For Profit Charter School Chains Make Money with Questionable Real Estate and Management Deals

Imagine Schools White Hat Management

Charter schools are once again receiving unwanted scrutiny.  Since its inception over a decade ago, reports of academic failures, management deficiencies and financial improprieties have dogged Ohio’s charter school program.

This time, our attention is drawn to two of the for-profit companies that operate charter school franchises throughout the state.

First, White Hat Management, Ohio’s largest for-profit charter school operator, was recently sued by the governing authorities of ten of its charter schools. Click here to view the complaint.

The lawsuit alleges that White Hat has abused its unfettered control of each of its charter schools by maliciously breaching its fiduciary responsibilities by failing to account for its use of public funds and by using those funds for purposes other than providing for the education of students.

Second, Imagine Schools, Inc., the nation’s largest for-profit operator of charter schools, is the subject of a new study by Policy Matters Ohio.  Report author, Piet Van Lier, paints a picture of a profiteering company that uses questionable leaseback arrangements to further enhance its bottom line at the expense of its students’ educational needs.

The report details how Imagine, through a subsidiary, brokers real estate deals which allow the company to buy a property, then sell it to a real estate investment trust company from which Imagine leases back the property and in turn rents it to an Imagine-run charter school.  This practice enables Imagine to enjoy profits on both the resale of the property and the high rents that it charges to its schools.

The brands offered by White Hat and Imagine have provided little in terms of tangible results – White Hat’s dropout prevention charter schools post a graduation rate of just 14 percent and no Imagine school earned better than a D on the most recent state report card.

Yet, these and other management companies continue to reap a generous bounty from state policies largely sown by White Hat founder, David Brennan.

Mr. Brennan can be credited with the role of the man behind the curtain in shaping the state’s school choice programs.   In addition to generating about three-quarters of a billion dollars in state aid payments for his White Hat enterprise, he has also been wildly successful in securing special protections for White Hat, and other, for-profit operators.

A case-in-point illustration of the fruit of Mr. Brennan’s legislation-influencing labors is a provision under current law that will allow White Hat to fire the lawsuit’s plaintiffs and appoint new, more compliant governing authorities.

The White Hat lawsuit and the Policy Matters’ report have reignited the debate over the appropriateness of allowing for-profit companies to operate charter schools.

However, it is difficult to envision how those who will still argue in support of this marriage of free enterprise and public education can continue to defend the records of White Hat and Imagine.

By Andrew Jewell
Research Development Consultant
Ohio Education Association

2 thoughts on “For Profit Charter School Chains Make Money with Questionable Real Estate and Management Deals

  1. The record of Imagine Schools, Inc. speaks for itself. It doesn’t matter if we are talking about Ohio or Nevada or Texas or Florida or Pennsylvania or Georgia or New York or Washington DC. It is well-documented that the nation’s largest for-profit charter school operator is also a real estate mogul. Moreover, Imagine has little use for its local governing boards. The company expects these bodies to simply rubberstamp all of its decisions including contracts and deals from which Imagine profits. While this exercise of power in pursuit of profits may be good business for Imagine, it is a bad deal for Ohio schoolchildren and taxpayers. For a great read on Imagine’s business practices, check out this New York Times article, “For School Company, Issues of Money and Control.”

  2. Imagine Schools says:

    In May, Policy Matters Ohio released a report attacking Imagine Schools and continues to bounce around the state repeating its accusations. The report is political propaganda, not academic research.

    Imagine Schools operates 71 public charter schools across the nation, including eleven in Ohio. Imagine Schools does not operate for-profit and has applied for federal non-profit status.

    Community schools are under greater scrutiny and have more accountability than traditional public schools. Accountability comes from authorizers, independent governing boards, auditors, and parents (who vote with their feet).

    Because community schools are given no funds for facilities, they must use per-pupil operating allocations to pay for everything – teachers, textbooks, administration, and buildings. Schoolhouse Finance, Imagine’s facility division, does not generate a net surplus (it lost $2.5 million in SY 2009) and is operating solely to provide quality school buildings for Imagine schools. Its purpose is to “bridge the gap” between the financial market’s credit requirements and the minimal credit quality of stand-alone charter schools. Schoolhouse Finance generally leases the buildings for at least 15-25 years in order to provide a long-term, stable location. The individual school then sub-leases the building from Schoolhouse Finance only for the period that its individual charter is valid (usually 3-5 years). Therefore, the school is not taking on a bigger or longer-term obligation than it can handle, and the financial burden needed to secure a stable, long-term and high quality building is shouldered entirely by Schoolhouse Finance.

    Imagine serves more than 36,000 students and their families, making strides to educate children in a welcoming and nurturing environment with a strong emphasis on academic and character development. Nationally, two-thirds of Imagine students are from minority populations, and in Ohio, around 85% qualify for the free or reduced school lunch program.

    We are excited about offering opportunities for life-long success. While detractors want to send children back to failed traditional schools by shuttering community schools, we will not be deterred from our mission to deliver outstanding school choice through learning communities of achievement and hope.

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