Charters are Cash Cows

Charter schools are cash cows feeding at the public trough. Oh, there are a few good ones here and there, to be sure. But if there was ever any doubt that charter schools have become Big Business, take a look at the list of the largest campaign contributors in Pennsylvania. Three of the top ten on a new “Power Players” report are throwing hundreds of thousands of dollars into state politics to gain favorable legislation for charter schools and we need to be asking why. [Public Source, Power Players report]

Weighing in at #5 is Van Gureghian, who founded Charter School Management Inc. back in 1999 to run a school in Chester, PA, a struggling former industrial town near Philadelphia. Today Gureghian’s company operates 150 charter schools in nine states, and that first school now has half of the district’s student enrollment and is the state’s largest charter school. Gureghian was Gov. Corbett’s single largest campaign donor and served on his education transition team. This is the same guy who is fighting the state’s Right to Know laws to keep from disclosing his salary – which is public knowledge for other public school administrators – while he recently bought two Florida beachfront lots for $28.9 million. He and his wife, another Charter School Management Inc. employee, plan to build a 20,000 square foot “French-inspired Monte Carlo estate.” [Palm Beach Daily News, 2011-11-18; Also see “Soaking the Public”]

At #8 and #10 on the list are Joel Greenberg and Arthur Dantchik. Public Source, which put together the report, notes that these two “act as one when making political contributions,” and that if we “consider them as a contributing team, you must include Jeff Yass,” who would be #11 on this list. Greenberg, Dantchik, and Yass went to college together and are founding partners of Susquehanna International Group, a financial broker-dealer in Philadelphia.

Greenberg is on the board of American Federation for Children, a national group with mega-billionaire backers supporting state vouchers for private school students. Dantchik is on the board of the Institute for Justice, a law firm that promotes school choice and Yass is on the board of the Cato Institute, a think tank dedicated to limited government and free markets. [Public Source, Power Players report] In 2010, these three men started Students First PAC to channel millions of their dollars, plus those from out of state donors, into races of pro-voucher candidates. (For more on the American Federation for Children and the Students First PAC, see “It’s All About the Money, Money, Money”.)

For those of you keeping track, that makes four of Pennsylvania’s biggest campaign donors so far this year with school privatization at the top of their to-do lists. Why? Lest you think these men are dabbling in education for the sake of students, take a closer look at the Big Business of charter schools. Back in August, CNBC interviewed the CEO of a major investment company who clearly explained why charter schools are such a great moneymaker. David Brain heads Entertainment Properties Trust, which owns movie theaters, destination recreation sites, and charter schools in 34 states.

When the interviewer asked why people should add charter schools to their investment portfolios, he replied:

“Well I think it’s a very stable business, very recession-resistant. It’s a very high-demand product. There’s 400,000 kids on waiting lists for charter schools … the industry’s growing about 12-14% a year. So it’s a high-growth, very stable, recession-resistant business. It’s a public payer, the state is the payer … if you do business with states with solid treasuries, then it’s a very solid business.”

The anchor also asked if he could buy one type of real estate asset right now, what would it be, and Brain answered:

“Well, probably the charter school business. We said it’s our highest growth and most appealing sector right now of the portfolio. It’s the most high in demand, it’s the most recession-resistant. And a great opportunity set with 500 schools starting every year. It’s a two and a half billion dollar opportunity set in rough measure annually.” [CNBC, 8-15-12]

Brain also told a nice whopper when the anchor asked him if there was any investment risk due to some public backlash against using taxpayer money to pay for charter schools. He claimed, “Most of the studies have charter schools at even or better than district public education.” Actually, most of the studies have shown the opposite: charter schools consistently rank at even or worse – sometimes much worse – than traditional public schools. For example, the Center for Research on Education Outcomes (CREDO) at Stanford University found that students in every single Pennsylvania cyber charter school performed “significantly worse” in reading and math than their peers in conventional public schools. [Stanford/CREDO report summary, 2011] That’s a 100% failure rate. (See “Dueling Rallies” for complete details on charter school performance research.)

With such dismal results, investors really ought to be asking why Gov. Corbett’s administration keeps approving new charter school applications. Cyber charters in particular are charging taxpayers far more per student than it actually costs to educate them – to the tune of one million dollars per day sucked from our public coffers into the pockets of charter school operators. (See “One Million Per Day”) Pennsylvania already has 16 cyber charter schools – including four approved just this past summer – giving us one of the highest concentrations in the country. Yet the Department of Education just scheduled hearings on eight new cyber charter school applications. [Post-Gazette, 10-22-12]

Gary Miron, an education professor at Western Michigan University who studies charter schools, told the Post-Gazette, “Pennsylvania, as far as I know, has the most lucrative funding for virtual schools. It’s very favorable. It doesn’t surprise me more companies and entities want to come there for virtual schooling.” [Post-Gazette, 10-22-12]

Indeed. This is not about doing what is best for students. Charter schools have become investment opportunities for the wealthy and their portfolio managers, businesses that must be protected with favorable legislation bought by strategic campaign contributions. As these charter school operators feed at the public trough, they strip our public schools of desperately needed resources. It’s time to fight back. Public education is a public good, not a cash cow.

12 thoughts on “Charters are Cash Cows

  1. I see that you switch freely between cyber charter schools and charter schools. Is this some sort of shell game to hide misinformation?

    • John,
      Not at all. I have been very clear that cyber charters tend to be the worst offenders — costing taxpayers far more and educating students far less than traditional public schools. I have also stated many times that “regular” charter schools are a mixed bag. There are some good ones — and they tend to be those run by non-profits with local boards of directors and pay their teachers fairly. But many are not so great. And the research on both charters and cyber charters shows that their educational outcomes are mixed.
      I do not play shell games. Yinzercation believes in sharing information — never hiding it. You will notice that absolutely everything is documented on this site. I do not make statements without supporting evidence, and if I can’t cite a reputable source for the data, it doesn’t go up.
      Jessie Ramey

      • Thank you for your reply. This is the only article I have read on your site so far. Guess I have more reading to do to get the whole picture.

  2. Jessie – Thanks for writing such a comprehensive post. The tone and vocabulary used by David Brain make it sound like a sound investment… that is until I woke up and realized he was talking about schools… and children… and teachers, etc. Scary. After reading your post I was still very much in the dark as to how investors actually make money in charters (the nuts and bolts of how the money is made), so I did more reading online and got a bit of an understanding. I was wondering – do you happen to know of a good article or video that you can reference that shows exactly how these investors make money? Thanks.

    • Charter schools and charter management companies that are run as private, for-profit businesses answer to their shareholders and the bottom line — not students.

      Here in Southwest Pennsylvania, PA Cyber Charter School is under federal investigation for what appear to be far ranging financial misdeeds. We recently learned that the school’s founder, Nick Trombetta, bought a Florida condo for $933,000, and then sold it “to a business created by one of the school’s former executives for just $10.” [Post-Gazette, 10-12-12] These are the people raking in millions and millions of public dollars, yet fighting tooth and nail to keep their business dealings away from public scrutiny. This may have been a legal real estate transaction, but I’d say it’s still a shady deal.

      K12, Inc., the nation’s largest operator of on-line schools, represents another egregious example of public funding going to line the pockets of private corporations. In December 2011, the New York Times ran a front page article describing how K12 manages to pull in enormous profits while its students perform well below agerage, explaining that the company uses “education as a source of government-financed business, much as military contractors have capitalized on Pentagon spending.” With 105,000 enrolled students in 29 states plus the District of Columbia, K12 took in $522 MILLION last year in revenue – those would be public tax-payer dollars that were not going to the vast majority of students still being educated in their district schools. [Education Week, 2012-2-21]

      In Pennsylvania, K12 runs Agora Cyber Charter School, which has performed quite poorly. According to Education Week, “The school’s average growth index, which measures performance on state tests, is minus 12.1, among the lowest in the state.” In fact, shareholders have brought a lawsuit against K12 arguing that they were misled and that the company “inflated stock prices by not disclosing data showing that K12 Inc. students perform below state averages and by not being truthful about student-to-teacher ratios and student-recruitment practices.”

      For more, see “Soaking the Public”:

      • Thanks! That helps. I was under the impression that many charter school investors were the types that were independently wealthy and had a desire to give back to the community. Apparently, I was completely off base (I assume not all charter schools are run by investment firms just wanting to make money). This is scary… very scary stuff. I assume that once the funds are given to the schools, the board of directors (or investors) can allocate those funds however they wish? …including compensation.

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