At the end of the 2023-2024 session, the House and Senate of Michigan took up bills to increase charter school transparency in a state where 70% of the schools are run by for-profits. Ultimately, the bills did not pass, but the problems persist. Below is the testimony given by Dr. Casandra Ulbrich, the former President of the Michigan Board of Education.
As the former President of the State Board of Education, I would like to commend the State Senate for taking the issue of financial transparency seriously. The bills before you today level the playing field by requiring charter schools, education management companies, and authorizers to demonstrate that they are responsible stewards of public dollars, just as traditional public schools are currently required to do.
Financial transparency is an essential element of accountability for all publicly funded institutions and a necessary component for an engaged citizenry. Absent timely and accurate financial data in a manner that is easily accessible and understood by the public, citizens lack the resources necessary to make informed decisions. Missing or misleading financial information removes a citizen’s ability
to adequately determine the value of their public investments. Similarly, a charter school board that is denied this information cannot fulfill its oversight duty and its commitment to the citizens it serves.
This is particularly true for the K-12 public schools that educate approximately 1.3 million students in the State of Michigan, nearly 10 percent of whom attend a charter school. In 2022 – that year will be relevant during my testimony – Michigan Charter schools received roughly $1.4 billion in taxpayer funding. How this money is spent is often hidden from taxpayer view behind a wall of secrecy. One reason is that Michigan law allows charter school boards to contract out all the school’s services to a for-profit education management company that also assumes control of the school’s budget. This arrangement is known as a ‘sweeps’ contract in the charter school sector. Its name comes from the fact that nearly all of the school’s public dollars – anywhere from 95 percent to 100 percent – is ‘swept’ into a charter management company. Once that happens, that money is no longer reportable to the taxpayers who funded those dollars.
While the schools themselves must adhere to Freedom of Information Act(FOIA) laws, private, for-profit management companies themselves are not subject to FOIA. Therefore, when a management company assumes the vast majority, if not all, of the school’s budget, how that money is spent is legally hidden from public view.
For years, the charter lobby has argued that charter schools adhere to all applicable transparency laws. In most cases, they are correct. But, those laws fall far short of allowing taxpayers adequate oversight over the schools for which they fund.
In 2022, the State Board of Education used the Freedom of Information Act to identify and disclose the similarities and differences in financial reporting between traditional and charter school districts.
We sent FOIA requests to all school districts, both traditional and charter, in five Michigan counties. Of those districts, 112 were traditional school districts, representing over 551,000 full-time equivalent (FTE) student counts, and 166 were charter school districts, representing nearly 80,000 FTE student counts. For the charter districts, 117 (71%) used for-profit management companies, 19% used non-profit management companies, and 11% were self-managed. Individual district student counts ranged from a low of 71 to a high of more than 55,000 FTEs.
On January 5, 2022, each district received a FOIA from me as the President of the SBE. A second letter was sent to those who did not respond, and in some cases, a third letter was also sent. The FOIA request included five items:
- Contracts for rental or lease of facilities.
- Contracts for food service management or vended meals.
- Contracts with custodial service vendors.
- Contracts with lawn and grounds service vendors.
- Contracts with educational service providers or education management
companies.
The results demonstrated what we had assumed all along.
Following the third letter, 100% of traditional school districts responded to the FOIA request, while only 93% of charter districts responded. Seven percent of charter school districts didn’t even bother to respond to three Freedom of Information Requests from the State Board of Education.
When it came to facility contracts, Charter school districts were more likelyto submit facility rental or lease contracts. Sixty-eight percent, or 105, of charter districts submitted these contracts. Many charter districts lease their buildings from entities related to the management companies overseeing the schools.
A management company that also subleases its own facilities to the schools they manage raises obvious questions about conflicts of interest. It also allows the management company/facility owner to set lease terms that may be excessive. The State Board of Education FOIA did not address the market rates of each lease, but other states have identified this as an issue. For example, in 2012,
the New York State Comptroller issued a report detailing how a Brooklyn charter school managed by National Heritage Academies approved a lease from a “related business” at a rate nearly $800,000 above market value, or $3.96 million more over the term of the five-year lease. The report also indicated that NHA refused to divulge financial records supporting expenses that it charged to the
charter school. A 2019 Ohio Auditor report found similar examples in that state.
Another issue is that many charter management contracts also include a provision that allows the management company to own all property in the school, even though that property was most likely funded by taxpayers.
Food Service, Custodial, and Lawn Contracts
Charter school districts, particularly those managed by for-profit companies, were far less likely to share food, custodial or lawn contracts. In fact, these charter districts indicated they were not responsible for these contracts. This reflects the fact that many charter districts engage in “sweeps
contracts.” Therefore, a common response among for-profit managed companies was to deny the State Board’s FOIA request related to these three contracts. The FOIA coordinator responded, “Your request for information contained in bullets 2 through 4 is denied because the Academy does not (i) contract for food service management or vended meals, (ii) contract with custodial service vendors, or (iii) contract with lawn and grounds service vendors. Instead, the Academy contracts for the above services through a third-party management company by way of an educational management agreement and, thus, the Academy is not a party to the service contracts.” (S. Wilson, personal communication, January 14, 2022).
Financial Disclosures
One thing that became evident through the FOIA process was the vast differences in detailed financial disclosures. All districts, regardless of charter or traditional, are required by statute to submit annual comprehensive financial data (MCL 388.1618(5) and a financial audit report (MCL 388.1618(4). While the reports tend to be detailed for traditional school districts, this is not the case for charter districts. Most PSAs report most of their current operating expenditures as“purchased services” through their management company. The management companies, themselves, are not required to report detailed information. As a private vendor, there is no statutory requirement for management companies to submit financial reports to the state.
It’s important to note that, with limited exceptions, traditional school districts are not permitted by law to contract for instructional services. On the other hand, many charter school districts contract with a management company for all or most of these services. According to a state board of education resolution, in FY21, 90.4% of charter schools reported that more than 50% of the
school’s current operating expenditures were spent on purchased services (totaling $1.3 billion in purchased services), resulting in those expenditures not being reported and audited with the same level of detail provided for expenditures of traditional school districts, and not subject to public disclosure under FOIA” (MI State Board of Education, 2022).
Financial Reporting
Michigan school districts provide financial information to the state via the Financial Information Database (FID). Data submitted to the FID includes financial reports, revenues, and expenditures. However, what is reported looks very different depending on the type of district and their management contracts, leading to greater disparity between traditional and charter school districts. Under current reporting requirements, the costs for services provided to charter districts under a management agreement are often aggregated under “purchased services” and therefore lack any detailed information.
As a result of this method of reporting, it is nearly impossible to make any kind of accurate comparisons of financial spending. And, since management companies are not subject to the same financial reporting and audit requirements as districts, taxpayers have no way of knowing if their investments are being spent appropriately or if those dollars are being spent in an illegal or
inappropriate manner. In my role on the State Board of Education, I have heard many anecdotal examples of this happening, but absent real transparency laws, there is no way of holding bad actors accountable for their actions. Not only is this inappropriate for a public entity, but it also serves as a stain on all charter schools, including those that are acting in good faith and are truly interested in
providing quality education for children.
The bills before you today alleviate many of the concerns that the State Board of Education has been raising over the last twenty years. Specifically, financial information will be available to the Boards that are charged with overseeing these schools, allowing them to do their jobs effectively. Financial
information will also be not only FOIA-able for the public but in many cases available on the school’s website. It will bring to light related party transactions and taxpayer overspending.
If we are truly interested in parents making choices for their children, they should have access to this information, as should taxpayers who are funding these schools.
For these reasons, the Charter School lobby should be the first in line tosupport these financial transparency laws that could demonstrate what they have been saying…that the vast majority of charter school operators are conducting themselves appropriately and to send a message to those who may not be.
Absent that, I would ask yourself, what do they have to hide?
Dr. Casandra Ulbrich is a former Michigan State Board of Education president (2014 – 2023). She is a member of the Network for Public Education Board of Directors Ulbrich has spent most of her career in higher education administration, currently serving as the Vice Chancellor for Institutional Advancement at the University of Michigan-Dearborn. Ulbrich began her career as a press secretary to the former U.S. House Democratic Whip David Bonior, acting as the official spokesperson for the Congressman. She has been recognized as one of Michigan’s 40 under 40 by Crain’s Detroit Business.
