Stories & Grievances
The Debate Becomes a War: Charter or Public School?
Public school education is in a battle for it's future. The bottom line is, who will get the $trillion dollars in federal funds available in America? Educating children is not the focus anymore. A closer look at the Imagine Schools/AES/Dennis Bakke situation may help readers obtain a better understanding of the issues that are now fueling the fire.
April 23, 2010
For School Company, Issues of Money and Control
By STEPHANIE STROM, NY TIMES
When the energy executive Dennis Bakke retired with a fortune from the AES Corporation, the company he co-founded, he and his wife, Eileen, decided to direct their attention and money to education.
(From Editor Betsy Combier: AES has been under scrutiny by New York State Attorney General Andrew Cuomo for production of global warming pollution; see also "Businesses Failing to Disclose Climate Risks to Investors")
Mrs. Bakke, a former teacher, said she had been interested in education since the summer she was a 12-year-old and, together with a friend, opened the Humpty Dumpty Day School, charging $2 a week in “tuition” to parents of the children attending. Mr. Bakke was eager to experiment with applying business strategies and discipline to public schools.
The Bakkes became part of the nation’s new crop of education entrepreneurs, founding a commercial charter school company called Imagine Schools. Beginning with one failed charter school company they acquired in 2004, they have built an organization that has contracts with 71 schools in 11 states and the District of Columbia. Imagine is now the largest commercial manager of charter schools in the country.
But as Imagine continues to expand, it is coming under growing scrutiny from school boards and state regulators questioning how public money is spent and whether the company exerts too much control over the schools.
The concerns are being raised as charters, designed by education reformers to create alternatives to hidebound and failing public schools, are becoming an indelible part of the nation’s education landscape. Such schools are among the biggest beneficiaries of the billions of dollars the Obama administration plans to spend to improve public education.
Because public money is used, most states grant charters to run such schools only to nonprofit groups with the expectation that they will exercise the same independent oversight that public school boards do. Some are run locally. Some bring in nonprofit management chains. And a number use commercial management companies like Imagine.
But regulators in some states have found that Imagine has elbowed the charter holders out of virtually all school decision making — hiring and firing principals and staff members, controlling and profiting from school real estate, and retaining fees under contracts that often guarantee Imagine’s management in perpetuity.
The arrangements, they say, allow Imagine to use public money with little oversight. “Under either charter law or traditional nonprofit law, there really is no way an entity should end up on both sides of business transactions,” said Marc Dean Millot, publisher of the report K-12 Leads and a former president of the National Charter Schools Alliance, a trade association, now defunct, for the charter school movement.
“Imagine works to dominate the board of the charter holder, and then it does a deal with the board it dominates — and that cannot be an arm’s length transaction,” he said.
Such concerns have thwarted efforts by Imagine to open a school in Florida, threaten to stall its push into Texas, and have ended its business with a school in Georgia and another in New York, as well as other states.
Imagine is not shy about the way it wields its power, which it calls essential to its governing philosophy. “Imagine Schools operates the entire school, and is not a consultant or management company,” its Web site says. “All principals, teachers, and staff are Imagine Schools people. The Imagine Schools culture is meant to permeate every aspect of the school’s life.”
Mrs. Bakke, who is paid $100,000 as vice president of education at Imagine, says it works in “close partnership” with the boards of the schools it manages. “The governing boards are definitely in charge, but they look to us, frankly, because as you know, nonprofit boards are well meaning but don’t always have the experience and expertise running the schools,” she said in an interview.
She said that she and her husband, who is paid $200,000 as the company’s chief executive, sank $155 million into Imagine and that they were able to run schools efficiently. “We offer a great deal for communities and for taxpayers,” Mrs. Bakke said, “because we’re providing education at less than what a traditional school is spending.”
She says the company should be judged by its educational results, not its business and financial arrangements.
As measured by testing mandated under the No Child Left Behind law, the academic achievements of schools managed by Imagine are mixed, like those of most charter schools. But Imagine says that many students in the schools it manages enter with academic abilities below their grade level and that a better measurement of its success is the rate at which they are catching up.
Its analysis of test data taken at the beginning and end of the 2008-9 school year shows that 89 percent of its schools had learning gains better than public schools serving similar populations of students.
“We have high expectations,” Mrs. Bakke said. “Academic performance matters.”
Nonprofit or Commercial?
Mrs. Bakke said her company “is operated as a not-for-profit.” But Imagine is not a nonprofit group, and it has so far failed to gain status as a charity from the I.R.S.
Imagine applied for federal tax exemption in 2005 and has repeatedly said approval is imminent. It typically takes four to six months for such approvals. “We’re not sure why it’s taking so long,” said Mrs. Bakke, who is 56. “We suspect it’s because we’re trailblazers in a sense, and they haven’t had an application quite like this.”
The I.R.S., as is its policy, declined to comment.
The lack of status as a federally approved nonprofit group is proving to be one of Imagine’s biggest challenges. So it often gets involved with schools at their inception, recruiting board members or hitching its wagon to nonprofit groups that can obtain a charter, as it did in Las Vegas, where it teamed with 100 Black Men of Las Vegas to open an elementary school, the 100 Academy of Excellence. The school opened in 2006, and the county school board soon began documenting problems. It found the school’s bookkeeping under Imagine to be lax, and it said that the school lacked enough licensed teachers.
The school has had three principals in four years, two of whom were pressured to resign after complaining that there was not enough money for essentials like textbooks and a school nurse. The state said that by paying Imagine for necessities like furniture and computers, the school had violated regulations requiring competitive bidding. It further violated state law by running a deficit, which left it in debt to Imagine.
Mrs. Bakke declined to comment on issues raised at specific schools. “In all cases we strive to operate with high ethical standards, set high standards for performance, hire the best possible people, and correct mistakes as quickly as possible,” she wrote in an e-mail message.
Some schools say they are happy with Imagine’s management. At Hope Community Charter School in the District of Columbia, which opened in 2005 and where Imagine helped identify board members, the board agreed to pay Imagine virtually all of the school’s revenue, to allow Imagine to set the school’s budget subject only to approval that “shall not be unreasonably withheld or delayed,” and to seek Imagine’s approval for how it spends charitable gifts.
James Kemp, the board chairman, said that District of Columbia charter school regulators had repeatedly expressed concerns about the arrangements. He also said that even the school’s own auditors chided the board for allowing Imagine to pay several large bills without its approval, as required under contract.
“The charter board has alerted us and me specifically that this is not the normal way charter schools run, having their management company as involved as Imagine is with our school,” Mr. Kemp said. “But that’s the way we’ve set this up, and we’re happy with it.”
Josephine Baker, executive director of the District of Columbia Public Charter School Board, which grants and oversees charters in Washington, said the board had concerns about who was running the show at Hope Community.
“It’s not just Imagine, though Imagine is the one that probably has given us the most concern,” she said. “We find it is very hard for schools that hire management companies to maintain their independence, and charter schools are supposed to be independent.”
Mrs. Baker said she did not think the contract between Imagine and Hope Community would be approved today, in part because the entire model of using management companies is flawed. “There are not a whole lot of charter schools that are just marvelous, and those that are do not have management companies,” she said.
In Texas, parents trying to open a charter school for elementary school students thought that Imagine was going too far.
“Imagine did a few things that indicated they thought the charter belonged to them, which was not our understanding at all,” said Karelei Munn, who is part of a group working to establish a charter school in Georgetown, Tex., near Austin. “We were looking to control our board, and they were looking to control our board.”
Ms. Munn and other members of the group holding the charter broke their ties with Imagine and are trying to form a school on their own.
Regulators in Texas have been slow to approve a second Imagine school, citing concerns that include an e-mail message from Mr. Bakke to the company’s senior staff members that was reported on by The St. Louis Post-Dispatch last fall. In the message, dated Sept. 4, 2008, Mr. Bakke cautioned his executives against giving boards of schools the “misconception” that they “are responsible for making big decisions about budget matters, school policies, hiring of the principal and dozens of other matters.”
Instead, he wrote, “It is our school, our money and our risk, not theirs.”
Mr. Bakke, who is 64, suggested requiring board members to sign undated letters of resignation or limiting board terms to a single year.
In a statement after the e-mail message was disclosed, Mr. Bakke apologized to board members “who felt offended or maligned,” saying he had “overstated my personal frustration in ensuring that the dedicated, caring people who hold the seats of charter governing boards at Imagine Schools understand and support our mission and operating philosophy.”
As Texas continues its consideration, the e-mail message helped upend Imagine’s plans to open a school in the Hillsborough County School District in Florida, which encompasses Tampa.
“That e-mail was very, very bad for them,” said Jenna Hodgens, the local supervisor of charter schools. “All the things we had been questioning, things about control of the school, he answered in his own words.”
The Hillsborough school board rejected the application in December. “Charter schools are not private schools, they are public schools and are governed as such,” said Susan Valdes, who heads the board. “Some, though, are starting to forget that — and they’re getting away with it. But not here.”
Fees, Rent and Bank Accounts
Some schools that have contracted with Imagine have feuded with the company over fees. Imagine typically charges 12 percent of a school’s revenue for basic services. It then may tack on fees, for example, for guaranteeing a school access to credit if needed or to cover the costs of flying Imagine personnel in to address problems.
The Kennesaw Charter School in Kennesaw, Ga., ended its contract with Imagine in February over such issues.
Under its original contract with Imagine, the Kennesaw school board forwarded all revenue it received from the state and district to a bank account in Florida controlled by Imagine to pay salaries and other expenses. Kennesaw’s board had full discretion over just $20,000, said Lori Hardegree, a board member.
If the school had money left over at the end of the year, the surplus was paid as a fee to Imagine.
Minutes of board meetings and reporting by the local school district show that the board had trouble getting information from Imagine about how it was using the money. And the school owed Imagine $1.2 million, in part for what the company spent to cover damage from a hurricane but also partly for expenses the company described as “off the books” and never fully accounted for to the school board’s or the district’s satisfaction.
It took Kennesaw more than a year of negotiations to break up with Imagine, and it still owes the company roughly $480,000. But board members say they are finding that they are saving money by running the school themselves.
“For one thing, we’re saving $30,000 that went out each month to pay Imagine’s fees,” Ms. Hardegree said. “We’re finding we’re saving money on every contract that we’re negotiating on our own.”
In New York, the Bronx Academy of Promise Charter School agreed to pay Imagine 12 percent of its revenue as a fee, and an additional 2.5 percent was charged to ensure Imagine would extend a loan to the school should it need one. The doors had hardly opened when the school’s board and principal began having problems with Imagine.
“It was rather baffling, but as a management company, they weren’t providing any management services,” said one person who has worked with the school and spoke anonymously for fear of retaliation. “With the exception of payroll processing and some accounting support, it wasn’t really clear what they were doing for the school.”
At the end of its first school year last May, Bronx Academy broke its contract with Imagine. Mrs. Bakke said that Imagine provided a full battery of educational, financial and administrative services to the Kennesaw school and the Bronx Academy. “Both boards were fully aware of start-up and other costs incurred by Imagine, and the obligation to repay those costs in the event of a termination of contract,” she wrote in an e-mail message.
The Ties That Bind
One of the most difficult tasks for a charter school is getting a building. Only a few cities like New York or Washington help such schools with real estate. And charter schools cannot use tax-exempt bonds to raise money the way public school systems can.
Mrs. Bakke said that Imagine’s real estate activities ease that burden for charter schools and are one of the biggest assets it brings to the table. “Our organization brings new investment into public education and avoids the need for the local community to float school bonds,” she wrote in an e-mail message.
But some regulators and school officials say that Imagine uses debt and real estate to bind schools to it.
Imagine typically buys or leases buildings through a real estate arm, SchoolhouseFinance, and uses those properties to attract groups wanting to open charter schools that then pay to rent them.
Last year, Imagine sold 27 of its school buildings to Entertainment Properties Trust, a real estate investment trust that is the country’s largest owner of movie theaters, as part of a deal that won the company $206 million. The buildings that were sold were leased back by Imagine, which then subleased them to the schools that occupy them.
In February, the company sold seven more schools to Inland American Real Estate Trust for $61 million in a similar arrangement.
Mrs. Bakke said a portion of the proceeds from the sale of those buildings was used to pay off bank debt and construction costs, with the remainder going to buy or construct new buildings and into the operations of existing schools. But board members of eight schools said they were never consulted about the sales or the decision by Imagine to commit them to leases. In at least some cases, Imagine makes money on the subleases. Bronx Academy, for example, paid Imagine $10,000 a month more in rent than the company paid the owner of its building.
The rents the company charges schools it manages now are one of the things threatening to scuttle its agreements with the two schools it manages in Nevada, the 100 Academy of Excellence and Imagine School in the Valle.
Last year, almost 40 percent of the $3.6 million that Nevada paid 100 Academy was spent on rent. Less than half of its total revenue, about 41 percent, was used to cover salaries and benefits for teachers and administrators, who are employees of Imagine.
In contrast, a charter school in Las Vegas of about the same size that operates without a commercial management company, Innovations International Charter School of Nevada, spent 74 percent of its total revenue on salaries and benefits, according to figures provided by Gary A. Horton, an administrator at the Nevada Department of Education.
“After paying for real estate and management, 100 Academy has very little left over for education,” Mr. Horton said.
Published: November 1, 2009 3:00 a.m.
Special report Education INC.
EDUCATION INC. – Part I: Private company skirts public boards in running tax-funded charter schools
For-profit makes decisions for tax-funded Imagine
Dan Stockman and Kelly Soderlund, The Journal Gazette
FORT WAYNE, Ind. – The local school board was about to spend almost $100,000 of taxpayer money on a busing service for students.
But there was no discussion of bids to ensure taxpayers got the best deal. There were no questions about cost, insurance or alternatives to this contract awarded to a southern Indiana trucking company.
Most importantly, there was no vote.
Despite spending millions of tax dollars a year, the board of this public school votes on almost nothing.
Not the $87,510 a year to operate school buses. Not $114,871 to run a lunch program. Not which teachers are hired or whether to hold summer school, or even whether to borrow more than $1 million for operations.
All those decisions and many more were made by a private company from Virginia, though Internal Revenue Service regulations say tax-exempt organizations such as this one must have independent, local control.
Welcome to Imagine charter schools.
When Imagine board members do make major decisions, they often do so by signing papers outside of public meetings, with no public debate and no public vote. Instead of local control, a Journal Gazette investigation found, executives with the for-profit management company tell the Fort Wayne board members how decisions will be made and how money will be spent.
Local school officials deny any wrongdoing. Imagine corporate officials, who operate two Fort Wayne schools and hope to open a third next year, did not return calls for comment.
“We’ve not heard any comment from the IRS in any way that I’m aware of,” said Don Willis, a local businessman who founded the Imagine charter schools in Fort Wayne and is chairman of the Imagine-Fort Wayne Charter School board.
Other board members refused to answer questions or said they did not know the answers.
Founded in 2006 and opened to students in the fall of 2007, Imagine-Fort Wayne Charter School Inc. is a local non-profit agency that supposedly runs Imagine MASTer Academy, a public charter school paid for with taxes. Its sister entity, IFWCS Campus II, runs Imagine Schools on Broadway, and IFWCS Campus III will run the planned Imagine Bridge Academy.
Charter schools are public schools, funded by the state on a per-student basis. They can also receive money from federal grants, state tuition support and private foundations, but they are free of some of the regulations imposed on traditional public schools, so they can use innovative techniques and try to improve education.
Imagine Schools Inc., a for-profit company in Arlington, Va., makes nearly every important decision in Fort Wayne and has even used the local agency’s non-profit status to expand its charter school empire of 73 schools in 12 states.
“Ultimately, for all charities, the board of directors should be the entity that has full oversight and control over the organization,” said Bennett Weiner, chief operating officer of the BBB Wise Giving Alliance, a national charity-monitoring organization based in Virginia. “The staff reports to the board of directors, not the other way around.”
That might be news to board members, the IRS, state regulators and the Hoosiers whose tax dollars pay for those schools. For the 2007-08 school year, Imagine MASTer Academy received $2.9 million in taxes, plus a $1.24 million low-interest loan from the state.
Who’s in charge?
Charter schools, in theory, work like this: A local group wanting to create an alternative to traditional public schools decides what it’s looking for in an educational experience, incorporates, and applies for a charter.
Usually, because those founders do not have experience running a school system, they hire an outside contractor to handle day-to-day operations. If the charter is approved, the state sends tax dollars to the school on a per-student basis, funding its operations. The schools also can qualify for government grants and special low-interest loans.
But Imagine MASTer Academy, 2000 N. Wells St. in Fort Wayne, started differently.
In April 2006, when Willis announced he wanted to start a charter school, Imagine Schools Inc. was already on site and involved – a year before the board would have its first meeting. In September of that year, Imagine-Fort Wayne Charter School Inc. was formed, allegedly the local organization that would start the school and contract with Imagine Schools Inc. of Virginia to run it.
But the contact person for the non-profit Imagine-Fort Wayne Charter School was Imagine Schools Inc.’s executive vice president, Jason Bryant, and the corporation’s address was Bryant’s house in Fort Wayne. The incorporator was Imagine Schools’ attorney, Joseph Miller, of Baker & Daniels in Indianapolis.
Two months later, the local non-profit filed for tax-exempt status with the IRS – the paperwork was again handled by Miller – and signed a contract with Imagine Schools Inc.
The contract was signed by Willis; board members never publicly discussed it or voted on it, as it would be five months before their first meeting. Instead, they signed a resolution that claims it has the same authority as if it had been approved unanimously by the board at a public meeting.
Indiana Public Access Counselor Andrew Kossack said there is no provision in the state’s Open Meetings Act that would allow such action. State law requires all public bodies to take all official action during public meetings.
That contract gave away the board’s power to make decisions on issues such as busing, hiring and the name of the school itself. It also gave Imagine Schools Inc. 12 percent of every penny the school took in.
Larry Gabbert, director of Ball State University’s Office of Charter Schools, said Imagine was already on the scene when he and the university became involved in the chartering process. Ball State fields applications and authorizes many of Indiana’s charter schools.
Gabbert said an attorney looked over the Fort Wayne schools’ governance structure and determined everything to be legal before a charter was issued.
“A lot of times, we’re not involved. Sometimes a group comes together and doesn’t approach us until they’ve decided to move ahead with the charter,” Gabbert said. “We ask questions, but as I said, it’s not always ideal.”
Greg Richmond, president of the National Association of Charter School Authorizers in Chicago, said Ball State University, which granted all of Imagine’s charters in Indiana, should have never done so considering the hand Imagine Schools Inc. had in the charters’ founding.
“That is absolutely unacceptable,” Richmond said. “What’s unacceptable is a charter school should not be approved under those circumstances.”
Richmond said charter authorizers should ask how the management company was chosen, what the process was and what other companies were considered.
Ball State does ask those questions in a form that proposed schools must fill out. On the forms for all three Imagine schools in Fort Wayne, only the names of the schools vary – the answers are largely word-for-word, even down to the typos.
“One of the easiest things to notice would be, if all three purportedly separate groups all gave the same answer, it’s obvious the board is not the one giving the answers,” Richmond said. “It’s just not acceptable.”
‘An advisory body’
In February 2007, two months before the Imagine MASTer Academy board’s first meeting, officials again applied for the school’s charter.
The application was at least the third version filed, because sponsor Ball State University kept demanding changes in the school’s governance structure because Imagine Schools had too much control. The application detailed everything about how the school would be run, including curriculum, enrollment and discipline, none of which had been voted on by the board. The contact person for the charter was Imagine Schools’ Bryant.
But that experience was common. In the 2 1/2 years since, board members have been left out of all sorts of decisions – including opening new schools.
Board minutes show that the first time members heard in public about plans to open Imagine Schools on Broadway was in October 2007. That was when Imagine’s Bryant told the board that the company’s for-profit real estate subsidiary, Schoolhouse Finance, had agreed to buy the Emmaus Church for the new school and that an application for a charter had been sent to Ball State.
No vote on opening a new school was ever taken. No public debate was ever held.
By the time board members learned of the plans in October 2007, they had already been board members for three months of a new corporation they had ostensibly created.
Again, the registered agent was Imagine’s Bryant, and the incorporator was Imagine attorney Miller. According to meeting minutes, board members were not even told that two weeks before they – as a new, separate corporation named IFWCS Campus II Inc. – had applied to the IRS for tax-exempt status. The attorney for that application was Imagine’s Miller.
Willis said the board never uses Imagine attorneys, then said Miller was used only “to file the paperwork.”
The same situation happened with Imagine Bridge Academy – a school set to open next fall at an undetermined location in Fort Wayne. That school’s corporation, IFWCS Campus III Inc., was formed at the same time as IFWCS Campus II and also incorporated by Miller.
Willis signed the IFWCS Campus III contract with Imagine Schools Inc. on March 18, 2008, the same day the school applied for tax-exempt status with the IRS – an application handled by Miller.
No board ever voted on the contract, the application for exempt status or the charter application to Ball State. The proposed school wasn’t mentioned at any public board meeting until April 2008, and the new, separate board didn’t meet until October 2008.
Bryant did not respond to four requests for comment. Miller also did not return phone calls.
How hands-off are Imagine’s local school boards?
On July 23, 2008, the board of IFWCS Campus II – Imagine Schools on Broadway – held its first meeting, a month before the first day of school for a brand-new campus in a building still being renovated.
Despite the chaos of a startup, with teachers and staff being hired and students being enrolled, the board voted on only two items: Its meeting schedule for the rest of 2008 and its meeting schedule for 2009. In both cases, it voted unanimously to meet quarterly, meaning its next meeting would not come until October, two months after school started.
“Even when public education is lousy – and in many communities, it is lousy – there’s accountability and a transparency that comes along with it. We know who to blame,” said Trent Stamp, who was the founding president of non-profit watchdog Charity Navigator for seven years.
“But when you have this type of skirting of the system, it’s hard to figure out who’s accountable and who’s to blame. This is the flaw of charter schools and charter school management companies run amok: Who do you go to?”
Straight talk about charter schools
A hearing held in New York City this week about charter schools sounded more like a brawl than the information-gathering session it was intended to be.
State Sen. Bill Perkins, whose Harlem district includes about one in five of the city’s charter schools, has been calling for more regulation and transparency about charter school finances. He’s been bashed mercilessly by some in the New York press for that position.
You can get the tone of the discourse through the first line of one recent story in the New York Post:
“Why does Bill Perkins hate kids?” (see below -Editor)
I won’t go into the back and forth at the hearing, but here is testimony given at the hearing about the history and record of charter schools by education historian Diane Ravitch, a professor at New York University and author of the best-selling “Death and Life of the Great American School System.”
Her pretty straightforward testimony--which calls for fiscal transparency in public charter schools--was received by charter advocates as heresy. Read the testimony. What do you think?
Mr. Perkins, you must be a very dangerous and powerful man. Yesterday the tabloids were filled with editorials and articles denouncing you for holding hearings about charter schools; today, there are even more.
If charters are public schools and receive public money, why should they object to oversight hearings by a legally constituted body of the New York State Senate?
I am a historian of education, so allow me to provide a brief overview of the origin of charter schools.
Charter schools were first envisioned in 1988 by two men who didn’t know one another. Albert Shanker, the president of the American Federation of Teachers, had the idea, as did Professor Ray Budde of the University of Massachusetts.
Both of them thought that public school teachers could get permission from local authorities to ope