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Peter Greene writes in Forbes about the furor that erupted when House Democrats passed legislation to ban federal funding of charters managed by for-profit organizations. The charter industry and its lobbyists went bonkers, falsely claiming that the bill would prevent them from buying food from for-profit companies or hiring plumbers who work for profit.
SEC. 314. None of the funds made available by this Act or any other Act may be awarded to a charter school that contracts with a for-profit entity to operate, oversee or manage the activities of the school.
The presence of for-profit operators in the charter school sector has long been a concern for critics, with almost all states outlawing a charter school strictly run for profit. But charter school operators have long worked a variety of loopholes, keeping the sector a highly profitable one, and most of those loopholes involve a non-profit charter school hiring a for-profit business. null
We are not talking about contracting services like school buses or cafeteria management; these kinds of side functions are frequently contracted out both in charter and public schools, but they are not the school’s primary activities.
The bill is clear and specific about targeting for-profit entities that “operate, oversee or manage the activities of the school.”
Sometimes the money comes from the real estate side of the charter business. There is such a thing as a business that specializes in charter schools and real estate. In some states, the government will help finance a real estate development if it’s a charter school, and in general developers have noted an abundance of cash. Though, as one charter real estate loan bond financier told the Wall Street Journal, “There’s a ton of capital coming into the industry. The question is: Does it know what it’s doing?” Many states have found a problem with charters that lease their buildings from their own owners as well. null
One example of a real estate operator making money from the real estate side was Carl Paladino of Buffalo. Paladino worked with charter operators via flipping properties and making “leaseback” deals, as detailed in a report from the Alliance for Quality Education. Paladino not only profited from the schools, but from investments in surrounding properties. He was not shy about any of it. On the question of making money from working with charters, the Buffalo City News quoted him: “If I didn’t, I’d be a friggin’ idiot.”
While many charters may contract out critical functions such as curriculum, the extreme cases are what are called “sweeps” contracts, in which the charter management organization (CMO) fully runs the school in exchange for as much as 95% of the revenue that comes in. A report that the Network for Public Education issued earlier this year details many of the creative ways that CMO’s turn a profit. CMO’s come in a variety of sizes, from chain operations running many schools all the way down to mom-and-pop CMOs that run a single school.
These arrangements can become convoluted. In Florida, one charter founder moved on and off the board of directors regularly to allow payments from his school to himself, and while the school was having trouble paying teachers, it was paying his company tens of thousands of dollars to license the school logo.
One could argue that outlawing for-profit charters actually made things worse, and that what would have been clear and open attempts to profit from a school are now hidden behind multiple operational layers.null
But all of this still leaves a simple question—what’s wrong with having charter schools managed, directly or indirectly, for profit?
In the rest of the article, he explains why for-profit charters are a terrrible idea.