Profiting from Non-Profits

There are days when it seems like the news in education is just the same news, over and over and over again.

People believe in the magic of certain words, like "non-profit." For whatever reason, when people hear the word "non-profit" they think of some philanthropic exercise in austerity and sacrifice. When the term is applied to schools, they think of teachers and administrators plugging away tirelessly, plowing every spare cent back into the work of the school.

Here comes Marian Wang in ProPublica to explain how Not True that is.

Let me start with the usual disclaimers. Not all charter schools are a blight on American public education, and not all non-profits are scams.

But the unregulated world of charters, infused with cash and boosted by politicians who are some combination of paid-for and clueless has given rise to an endless parade of charters created as money grabbing mechanisms. There's plenty of reason, for instance, to believe that Gulen charters are simply a fund-raising operation for their secretive owner-founder. Just last week, the Indy Star ran an piece about a charter high school being set up as basically a recruiting wing of a for-profit college currently under investigation for being one more predatory school (they had better watch out, or the feds might punish them by forcing them to accept a bunch of financial and political aid). You can go to high school and get college credits-- that only count at the for-profit college. I hear that heroine dealers also offer free samples.

Wang's piece is well worth the read-- she describes the practice of "sweeps," arrangement by which a non-profit school turns over as much as 95 or 100 percent of its revenue to a for-profit management company.

While relationships between charter schools and management companies have started to come under scrutiny, sweeps contracts have received little attention. Schools have agreed to such setups with both nonprofit and for-profit management companies, but it's not clear how often. Nobody appears to be keeping track.

There are so many things wrong with this sort of thing, not the least of which is the complete absence of accountability. 


Take the case of Brooklyn Excelsior Charter School, another National Heritage Academies school. In 2012, state auditors tried to track the $10 million in public funding given to the school, only to conclude they were " unable to determine ... the extent to which the $10 million of annual public funding provided to the school was actually used to benefit its students." From what auditors could tell, the school was paying above-market rent for its building, which in turn is owned by a subsidiary of National Heritage Academies. They also had concerns about equipment charges.

This is not news. It's only been a few months since Wang wrote about Baker Mitchell, a North Carolina charter operator who sets up these sorts of management contracts with himself.  

But in all these cases, the private company enjoys a shield from prying eyes. Once public funds enter this black hole, they could be doing anything from footing the bills for some other enterprise entirely to financing a second house in the Hamptons for the CEO. As Casandra Ulbrich, VP of the Michigan State Board of Education told Wang, "I can't FOIA [Freedom of Information Act] National Heritage Academies."

The practice of using non-profit charters as pass-throughs is too common to be surprising any more. It's a new sort of money laundering, in which any sniff of public interest is stripped from the money, and they become untraceable nuggets of wealth.

One thing is absolutely certain-- every dollar that is spent on actually educating students is a dollar that the management company doesn't get to put in its own pocket. Students are a Good Thing to these charters because students generate revenue, but they are also a problem because educating students drains revenue.

Bottom line-- even if you weren't bothered by the total lack of transparency and accountability, there's still another issue. In a profitable charter arrangement (whatever it's called) the interests of the students are in direct opposition to the interests of the operators. That makes this scam a bad deal for taxpayers, students, the community and everybody else who isn't making a buck from faux non-profit charterdom.