By Sharona Coutts
Since 2008, Akron-based White Hat Management, has collected around $230 million to run charter schools in Ohio. The company has grown into a national chain and reports that it has about 20,000 students across the country.
But now 10 of its own schools and the state of Ohio are suing, complaining that many White Hat students are failing, and that the company has refused to account for how it has spent the money.
The dispute between White Hat and Ohio, which is unfolding in court in Franklin County, provides a glimpse of a larger trend: the growing role of private management companies in publicly funded charter schools.
Contrary to the idea of charters as small, locally run schools, around a third of the schools now pay management companies which can be either for-profit or nonprofit to perform many of the most fundamental school services, like hiring and firing staff, developing curricula and disciplining students.
But while the shortcomings of traditional public schools have received much attention in recent years, a look at the private sector's efforts to run schools in Ohio, Florida and New York shows that turning things over to a company has created its own set of problems.
Government data suggest that schools with for-profit managers have somewhat worse academic results than charters without management companies, and a number of boards have clashed with managers over a lack of transparency in how they are using public funds.
Only 2 percent of White Hat's students have made the progress expected under federal education law. The company declined comment about the performance of its schools.
White Hat was established in 1998 by Akron businessman David L. Brennan, who was a key advocate for introducing charter schools in Ohio. Like most charter schools, White Hat's Hope Academies and Life Skills Centers are primarily funded by the state based on the number of pupils they enroll. The contracts between White Hat and the schools now suing allow the company to collect virtually all the funds and use them to run the schools.
When White Hat was establishing some of its first schools, a principal invited James Stubbs, a former NASA electronics technician, to join the board of
White Hat's Hope Academy Chapelside.
Stubbs, who sent his three children to Hope Academies and eventually sat on a number of White Hat school boards, said it took several years before some boards began to question why the schools continued to perform poorly. He said that when members started demanding more detailed accounting, the schools and the company began to clash.
''Ultimately, the board is responsible for what happens to the money,'' Stubbs said. He said that when White Hat refused to disclose, it put the board in what he saw as an untenable situation. ''The management company gets all the money but none of the blame when things go wrong.''
Charles R. Saxbe, the attorney representing White Hat in the lawsuit, said the company has complied with its legal and contractual requirements. He said that public funds become private once they enter White Hat's accounts.
''If I'm Coca-Cola, and you're a Coca-Cola distributor or a Coca-Cola purchaser,'' Saxbe said, ''that doesn't entitle you to know the Coke formula or find any financial information you'd be interested in learning from the Coca-Cola company. And that's kind of what they're demanding.
''Governing boards are purchasing the service and whatever it takes to deliver that service from White Hat. And if White Hat loses money, that's their risk. And if they make money, that's their upside.''
But the boards say that students, not White Hat, carry the greatest risk: the risk of failing in school.
''We give the management company 96 percent of the revenues from the state, and they do not have a transparent means for us to see what's happening with the money,'' Stubbs said. ''What I am concerned about is students not doing well under this management company, and that can't continue.''
The Ohio Department of Education agreed. It joined the lawsuit last fall and asked the court to help the ''group of public schools break free from dominance by private interests.''
''Things have not gone well under White Hat's direction,'' the department argued in a court motion. ''Most of the schools have received the equivalent of D's and F's on their state report cards and their performance has declined during the term of the agreements.''
Poor marks nationwide
In fact, White Hat schools across the country are performing poorly, according to a report by the National Education Policy Center, a nonpartisan research organization at the University of Colorado, Boulder. Of the 51 schools White Hat managed in 2010, only one met a key standard established by the No Child Left Behind law, called adequate yearly progress.
According to the report, that is by far the worst performance of any large for-profit management company.
Adequate yearly progress is a ''crude indicator'' of success, according to Gary Miron, professor of education at Western Michigan University, who co-wrote the report. But he said it does at least show whether schools are meeting state standards.
''When you compare 2 percent of White Hat schools meeting AYP, that's just something that cries out that there's something awry here,'' Miron said. ''Even schools in poverty are going to have a much higher rate of meeting AYP.''
Despite the poor performance and the lawsuits, White Hat is still managing the schools under a contract extension that expires this summer.
Because White Hat owns most of the school property and employs the staff, the boards worry that they could not survive a sudden rupture with the company.
''A big part of the argument here is being able to follow the money,'' said James D. Colner, an attorney representing the schools. ''We have no idea whether they're earning a reasonable profit or not. We have no idea whether the money is being efficiently or effectively spent for our students.''
As federal and state governments pour billions of dollars into charter schools, boards across the country have increasingly turned to companies such as White Hat.
Yet the results have been mixed.
''I'm seeing increasing problems with boards not having access to information,'' Miron said. ''The boards have less authority because so many things are sewn up by the management company.''
While a lack of transparency does not always lead to poor performance, experts see it as a red flag for possible problems.
About half of charter schools with for-profit management companies met their adequate yearly progress targets, according to the National Education Policy Center's report, which used the most recent information available. By comparison, 63 percent of charter schools overall and 67 percent of regular public schools met the benchmark in 2009, according to the National Alliance for Public Charter Schools, an industry group.
''There's not always a direct link between how well a school is managed and how well kids learn, but often a school that is mismanaged will have bad academic results,'' said Alex Medler, vice president of policy and research at the National Association of Charter School Authorizers, a nonpartisan group that advises policymakers and regulators. ''Transparency is a symptom of healthiness that lets a bunch of other mechanisms work the way they should.''
Strong boards key
There can be good reasons for charter school boards to hire management companies.
''The idea is to make a contract with someone who has the skills to hire people, find a building and put a school together,'' said Henry Levin, professor of economics and education at Columbia University's Teachers College. And some charter schools overseen by management companies have flourished.
A key factor is the presence of a strong and independent school board, according to Medler, of the National Association of Charter School Authorizers.
''The independent group holds the management company accountable,'' he said. It makes no difference whether the company is for-profit or nonprofit, he said, so long as the board's interest is ''the success of the school, not the success of the management company.''
But oversight of the industry has lagged, resulting in a patchwork of state and district regulation, which experts say is failing to guard the interests of children and taxpayers.
Some states do not directly oversee either the company or the board and do not regulate the terms of their contracts. In many cases, the bulk of the oversight is left to ''authorizers,'' organizations empowered to green-light charter schools.
Some states have many authorizers which can include tiny nonprofit organizations while others entrust the task to public universities, local districts or other specially created entities, many of which lack the resources to effectively carry out their role, according to Levin.
That's led to what Levin called ''a lot of confusion.''
''There's an awful lot of diversity in these companies,'' he said. ''And most of them are proprietary, so we really don't know how they're operating.''
Follow reporter Sharona Coutts on Twitter at http://www.twitter.com/sharonacoutts She can be emailed at Sharona.Coutts@propublica.org Additional ProPublica stories about charter schools can be found at http://www.propublica.org