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Charter volleyball in North Carolina

By Eddie Goodall
EdNC
April 16th, 2015

As the head of the NC Public Charter Schools Association, I read charter news alerts daily from all over the country. Lately, I cannot help but see volleyball as a metaphor for the controversies surrounding charter schools in the press. I read about those I see as “digging” to save a point about our schools; those content to just ‘keep the ball in the air” or “set others up”, and always a contingent wanting to “spike” the ball down.

The “diggers” are generally those in the profession of running charters already, i.e. those “on the ground.” They easily know more about charters than the other groups combined. These are the charter principals, dedicated board members, teachers, and, too often overlooked, the parents. Also included is the charter-knowledgeable business community that has become an integral part of the schools’ success. The charter management or support groups like KIPP, Charter Schools USA, National Heritage Academies, and the Challenge Foundation have brought different combinations of synergy, substance, skill, and scale to our movement.

Let’s skip those who would spike charters altogether if given the chance.

Then we have those, generally supportive, in the middle who keep tossing the ball around. They often open their comments by, “I support charter schools, but…” From there you can choose from a myriad endings. One of the more common finishes is “but only quality charters.” To those of us in this business that is what we imply when we say the word “charter.” There is no record of anyone who publicly supports creating poorly performing charters.

Twenty years ago this past Sunday, a bill was filed in the North Carolina house that would pass a year later as the “Charter School Act of 1996.” In the first years following the 2011 removal of the charter ceiling of 100 schools, the arguments against charters centered on their re-segregating schools, underperforming academically, taking money from public schools, and an assortment of other complaints. That noise has muted as facts slowly assuaged much of the public’s concern about the expanding schools of choice. Today, expansion or growth of charters, for-profit charter management companies (EMOs), and charter financial accountability have taken center stage as the most chronicled and debated issues.

Growth

Let’s look at the first of these, the growth of the charter school movement. There has been tremendous institutional pressure on the State Board of Education (SBE) and the NC Charter Schools Advisory Board (CSAB) to slow the post cap growth of charters. That pressure began working before the Charlotte charter failures of 2014. After a fast track cohort of about a dozen charters that opened in 2012, approximately fifty were approved and opened in 2013 and 2014 amidst some closings, to bring us to about 148 today. So, percentage wise, a 48 percent increase is significant to the Office of Charter Schools (OCS), the state’s division of DPI responsible for the oversight of the schools. It was also an ominous sign to those unsupportive of charters.

The pressure to slow growth worked, with fewer schools now opening in 2015. Applicants have been hit with new fees, requirements to have all board members have criminal background checks (local school boards are not required), extensive notarized legal and financial reviews by professionals even before submission of the application, and an accelerated (by nearly three months) application filing deadline.  The Center for Education reform, in its 2015 State Rankings and Scorecard of Charter School Laws, said NC’s Advisory Board “has slowed down the growth of charter schools in the Tar Heel State, with only 15 percent of applications being approved recently, one of the lowest approval rates in the state’s history. The process of opening charters continues to remain restrictive and the state’s leadership has not been strong advocates for opening more charters.”

Let’s look at the facts. First, there has actually been no appreciable growth in charter schools in North Carolina when adjusted for the state’s population. Parents, the customers, see no change. Why? Because when the first charters opened in 1997 there were only 7.5 million people in our state and today we approach 10 million, a 33 percent increase. So, 100 charters in 1997 equates to 133 today. So with only 148 schools currently the real rate of growth has been under 1 percent!

What are the solutions to growth resistance?

First, let’s quit tossing the ball around. Those equipped to make a difference should go to the net. They include education policymakers, the SBE, the Advisory Board, as well as the state legislators. The charter sector has to grow to satisfy the demand for parents and to continue stimulating meaningful change within the district schools.

The SBE should explicitly advocate for charters and solicit charter founders using its influence and constitutional authority. The advisory board is already charter knowledgeable with its members positioned within the sector. It believes in what charters are accomplishing and members work many underappreciated hours. However, it can and should become a more vocal advocate for charter education also by valuing the substance of the applications over form, allowing more vocal applicant  participation in the interview process, and treating charter applicants as customers.

Legislators thought lifting the cap was the end. It was the beginning. Republican voices who championed charters when I was a state senator have quieted. Many may have less appetite now for the movement as evidenced by their burdening all charter boards with a new $50,000 escrow requirement, including the especially vulnerable new applicants, who typically have no money. The NC Constitution reads, “The General Assembly shall provide by taxation and otherwise for a general and uniform system of free public schools…” Is the $50,000 even constitutional? Public charters should be funded by public dollars.

Republican lawmakers need to go much further than just undoing the damage done. They need to redefine the funds that local school districts are supposed to more equitably share with charters as well as provide charters the chance to share in lottery capital funds, and much more.

The governor’s office now, with two positions open, has the opportunity to appoint a single member from the charter community to the 11 charter-less member State Board of Education.

The first two are covered. The real answer to where growth is going rests with that third leg.

Education Management Organizations (EMOs)

So, if halting charter growth is in the news every week, EMOs, the for-profit companies providing substantial education management services for nonprofit charters, make the pages daily. These companies manage seventeen charters in North Carolina, about 11 percent of the schools. EMOs have different models but basically provide differing layers of services and products, including staffing, for charter boards of directors, in exchange for fees.

They bring professional expertise, capital, and academic programs with proven track records. They use the strength of their leveraged buying power and installation of effective systems, including refined curricula and training. They are actually no different than all the other vendors of any school district or state. They do what school districts do. They have a Superintendent (CEO), hire teachers and administrators, buy buses, textbooks, curricula, classroom supplies, furniture, computers, etc. They then deliver these to students, packaged in an expected quality education experience for the student and parents.

Other for-profit vendors such as Pearson, Staples, HP, Microsoft, and Houghton-Mifflin only provide parts of the education delivered by districts. EMOs therefore are the largest threat to local school boards because they can do the job and in a scale that would reasonably frighten any competitor.

What are the solutions to EMO resistance?

First, policymakers should look at results of the schools managed by EMOs. Superior academic results are the objective. We know aggregate costs are controlled for the NC taxpayer because the EMO-contracted charter gets the same allocation of per-pupil finding as the other charters.

In the first five authorizing cycles of charters, the advisory council/board has internally struggled mightily with the very different looking governance models of small, “organic” or home grown charters, versus the larger corporate formation of EMO supported charter applicants. The boards were caught in the conundrum of, as Jim Collins would write, the tyranny of the “or” versus the genius of the “and.” The boards were battling a non-existent wall between the two, almost exclusively denying charter contracts to the EMO contracted applicants.

That page may have turned as the current advisory board, with several years of results to look at, can now see schools like Langtree Charter and Cabarrus Charter, both opened and served by Charter Schools USA in 2013, excelling. Thus, today we should realize that charters do not all have to be packaged in the same wrapper. There can be some large, some small, those EMO operated and those with no extensive corporate professional management services.

Policymakers and those in the General Assembly should keep the eye on the target, what is best for parents and children, and authorize and support EMOs if and when they deliver. It should be pointed out that EMOs, like charters, should not be pigeon-holed. Some EMOs may be good for our students and others may not.

So, for those who have tossed the ball around and deferred decision making regarding EMOs, please acknowledge that the “for-profit,” red-herring argument by the “spikers,” is the structure of almost all the local  school boards’ and NC Department of Public Instruction’s vendors. Amidst the call for more details of the EMOs’ internal records, it would be ridiculous for us to assail all the vendors and request all their records. Once obtained, what would we do with them anyway? The data could be used to compare operating costs between the EMOs and the local school districts. Local school boards, watch what you wish for!

Public Charter School Financial Accountability

Now, if growth is in the news every week and EMOs every day, then charter financial accountability, our final subject, is both in the news and in the legislature! There are bills filed by Democrats to require charter board members or employees who have authority to “maintain or expend funds” to be personally liable for all the debts of the charter. There is resistance by Republicans to remove a Democrat sponsored provision, mentioned earlier, that slipped into the budget bill last year, one that will cost our schools and applicants $50,000 each (almost $8 million) in cash or borrowing power.

But taxpayers are not liable for unpaid charter debts. The state pays the schools a per-pupil allotment and that’s it, the spigot shuts off. When StudentFirst closed and reported $600,000 in debt, the news reports failed to tell readers that that debt was borne by the school’s board of directors.

Let’s look at the genesis of the issue. StudentFirst, Concrete Roses, and Entrepreneur High, all of Charlotte, failed in their first year and closed in 2014, along with Kinston Charter, an older charter. Since then, but with less controversy, the State Board has or is in the process of closing more charters under rigorous policies initiated or applied after the cap was removed in 2011. The three Charlotte charters above had fatal commonalities: they were approved too close to the schools’ opening (StudentFirst in January preceding opening and the other two in March preceding opening, thereby missing all those applying to schools of choice in the first quarter of the year), they had boards of directors that appeared to be less involved with the creation of the schools, they received state money only a few weeks before opening, and they had difficulties finding facilities.

Kinston Charter’s closing will not be discussed here, other than pointing to its precipitous decline in enrollment, but solutions for the “next Kinston” will be offered below. After the Kinston debacle our Association’s Board of Advisors, wanting to take a position on the closing, adopted this statement:

So, when schools fail we all want to know why. And by the way, some will fail.

Then what are the solutions to balance the need for financial accountability with the charter’s ability to effectively function?

This advice is for those in policymaking who have the authority to make changes now. It is also for legislators who should seek out data, pay attention to those in DPI involved in protecting the public dollars, and heed the charter voices, the “diggers.” They should not succumb to the political pressure to do something for the sake of doing something, a legislative occurrence not unknown. It is in the interests of charters, more than any other group, to help create real and effective financial accountability. It has to work so that the public maintains confidence in the schools.

The most underreported news is what accountability already exists. Below I have listed some, not all of what oversight is in existence today:

1. SBE policy TCS-U-006, Policy for charter schools on financial and governance noncompliance, including Cautionary, Probationary, and Disciplinary Noncompliance, applied when charters fail to report required information including any financial, personnel, or student information requests, show signs of financial insolvency or weakness, receive a non sufficient funds notification, have a material adverse audit finding, and fail to have staff attend mandatory financial training; with non-resolved accumulation of the above leading to sanctions up to immediate freezing of assets and referral to the SBE for revocation
   What do you think?
2. Terms of the charter contract or agreement involving board and staffing relationships and noncompliance as referenced in 1 above
   What do you think?
3. Required levels of fidelity bonding of officers of no less than $250,000
   What do you think?
4. Provision that “No indebtedness of the charter shall constitute indebtedness of the state of North Carolina” and all contracts with vendors shall so state; debt of charters is not debt of the public
   What do you think?
5. Criminal background checks for those charter board members and staff handling finances
   What do you think?
6. Termination of charter upon the failure to meet generally accepted standards of fiscal management or violation of law
   What do you think?
7. Unannounced site visits by the State Board of Education
   What do you think?
8. Application of the DPI Charter School Financial Performance Framework
   What do you think?
9. Open Meetings and Public Records laws
   What do you think?
10. Conflict of Interest policies regarding finances approved by the SBE
    What do you think?
11. Rigorous requirements for new charters including criminal background checks for all board members, financial reviews by a CPA firm for all board members and attested by notarization
    What do you think?
12. Reporting requirements established by the State Board of Education in the Uniform Education Reporting System
    What do you think?
13. Annual financial audits by a firm approved by the Local Government Commission
    What do you think?
14. Civil and criminal sanctions upon employees or board members committing fraud or gross negligence, including personal liability to the schools for damages.
    What do you think?

Here are the next steps. There was a short time frame from approval to opening for the failed charters. Currently, the schools opening in 2016 will be approved by August 15 of this year. So that systemic weakness has been patched. Schools now opening next year will have a full year, including the longer enrollment application window, to attract students.

Next, all the aforementioned schools received their state funding in three large chunks in accordance with the State Board of Education’s “Allotment Policy.” A new charter, with 300 students approved in the charter contract, has access to 34% of that funding in its first month, even if actual enrollment is only 100. The school can draw down $408,000 when it was entitled to only $136,000! The adjustment to reduce the overpayment is not made until November, based upon the first month’s average daily membership, or ADM. Charters like those that failed were in too much trouble by the second apportionment of state dollars. Rather than get any funds back, they should have never been released in the first place.

A second issue is that the Integrated Solutions Information System or “ISIS” mandated accounting system only reports cash basis transactions. DPI has real time access to those transactions. However, the failed charters accumulated debt that was not visible to DPI. An analogy is that DPI was handed the school’s bank statement but never asked for the credit card statement. Even though the charter is funded with a defined and finite amount, and the debts do not belong to the taxpayer, we can react faster to mitigate charter losses and threatened closures if we know a charter is overspending, including its borrowing.

In summary, those in positions to impact public policy affecting charters should take bold steps to:

1. Stimulate and implement charter growth,
   What do you think?
2. Support all types of charters, including EMOs, that effectively improve the quality of the charter movement, and
   What do you think?
3. Collaborate to help DPI get its oversight calibrated to better match tax dollars going out with real enrollment and to get more current access to the charter “credit cards.”
   What do you think?

So, it’s time to quit tossing the ball around. Let’s get it over the net, match!