Since 2008, an Ohio-based company, White Hat Management, has collected around $230 million to run charter schools in that state. 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 state court in Franklin County, provides a glimpse at 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, approximately a third of them now rely on management companies — which can be either for-profit or non-profit — to perform many of the most fundamental school services, such as 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 for public schools.
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.
White Hat has achieved particularly poor results, with only 2 percent of its students making the progress expected under federal education law. The company declined comment on the performance of its schools.
White Hat was established in 1998 by a prominent Akron businessman, David L. Brennan, who was a key advocate for introducing charter schools into Ohio. Like most charter schools, White Hat's Hope Academies and LifeSkills 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 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," said Saxbe, "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," Saxbe said. "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," said Stubbs. "What I am concerned about is students not doing well under this management company, and that can't continue," he said.
The Ohio Department of Education agreed. It joined the lawsuit [1] 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."
In fact, White Hat schools across the country are performing poorly, according a report [2] by the National Education Policy Center, a nonpartisan research organization based 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. The company did not answer questions on the performance of its schools.
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," he 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 schools' property and employs the staff, the boards worry that they could not survive a sudden rupture with the company.
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