Online charters have record of poor outcomes, fraud

Editor’s note: This is the fourth in a multipart series that examines the growth of charter schools across the country and how the changing landscape of school choice could affect Arizona, the state with the largest percentage of kids in charter schools.

SAN DIEGO — By the time authorities brought charges against the owners of A3 Education earlier this year, the online charter school company had bilked

California taxpayers out of $50 million, according to indictments handed up in May.

The state would have lost another $200 million if authorities had not detected the scheme to inflate enrollment in the virtual charter school using names gleaned from youth sports league rosters, said San Diego County District Attorney Summer Stephan. League owners are alleged to have received kickbacks for providing names, according to the indictments.

A3 Education, a nonprofit management company that enrolled tens of thousands of California students at its peak, had sought out small school districts to authorize its online schools, knowing the districts would provide little oversight, authorities said.

The California case is the latest in a string of allegations of fraud and educational malpractice against virtual charter schools. These have included, among others, multimillion dollar scams in Ohio, Oklahoma and Indiana, and academic or financial problems that shuttered online charter schools in Georgia, Nevada and South Carolina.

California last year banned for-profit charter schools and this year adopted a two-year moratorium on new virtual charter schools. Neither law, however, would have affected A3 Education or its schools.

The Arizona Republic visited seven

states to investigate the successes and challenges surrounding charter schools — the publicly funded but privately operated schools that many believed would revolutionize American public education through competition and innovation.

The Republic’s reporting found serious questions remain about whether moving the charter school education model online has delivered the same value to students and taxpayers.

In Arizona, which has the most charter school students out of the states, no online charter school meets the state Charter Board’s academic standards. And Arizona’s largest virtual charter school, Primavera Online, earned the board’s lowest academic ranking and posted declining graduation rates for the last decade. That hasn’t stopped Primavera founder and CEO Damian Creamer from paying himself a combined $10.1 million in 2017 and 2018.

Primavera, which has a total enrollment of 22,000, reported a $10 million profit this year, while spending $6.9 million on teacher salaries.

“These guys are definitely in it for the profit,” said Macke Raymond, director of the nonpartisan Center for Research on Education Outcomes, or CREDO, at Stanford University.

Negative headlines have, however, prompted prominent charter school leaders to call on regulators to clamp down on virtual charters, and for the industry to cut ties with the schools.

Todd Ziebarth, a senior vice president of the National Alliance for Public Charter Schools, said poor academic performance at virtual charter schools gives ammunition to teachers unions and others who oppose school choice, hurting high-quality charter schools and the broader school-choice movement.

“They make up a small percentage of charter schools, but a huge percentage of negative publicity,” said Tom Torkelson, chief executive of Texas-based IDEA Public Schools, one of the nation’s largest charter school operators. “They add no value. I would never send my kids to one.”

Torkelson argues that it’s time for online charter schools to go out of business.

But few states have enacted reforms, experts note, because when such proposals arise, virtual charter operators —

flush with cash — have flooded key lawmakers with campaign contributions.

Big growth and poor performance

Online charter schools have experienced explosive growth nationally over the past two decades: from a handful of schools enrolling a few thousand students in 2000, to 501 schools with 297,712 students in 2018, according to a study by the National Education Policy Center at the University of Colorado.

Today, while less than half of virtual schools are charters, they account for about 80% of enrollment. Unlike virtual programs affiliated with traditional school districts, online charters tend to target students statewide and have much larger class sizes to maximize profits.

Ironically, states with the tightest restrictions on traditional charter schools, such as Iowa, Virginia and Wyoming, have seen some of the fastest growth in virtual charter schools, said Ziebarth.

“In those states, you are not going to get any good charter schools,” Ziebarth said. “But what you may actually get is large, statewide poor-performing virtual charter schools . ... We have seen that story too many times.”

The University of Colorado study found student-to-teacher ratios at forprofit virtual charter schools are nearly 43-to-1, compared to a national average of 16-to-1 in traditional public schools. More than 70% of for-profit virtual charter schools received “unacceptable” academic ratings, the study found.

Researchers at Stanford University’s CREDO found in a 2015 study that virtual charter schools did so poorly at teaching

math that it was as if students had not taken math that year.

“Academic benefits from online charter school are currently the exception rather than the rule,” the study concluded.

But the schools have their defenders. Raymond, the Stanford University researcher, said they can be “a safety valve for a lot of families upset with what traditional school districts have to offer.”

Mike Kraft, a spokesman for K-12 Inc., a publicly traded, for-profit company that operates online charter schools and sells curriculum, said they attract students at risk of not graduating, including many who have fallen behind in traditional public schools for various reasons, including bullying, and are trying to catch up on credits.

Others, like Tara Boedigheimer of Scottsdale, want the flexibility that an online charter school education provides.

Boedigheimer said Arizona Virtual Academy, which uses K-12 Inc. curriculum, has been a godsend for her son Drew, a fifth-grader with ongoing medical issues resulting from a heart transplant.

Boedigheimer said the curriculum is challenging, and if Drew has been ill, he can make up work on weekends or during nontraditional school hours. Drew has taken advanced courses and performed well on standardized tests, she said.

“I was worried he wouldn’t be challenged enough, and I wondered if he would have the same opportunities as a brick-and-mortar school,” she said. “But I feel comfortable that he would be learning the same in a school a mile away.”

Profits drive online charter growth

Gary Miron, a Western Michigan University professor who has studied online charter schools, said their rapid expansion has been driven by profitability.

Unlike brick-and-mortar schools, virtual schools don’t pay for classrooms, transportation or lunch services. And because their classes are usually larger, they employ fewer teachers relative to their per-pupil funding.

Ziebarth, of the National Alliance for Public Charter Schools, points to K-12 Inc. as an online charter company that has produced lagging academic results while turning impressive profits.

The company, which enrolls about 120,000 kids in 30 states, including Arizona, reported $1 billion in revenue last year. Chairman and Chief Executive Nathaniel Davis received $9.8 million in compensation, according to Securities and Exchange Commission filings.

Kraft, the K-12 Inc. spokesman, said revenue and CEO pay make for good headlines, but the company has only a 2% operating margin.

“The vast majority of our spending is on instructional cost,” Kraft said. “We are trying to create a better academic framework in the industry.”

But Miron said online charters would produce better academic results if they invested more in staff and reduced class sizes to a maximum of 10 to 15 students per teacher. Instead, he said, many operators have class sizes in the high 40s or even larger.

K-12 Inc. declined to disclose its student-teacher ratios at its schools in Arizona and across the country.

In Arizona, online charter schools receive nearly the same per-pupil funding as traditional schools despite having fewer expenses than brick-and-mortar campuses.

Mirroring online charters nationally, Arizona virtual charter schools’ academics lag far behind brick-and-mortar schools.

Not a single Arizona online charter school this year meets the state Charter Board’s academic standards. The Charter Board ranked six virtual charter schools, including Chandler-based Primavera, as “falls far below” academic standards. Another virtual school is rated as “does not meet standards,” while 13 other online Arizona charter schools have not been given an academic rating.

Primavera, the state’s largest online charter, received nearly $50.6 million from the state in fiscal 2019. It paid about $22 million of that to Strongmind for curriculum, enrollment, accounting and marketing. Primavera’s CEO, Creamer, owns both companies.

Primavera’s financial dealings are legal, including its amassing a $36 million investment portfolio from state payments to the company. Creamer’s equity in the school totals $18.7 million, records show.

Creamer declined to comment. Primavera says its student-to-teacher ratio is 33 to 1, but state records put it at double that amount.

This year, it was among 97 alternative charter schools that for the first time received a state letter grade from the Arizona Department of Education. While its scores would typically have yielded a “C-” grade, Primavera’s classification as an alternative school allowed it to be graded on a curve, earning it a “B” despite anemic proficiency scores in English and math and its graduation rate, according to the Department of Education.

Primavera, in a statement, said its dropout rate declined to about 16%, and noted that it began giving its teachers regular pay raises before the state provided additional funding for pay increases. Primavera teachers, on average, are paid about $53,000. That’s in the top tier for public schools in Arizona, yet Primavera teachers’ salaries consume only 13.8% of the $50 million in tax dollars that it receives.

“We do this because we recognize that teachers are our greatest asset and we strive to attract and retain the best and brightest,” the statement said.

Lawmakers are reluctant to regulate online charters

Despite virtual schools’ poor academic performance, state lawmakers have been reluctant to impose additional oversight on them.

Greg Richmond, who until recently was president of the National Association of Charter School Authorizers, said the prevalence of “bad apples” among online charters and their poor student attainment points to the need for stronger oversight, including a reevaluation of their public funding.

“They should be funded based on their performance,” and only receive payment for kids who are learning and passing classes, Richmond said.

Raymond, the director of Stanford University’s CREDO, said one step that states could easily take is to follow California’s lead and ban all for-profit charter schools.

But Miron said that when states try to tighten online charter regulations, operators respond with large campaign contributions to key elected officials. This has meant reform legislation related to online schools rarely moves beyond legislative committees.

Miron said “everyone agrees” that online charters are flawed. “But no one wants to change it because of the purchasing of influence,” Miron said.

Of 23 states that had bills dealing with virtual charter schools in 2018, just 13 states passed legislation. Most of the successful legislation came from four states.

But few of those bills increased regulation on online charters. Instead, most of the bills focused on pilot programs, task forces, oversight commission and state boards to study and oversee the development of virtual schools, according to a National Education Policy Center study.

In Arizona, Primavera’s Creamer made at least $101,000 in campaign contributions in late 2018. This followed The Republic’s reporting that Primavera had paid Creamer millions of dollars despite its poor academics. The story spurred calls from Arizona Attorney General Mark Brnovich and others for lawmakers to tighten the state’s lax charter school laws.

Creamer made the maximum $5,100 contribution to Arizona Senate President Karen Fann, R-Prescott, and Senate Majority Leader Rick Gray, R-Sun City, who blocked stringent, Democratbacked amendments to the modest Republican-backed charter reform bill.

Last year, two virtual charter operators each donated $5,000 to Arizona Charter Schools Action, a political committee closely tied to the Arizona Charter Schools Association, which represents Primavera and the states 500-plus charter schools. That year, Arizona Charter Schools Action spent $12,400 to help Gray and $8,000 to assist House Speaker Rusty Bowers, R-Mesa.

Ultimately, Bowers killed the charter school reform bill that had emerged in response to The Republic’s investigation.

Creamer, through a spokesman, declined to comment on his political contributions.

Raymond, of Stanford University, said many pro-school choice lawmakers oppose reform on principle, arguing parents “have full capacity to make the best possible choice for their kids.”

“The policy posture is to insist the choice responsibility stay with the parents,” said Raymond, whose group’s research often is praised by Education Secretary Betsy DeVos, a school-choice advocate.

Ziebarth said that even when regulators have the tools to regulate they are reluctant to take action against charter companies out of a fear of being sued.

“You have to be willing to do it the right way legally,” Ziebarth said. “But authorizers don’t have the stomach for a protracted legal fight.”

Arizona’s 20 virtual charter schools, with more than 40,000 students, are regulated by the Arizona State Board for Charter Schools, which also has responsibility for traditional charter schools. The Charter Schools board has not closed an academically failing charter school — virtual or brick-and-mortar — since 2014.

Charter Board Chairwoman Kathy Senseman said most virtual online charter schools, unlike brick and mortar charter schools, have not received academic letter grades since 2014, making it difficult for the Charter Board to intervene.

Senseman said if the State Board of Education provided academic letter grades for all virtual charter schools it would “help greatly in our academic oversight.”

A small district’s alleged role in a scam

A lack of oversight is what allowed the $50 million California fraud scheme involving A3 Education, according to the San Diego district attorney’s allegations.

In California, local school districts, in addition to counties and the state, can authorize charter schools. That entity is then responsible for financial oversight and may charge the school a fee to cover the cost.

A3 Education sought one of its charters from a tiny rural district outside San Diego.

The 235-page indictment accuses the superintendent of the Dehesa School District of overcharging A3 for oversight. The district, which has just 168 students from kindergarten through eighth grade, has an annual budget of $3 million. It charged A3 Education $2 million during a single school year.

The District Attorney’s Office alleges the excessive fees reflected a “symbiotic” relationship that discouraged oversight that would have detected the fraud.

Dehesa’s then-Superintendent Nancy Hauer was charged with misappropriating public funds and faces up to four years in prison. Hauer, who has pleaded not guilty, could not be reached for this story.

The Dehesa School District’s acting superintendent, Larry Perondi, said the district no longer does business with A3 Education, but still has oversight of five virtual charter operators it authorized.

He said the district has new oversight practices that include monitoring the governance, operations, personnel, finances and educational programs of the charters — or what prosecutors said they were required to do all along.

California isn’t alone in virtual charter school scandals:

❚ The Oklahoma State Bureau of Investigation found the co-founders of Epic Charter Schools, the state’s largest virtual charter school, split at least $10 million in profits from 2013 to 2018, after recruiting “ghost students” from home and private schools.

❚ Indiana is trying to recover about $40 million it paid two virtual charter schools and the public school district charged with overseeing them after an investigation found the charters inflated enrollment, defrauding the state over three years.

❚ From 2012 through January 2018, Ohio schools sent more than $590 million to Electronic Classroom of Tomorrow for students enrolled in the virtual school. The school shut down after the state accused it of inflating attendance figures.

Ziebarth said sometimes it takes a financial scandal for lawmakers to put the clamps on virtual charter schools.

“We are not saying states should abolish full-time virtual schools. There just needs to be a different set of policies,” Ziebarth said.

California Gov. Gavin Newsom signed into law this year sweeping legislation that includes a two-year moratorium on new virtual charter schools. This came a year after the state banned for-profit charter schools.

Perondi said stricter oversight of California charter schools, including virtual schools, should have occurred about 15 years ago when their growth was starting to explode.

“Whatever we do with public dollars, we need to be accountable,” he said.

School choice supporters question online charters

Despite poor academic performance, virtual charter schools likely are here to stay because parents want that choice, said Raymond, the CREDO director.

However, CREDO notes in a study, low-performing online charter schools are not keeping their end of the educational “grand bargain” struck about 25 years ago, during the early charter movement.

That deal gave charter operators the freedom to teach kids in innovative ways with minimal red tape. By being allowed to run a school like a business, operators promised they would allow regulators to shut down poor performing schools.

To fix the problems, Stanford researchers concluded that charter school authorizers “must step up their responsibilities and demand online charter providers improve outcomes for students.” And, states should examine the progress of existing online programs before approving any expansions.

Raymond said she still believes in a “cost-efficient and effective education through online” schools but the system “doesn’t seem to deliver on that.”

University of Colorado researchers agreed that states should slow or halt the growth of virtual and blended schools until their performance has improved, and student-to-teacher ratios are lowered.

But Miron, the Western Michigan professor, said changes are unlikely.

Even when prosecutors, like the San Diego County district attorney, crack down on one virtual school another will quickly pop up because the business is so lucrative, he said.

“Even if a charter board fires them, it doesn’t affect them. They are not losing a building,” Miron said. “They don’t get punished for risky behavior. It’s a very different model for brick-and-mortar schools.”