Michigan charter school transparency plan advances in Lansing

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Legislation that would prohibit for-profit management companies from selling or leasing properties to the charter schools they run is a step closer to becoming Michigan law.

The measure, which cleared a vote in the Senate Education Committee Wednesday, targets a problem advocates for charter school oversight have sounded alarms about for years: the use of taxpayer money to buy private property, to the benefit of for-profit companies managing charter schools.

The legislation was part of a package of bills that aim to require more financial transparency for charter schools, including open public access to financial audits of individual expenditures.

The intent of the bills is not to force charter school closures, cap the number allowed in the state, or take their funding away, state Sen. Dayna Polehanki, a Democrat from Livonia, said during a Senate Education Committee hearing Wednesday before the vote. Rather, she said, it is to hold the for-profit companies that operate charter schools more accountable to taxpayers.

“When over 80% of charter schools in Michigan are connected to private companies, the majority that exist to make a profit using Michigan taxpayer money, it’s important that they are no longer allowed to do so in secret,” she said.

In all, Democrats on the Senate Education Committee on Wednesday approved moving nine charter school bills for votes in the Senate.

Five of the bills — which pertain to charter schools publicly posting information about salaries and displaying the names of their authorizers and management companies — already passed in the House and would likely be signed into law by Gov. Gretchen Whitmer if they are approved by the full Senate.

The other four bills haven’t yet come up for a vote before the full House or Senate. If approved in the Senate, they would go to the House Education Committee for consideration.

Charter school transparency reforms are the last major education policy priority of Michigan Democrats in their lame-duck session before they lose control of the House to Republicans.

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Republicans have long opposed such bills, saying they hamper school choice by adding more costs and regulations.

Buzz Thomas, board chair at the Michigan Association for Public School Academies and a former Democratic state senator, said during the hearing that charter schools are already held accountable by public authorizing entities.

“They’re overseen by public school boards that do hold open meetings,” he said.

Charter school boards are appointed, not elected.

How do charter schools operate in Michigan?

Public school academies, or charter schools, are public schools that receive state and federal funding. They must follow state and federal education laws.

Charter schools have existed in Michigan for nearly 30 years. Today, they serve around 150,000 K-12 students in the state, or roughly 10% of the total. Most of the schools are in urban areas, like Detroit, where nearly half of all public school students go to charter schools.

Anyone can operate a charter school in Michigan, but they must sign a contract with an outside body known as an authorizer, which is usually a college or university and sometimes a local school district. The authorizer appoints a board to oversee the school.

In Michigan, most charters are managed by for-profit companies, known as educational management organizations, which aren’t subject to public disclosures about how they spend money on behalf of schools or how much they profit. These companies can provide full-service management or handle key administrative functions such as balancing books or hiring teachers.

Polehanki said it’s estimated that some management organizations with full service agreements take around 95% of the taxpayer money allotted to the schools they run. “Michiganders have a right to know how many of their tax dollars are getting to charter school kids and teachers, versus how much is kept by the private companies that oversee them as pure profit,” she said.

All public schools must report financial information on their websites, but unlike traditional public schools, charter schools often aggregate all expenditures into a single line item for “purchased services.” The practice makes it difficult for the public to see what the schools are spending taxpayer money on.

Gary Miron, a Western Michigan University professor who has done research on charter school operations, said at the hearing that Michigan is known as the “wild west” because of its light oversight of charter schools compared with other states.

Real estate holdings for management companies

Legislation that advanced Wednesday targeted a concern about management companies’ real estate holdings and investments.

A 2014 Detroit Free Press investigation found that National Heritage Academies, a for-profit company and the largest EMO in the state, owned most of the buildings where its schools operated, along with everything in them.

When EMOs own charter school buildings and their contents, the school board has little power to remove the company as the school’s manager.

“The company fronts the money to build or renovate these schools, recouping its investment through rents charged to the schools,” said Polehanki. “Those rents paid with our taxpayer dollars generally don’t come down or go away, even after the company has recovered or recouped its initial investment.”

Because the EMOs also often own all of the materials and property the schools use, they can threaten to sell it if they are not happy with the board’s actions.

Changing the law to bar EMOs from selling or leasing property to the charter schools they operate would change the power dynamic, the professor said.

The full package of Senate bills that advanced Wednesday would:

• Require school boards to ensure that terms of lease or purchase agreements reflect market prices determined by an appraisal.
• Prohibit boards from entering lease or purchase agreements with their EMOs or any person or entity affiliated with them.
• Make charter authorizers review terms of their schools’ property agreements and notify the State Board of Education or the Michigan Department of Education if the new requirements are not being met.
• Require that representatives of authorizing bodies attend each of their charters’ board meetings.
• Require authorizers to make reports at least twice a year detailing their oversight efforts and to present them at board meetings.
• Make authorizers ensure that bylaws for the boards of their charters require a majority vote to approve any decision.
• Make authorizers oversee all contracts their charters enter to ensure all terms and conditions are met.
• Apply the current guidelines on financial disclosures for charter schools, schools of excellence, and urban high school academics to strict discipline academies.
• Require EMOs to give their charter school boards audited financial statements that itemize expenditures of money received through their management agreement. This provision would apply only to charters with operating contracts signed or renewed after the bill is enacted.
• Require EMOs to disclose benefits in compensation packages for employees, officers, or board members who make more than $100,000 a year.
• Make charter school boards post all of the financial information on their school websites for the public to access within 30 days.
• Require charter schools to publicly post any that notices they are not compliant with education standards, guidelines, or rules.

The provisions in the House bills would require that:

• The names of charter schools’ authorizers and EMOs be publicly listed online, on student applications, and on signage at campuses.
• The average salaries of educators be made publicly available online.

Hannah Dellinger covers K-12 education and state education policy for Chalkbeat Detroit. You can reach her at hdellinger@chalkbeat.org.