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New Federal Charter School Regs Put the Squeeze on For-Profit Operators

July 7, 2022

One of the frustrating politician talking points about regulating federal funds for charter schools has to be, “I oppose for-profit charter schools.”

The major issue is not for-profit charter schools, though those do exist. The major issue has been for-profit, charter-school managers/operators. That is, the charter school itself is likely a nonprofit entity– but it could (and too often does) pay a for-profit entity to manage or operate the school.

It’s not easy getting the public (and politicians) to catch on this for-profit-behind-a-nonprofit relationship, but it seems that House Appropriations has finally caught on and is taking more precise aim at the for-profit education management organization (EMO) pulling federal dollars from a comfortably-hidden position behind its nonprofit charter school.

On June 29, 2020, the US House of Representatives Committee on Appropriations released its 2023 Appropriations Bill Report for Labor, Health, Human Services, and Education. Below is the text from that report as it applies to charter school grants (pp. 256 – 258), including nixing federal funding that feeds for-profit EMOs– and a push encouraging Congress “fully phase out the concerning for-profit EMO sector.”

I highlighted statements I found particularly interesting:

Charter Schools Grants
The Committee recommends $400,000,000 for Charter School Program (CSP) Grants, which is $40,000,000 below the fiscal year 2022 enacted level and the fiscal year 2022 budget request. CSP awards grants to SEAs or, if a State’s SEA chooses not to participate, to charter school developers to support the development and initial implementation of public charter schools. State Facilities Incentive Grants and Credit Enhancement for Charter School Facilities awards help charter schools obtain adequate school facilities. These programs work in tandem to support the development and operation of charter schools.

For-profit Entities.—The Department has long recognized the particular risks posed by for-profit education management organizations (EMOs). In response to a 2016 audit, the Department conceded to the Inspector General, ‘‘ED is well aware of the challenges and risks posed by CMOs and, in particular, EMOs, that enter into contracts to manage the day-to-day operations of charter schools that receive Federal funds. We recognize that the proliferation of charter schools with these relationships has introduced potential risks with respect to conflicts of interest, related-party transactions, and fiscal accountability, particularly in regard to the use of federal funds.’’ Since that initial acknowledgement by the Department regarding for-profit EMOs, the Committee has been made aware of concerning instances of criminal fraud, conflicts of interest, and inadequate transparency.

In addition, the Committee is deeply concerned that for-profit charter schools, including those run by for-profit EMOs, deliver concerning outcomes for students. A 2017 report from Stanford University’s Center for Research on Education Outcomes compared student performance at non-profit charters, for-profit charters, and traditional public schools and found that for-profit charters perform worse in reading, and significantly worse in math, than non-profit charters. In addition, the report found that for-profit charters perform worse in math than traditional public schools.

That is why the Committee is strongly supportive of the Department’s proposal to prohibit Federal CSP funding from supporting for-profit EMOs through its notice published in the Federal Register on March 14, 2022 (87 Fed. Reg. 14197). The Committee includes bill language codifying the prohibition to establish this precedent for fiscal year 2023 and for future years. Moving forward, the Committee urges the Secretary to work with Congress on efforts to fully phase out the concerning for-profit EMO sector. Such efforts could include reasonable transition periods that allow schools run by for-profit EMOs to shift to independent or nonprofit management. In the interim, the Committee is committed to continuing its oversight of the for-profit EMO sector and ensuring fewer taxpayer dollars enrich for-profit EMO shareholders.

Defunct CSP Grantees.The Committee is deeply concerned by the Department’s analysis that fifteen percent of the charter schools receiving CSP funding since 2001 have never opened or closed before their three-year grant period is complete, representing an unacceptable waste of at least $174,000,000 in taxpayer funds. Accordingly, the Committee is strongly supportive of the Department’s fiscal year 2022 CSP notice (87 Fed. Reg. 14197) that requires applicants to demonstrate local demand for new schools. The Committee rejects the premise that grant failure and school closure is the cost of doing business in CSP and welcomes reforms that will improve its performance.

GAO Mandate from House Report 116–450.—The Committee continues to be supportive of GAO’s work on the mandate included in House Report 116–450 regarding the Department’s oversight over CSP and whether the program is being implemented effectively among grantees and subgrantees. The Committee is particularly interested in the issue of CSP-funded schools that eventually closed or received funds but never opened; the relationships between charter schools supported by CSP grants and charter management organizations; and enrollment patterns at these schools, especially for students with disabilities. In addition, the Committee is interested in recommendations on potential legislative changes to the program that would reduce the potential for mismanagement and ineffective operations.

Oversight from the Office of Inspector General.—The Committee continues to support efforts by the Department’s Office of Inspector General (OIG) to examine grantee administration of Replication
and Expansion Grants, including charter management organization grantees. The Committee also supports the OIG’s efforts to evaluate whether the Department adequately monitored grantees’ performance and uses of funds for CSP competitions.

Students with Disabilities and English Learners.—The Committee encourages the Department to continue including in their evaluation of State CSP grants the extent to which State entities are utilizing the seven percent of funding received under the program to ensure that charter schools receiving CSP grants are equipped to appropriately serve students with disabilities and, by extension, prepared to become high-quality charter schools. In addition, the Committee urges the Department to ensure subgrantees are equipped to meet the needs of English learners. The Committee directs the Department to provide an update on these efforts in the fiscal year 2024 Congressional Budget Justification.

Charter School Effects on School Segregation.—The Committee is concerned by findings from a 2019 Urban Institute report which concluded that growth in charter school enrollment increases the segregation of Black, Latino, and white students. To address this concern, the Committee urges the Department to give priority to applicants that plan to use CSP funds to operate or manage charter schools intentionally designed to be racially and socioeconomically diverse.

The Committee is strongly supportive of proposed requirements in the Department’s fiscal year 2022 CSP notice (87 Fed. Reg. 14197) that grantees show that they will not exacerbate school segregation. Accordingly, the Committee urges the Department to examine the merits of diversity reporting that compares demographic data of grantees to that of local districts. The Committee directs the Department to share its assessment of CSP diversity reporting, along with any prospective plans for implementation, in the fiscal year 2024 Congressional Budget Justification.

For further discussion of the revised federal charter school regs and their nuances/implications, see Network for Public Education (NPE) Executive Director Carol Burris’ take in the July 05, 2022 Washington Post.

And if you want reaction from someone who frames the regulations as a passing fad that hinders the freedom of charter schools, you can read this July 06, 2022, K12 Dive Brief that concludes with a Center for Education Reform CEO, Jeanne Allen, lament.

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One Comment
  1. If charter schools ever have to operate under the same rules as real public schools, they simply won’t be profitable any more, and the cons will cash out and look for other suckers.

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