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Teachers' group seeks IRS tax-status check on White Hat group
By Dennis J. Willard
Beacon Journal Columbus bureau
Published on Friday, Mar 28, 2008
COLUMBUS: The Ohio Federation of Teachers has asked the Internal Revenue Service to examine the non-profit status of charter schools managed by White Hat Management, the company established by Akron entrepreneur David Brennan.
The union, which has a long history of challenging Brennan's company, is asking the IRS to determine whether the schools under White Hat's umbrella can properly register as a 501(c)(3) tax-exempt firm.
Lisa Zellner, an OFT spokeswoman, said the union does not expect an immediate answer, but a ruling against the White Hat charter schools would force the company to pay taxes ''like the rest of us,'' and possibly jeopardize their standing, because state law requires all charter schools to be nonprofit.
Through Columbus-based public-relations firm Falhgren Mortine, White Hat issued a statement calling the OFT's accusations a publicity stunt that recycles points previously raised and addressed.
''The Internal Revenue Service is aware of the community school structure and White Hat Management's contract provisions making the management company responsible for all start-up and day-to-day operations of its contracted schools,'' the press release noted.
The public-relations firm also stated that White Hat is a target for groups like the OFT that are seeking to promote their own interests.
Brennan, a large contributor to Republican candidates, was instrumental in pushing then-Gov. George Voinovich and the Republican majorities in the Ohio House and Senate in the mid-90s to pass laws allowing charter schools to open in the state.
White Hat currently operates 38 Life Skills schools geared toward high-school dropouts in Ohio, Colorado, Michigan and Florida.
Initially, White Hat established Hope Academies for elementary students, but after opening 12 in Ohio, the company has been focused on Life Skills, which are considered to be more lucrative.
OFT points out to the IRS that at least 25 charter schools operating under White Hat have qualified for tax-exempt status with the Ohio auditors' office.
Zellner said a number of the schools have also applied for and received nonprofit status through the federal government.
Don Mooney, an attorney representing OFT, wrote the IRS that documents indicate that the for-profit White Hat company controls the non-profit charter schools that pass through 95 percent of all their tax dollars to Brennan's firm, which amounts to about $84 million annually.
Mooney notes in his letter that White Hat negotiated the contracts that give the for-profit company complete discretion over the operations. Mooney goes on to accuse Brennan of using White Hat to organize the nonprofit corporations, use boilerplate documents for multiple charter schools, and act as a ''middle man'' in leasing agreements in order to take another cut of the money.
In 1999, the Beacon Journal's Whose Choice series raised a number of these same issues, including the boilerplate contracts, Brennan's personal intervention and access to Voinovich and his education advisers in drafting the legislation, and the lack of any control or oversight by the Ohio Department of Education and the State Board of Education.
The series noted that although charter schools, called community schools in Ohio, were touted as a way to allow families, teachers and administrators to exercise more direct control over their local school buildings and the education of their children, the laws were written to permit Education Management Organizations (EMOs) to establish nonprofit boards. Then the boards turn around and hire the EMOs to run the schools.
Mooney is pressing that issue in his IRS request.
''Ohio law requires that each charter school must be organized either as a nonprofit corporation, or a public-benefit corporation. Each must have its own independent 'governing authority' or board. Contrary to the impression created by the term 'community schools,' as charter schools are also known, the White Hat schools did not spring from community or parent involvement.
''Parents and community activists did not create governing authorities that, in turn, chose a management company from a variety of alternative operators. Instead, documentation suggests that White Hat negotiated with the state about the creation of the schools, set up the separate corporate school entities, and also handpicked the board members, many of whom serve on a number of Hope Academy or Life Skills Centers Boards,'' the OFT complaint alleged.
State officials, including former State Auditor Betty Montgomery, a Republican who received large contributions from Brennan, have noted the problem, but no action has ever been taken.
In a 2006 audit, the Life Skills Center of Northeast Ohio was dinged for being one of 19 community schools run by White Hat with board members serving on other schools managed by the for-profit company.
The audit noted board members were paid $125 for each meeting, but some board members were paid as much as $2,125 for one meeting, because they represented up to 17 schools in a single sitting.
Through the years, there has been a chicken and egg argument over charter schools, particularly whether Brennan's White Hat-managed company created the schools or the schools formed before hiring White Hat.
Mooney notes there is sufficient evidence that White Hat was created first, pointing out the schools are promoted as a chain, all trademarks for Hope Academies and Life Skills Centers cannot be used if the charter school terminates a contract with the management firm, and the schools would have to change their names if White Hat would no longer operate them.
Dennis J. Willard can be reached at 614-224-1613 or dwillard@thebeaconjournal.com.
COLUMBUS: The Ohio Federation of Teachers has asked the Internal Revenue Service to examine the non-profit status of charter schools managed by White Hat Management, the company established by Akron entrepreneur David Brennan.
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