Squeezing private profits from public schools

Friday, January 17, 2014, Vol. 38, No. 3
By Lisa Fingeroot


Charter schools were intended as small public alternatives with unique learning methods for children stuck in failing schools. But dollar signs have transformed those boutique-type schools into big business commodities with profit streams available to operators – even in states like Tennessee that do not allow for-profit charter schools.

Twenty-two years after the first charter school opened its doors in Minnesota, the nation has about 6,000 charter schools serving an estimated 2.2 million students, according to the National Charter School Alliance.

The organization reports that nearly another million children are on waiting lists to get into charter schools because their states have placed a limit on the number of charter schools allowed there.

But controversy continues to follow charter schools because of the marriage they create between public tax dollars and private enterprise. Charter schools are publicly funded just like any other public school, but are privately operated.

The idea is that charter schools are given more freedom to try different methods, but are held more accountable for the results.

“I find the national movement toward privatization, which is very profit driven, very problematic,” says Amy Frogge, a Metro Nashville school board member.

The national movement is “sucking out desperately needed funding from schools that serve the most challenging populations,” she adds.

Without restriction on new charter schools, the privately operated model could become the death knell of neighborhood public schools, Frogge continues. As funding follows more children to charter schools, the traditional public school is left with fewer resources.

Fellow board member Will Pinkston says Metro schools are at a “tipping point,” and losing much more money to charter schools could begin to damage public schools.

Pinkston, Frogge and others have become increasingly vocal about the financial drain they believe charter schools put on the system and blame charters for a $22 million budget increase needed next year.

That increase is based on the expected enrollment of new charter schools approved to open in 2014-15 and an increase in the enrollment of existing charter schools that plan to add new grade levels.

Between increased enrollment and new school openings in 2014-15, about $61 million is expected to flow through Metro coffers on its way to charter schools during the next school year.

More than $500 billion is spent on education in the United States each year and the goal for many charter school investors is to grab as big a share of that multi-billion business as possible, Frogge adds.

In states that allow for-profit management companies, charter schools are routinely touted as commercial investment opportunities on developer websites.


Schools are “flipped” for profit, and many of the nation’s large charter operators create real estate arms to construct buildings that are leased back to the charter school with tax dollars paying lease fees that can run as high as $1 million or more per year.

Even in Tennessee, where state law prohibits for-profit charter schools, investors are given tax credits as high as 39 percent, which allows them to double their money within seven years, Frogge explains.

It’s an attractive enticement for hedge fund managers, who have begun flocking to Memphis charter schools, she adds.

Charter school operators can make money in other ways as well.

Some schools suggest parents pay a fee for each child, while others charge extraordinarily high prices for lunches, sports equipment or even books that are sold by an investor in the school or a school board member.

Frogge says she does not know of any charter school in Nashville that participates in those practices, though.

Charter school supporters suggest tracking student results is more important than following the money.

They question why opponents believe some businesses associated with education, like textbook publishers, should be allowed to profit, but others should not.

“All schools deal with for-profit organizations,” says Colleen Reynolds, a spokesman for Governors Charter Academy, an arm of Charter Schools USA, one of the for-profit charter companies to pay lobbyists in Nashville during the last legislative session.

“All schools buy books from Random House, computers from Apple or Microsoft ... The good thing is that if a charter school – for-profit or not-for-profit – fails, it can and will be shut down,” Reynolds says.

“I don’t understand why this seems unpalatable to some,” she adds. “As a taxpayer myself, I’d rather put my money into a system that must perform or be shut down than in a system that can fail and never be held accountable for their failure.”

Basing decisions solely on student results would take personal philosophy out of the equation, says Jaryn Emhof, a spokeswoman for former Florida Gov. Jeb Bush, who continues to play a large role in the national education reform movement that supports charter schools and is most closely associated with the Republican Party.

“This question of what makes some for-profits OK and some not OK is why focusing on outcomes is important,” Emhof adds.

Frogge, however, says profit can change the picture.

“I think the charter school supporters have a variety of intentions,” Frogge says. “Some have very good intentions, and they think this is the way to target students (for individualized help) more effectively and others are involved to make a profit.

“When profit becomes the primary intention, the quality of education can suffer. The focus should always be on quality education.”