Public Education Into Private Profits

Baker Mitchell is a politically connected North Carolina businessman who celebrates the power of the free market. Every year, millions of public education dollars flow through Mitchell's chain of four nonprofit charter schools to for-profit companies he controls. 

 Subscribe in a reader