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K12 Classroom, LLC, and Its “Flex” Schools– or What Happens When a For-profit Company “Manages” a Nonprofit Charter School

January 18, 2018

One of the ways that charter school choice enables profiteering is through the ability of for-profit, education businesses to become “managers” of nonprofit charter schools.

Such was the case of California-based Flex Academy in San Francisco, a nonprofit charter school that was operated by for-profit K12 Classrooms, LLC, from 2011-12 to 2014-15. In June 2016, SF Flex Academy closed its doors, reportedly over an inability to “sustain facilities,” as this June 12, 2016, archived notice to SF Flex Academy parents and students states.

Interestingly, as this June 28, 2016, San Francisco Examiner article notes, within days of the SF Flex Academy closure (May 02, 2016), the California Department of Education (CDE) and state controller began investigating whether K12 and another nonprofit charter, California Virtual Academies (CVA), are “organizationally separate,” with the Examiner adding, “Nonprofit charter schools are not allowed to pad the pockets of for-profit companies with state funding for facilities or student enrollment.”

CDE had already examined SF Flex’s troubled finances, as the Examiner reports:

The charter school’s finances were recently under scrutiny in a report from the California Department of Education for “fiscal mismanagement.”

Flex Academy suffered from declining enrollment in recent years and did not meet the enrollment projections or average daily attendance goals set in its annual budgets, which determines the state funding it receives, according to the report.

The California Board of Education issued a notice of violation to Flex Academy based on the report and threatened to revoke its charter last month. The charter school was found to be financially unsustainable, with budget reserves falling below the agreed upon amount.

Then comes the issue of who was in control of SF Flex’s state-allocated funding, with the San Francisco Unified School District (SFUSD) commissioner, Rachel Norton, observing that, in approving SF Flex’s charter (which SFUSD refused twice, at least once for under-enrollment), “essentially the state was subsidizing K12 software.”

Examination of the FY2015 tax form for “Flex Public Schools” indicates pretty quickly that K12, Inc., is in charge; the school email address is listed as “www.k12.com/sfflex.”

A January 03, 2012, archive of k12.com/sfflex includes the following info:

Welcome to SF Flex

In the city’s most exciting new high school, the best of online education meets the best of traditional, onsite schooling.

Why SF Flex?

  • One of California’s first full-time, five-days-a-week hybrid high schools
  • Engaging and personalized learning that truly maximizes each student’s full potential
  • An exceptional education that allows student to thrive in high school and beyond
  • The award-winning K¹² curriculum
  • A robust catalog of core and elective courses, many of which aren’t offered in other schools
  • Books, materials, and laptops for each student to help facilitate the learning process

San Francisco Flex News & Announcements

And from the SF Flex FY2015 tax form, its “service accomplishment”:

Flex Schools’ program blends innovative new instructional technology with a traditional curriculum for students in the San Francisco and Silicon Valley areas. Flex Schools uses the K12 Classroom, LLC curriculum to offer in grades 9 -12 an exceptional learning experience with individualized learning approaches. Flex Public Schools and K12 Classroom, LLC provide the tools kids need to succeed in school and beyond.

By far, the bulk of nonprofit SF Flex School’s FY2015 revenue ($2.6 out of $2.76 million) derived from government grants.

By the end of FY2015, SF Flex was in the red, with its total expenses at $4.9 million, for “fund balance” of – $2.1 million.

The tax form also indicates that SF Flex has “management by K12 education under contract.” At first glance, it seems that K12 cannot figure how to operate SF Flex within its state-allocated resources. However, since K12 set the prices for its school, it is possible that some price padding was occurring to keep SF Flex beholden to K12, so to speak. Such a possibility is supported by the following information included in the Examiner article:

Flex Academy purchased curriculum and administrative services from K12 for five years, reportedly falling into more than $5 million in debt with the company. In turn, K12 offered Flex Academy what it called a “balanced-budget credit” to clear the debt and ensure the company ended each year without a budget deficit.

“Why would they do that? That is the question,” said Mike Davis, the SFUSD’s director of charter schools. “Were they making any money? Well, you can’t tell. They were the service provider and they were the entity receiving state funds.”

“There’s a bunch of services that are supposedly covered by K-12,” he added. “I don’t know what those services cost.”

Yet, the company set the prices.

K12 continues to operate “tuition-free online public schools” under five models, including “flex academies” like SF Flex Academy, and “virtual academies,” like the ones that were under investigation in California– and for which K12 agreed to a settlement of $2.5 million (plus costs) in July 2016, as Globe News Wire reports –which also includes a word about those “balance-budget-credits”:

K12 Inc. (NYSE:LRN), today announced that it has reached a $2.5 million settlement with the State of California, bringing to an end a lengthy investigation of K12 conducted by the Office of Attorney General Kamala Harris.   K12 will also contribute $6.0 million toward the Attorney General’s investigative costs.  The settlement with the state includes no finding or admission of liability or wrongdoing by K12 or by the public, non-profit California Virtual Academies (CAVAs) managed under contracts by K12.

“The Attorney General’s claim of $168.5 million [associated with apparently canceling balances K12 offered to expunge in the name of balance budget credits] in today’s announcement is flat wrong,” said Stuart Udell, K12’s Chief Executive Officer.  “Despite our full cooperation throughout the process, the Office of the Attorney General grossly mischaracterized the value of the settlement just as it did with regard to the issues it investigated.  There is no ‘debt relief’ to the CAVA schools.  The balance budget credits essentially act as subsidies to protect the CAVA schools, its students and teachers against financial uncertainties.  CAVA schools have not paid that money to K12 and K12 never expected to receive it given California’s funding environment.”

“K12 never accrued these balance budget credits on its financial statements, and the CAVA schools similarly never incurred financial statement liabilities,” Udell added. …

K12 will be making an $8.5 million payment to the state. Of that amount, $6.0 million is to defray the cost to taxpayers of the Attorney General’s investigation, and $2.5M are settlement costs related to the separate private lawsuit alleging misreporting of attendance at the CAVA schools.

In addition, K12 and the CAVA schools will implement a series of conduct provisions, most of which K12 had planned on investing in over the next three years.  These include accessibility improvements in the company’s curriculum and technology platform. Udell pointed out that these investments would have been made by the Company in the ordinary course of compliance and product and service enhancements to improve the student experience regardless of the Attorney General’s actions.

K12 is still allowed to operate its virtual academies in California.

Interestingly, the other “flex academy” identified in California as noted in the FY2015 tax form, Silicon Valley Flex Academy, closed its doors in July 2016, less than three weeks before the opening of the 2016-17 school year. According to the July 27, 2016, Morgan Hill Times, parents and students were caught off guard by the announcement despite the school’s history of “financial unsteadiness.”

For information on a questionable K12 school near you, search K12’s “schoolfinder” site by zip code. Then enroll elsewhere.

Where-Is-The-Best-Place-To-Hide-Money-At-Home

______________________________________________________________________________

I wrote a few books. Here’s one on the history of charter schools and vouchers:

School Choice: The End of Public Education? 

school choice cover  (Click image to enlarge)

And here are two more: A Chronicle of Echoes: Who’s Who In the Implosion of American Public Education and Common Core Dilemma: Who Owns Our Schools?. Swell stuff.

both books

Don’t care to buy from Amazon? Purchase my books from Powell’s City of Books instead.

3 Comments
  1. Laura H. Chapman permalink

    This is a big part of the problem: The settlement with the state includes no finding or admission of liability or wrongdoing by K12 or by the public, non-profit California Virtual Academies (CAVAs) managed under contracts by K12. The corruption will continue unless there are some serious consequences.

  2. Flex Academy in Minneapolis (suburb Richfield) lasted maybe a year and is also closed.

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  1. California Gives For-Profit Charters the Boot, K12 Inc. Largely the Reason | deutsch29

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