K12 Inc. Tries to Pivot from Virtual School Failures to Profit from "Non-Managed" Schools

Submitted by Dustin Beilke on January 7, 2016 – 9:01am

If you were a public school and Wall Street didn’t like you that might not seem like such a big deal. What do financiers know about educating children? It’s a big deal, however, if you are K12, Inc., and enticing investors to buy into your low-cost, high yield "cyber school" idea is key to your bottom line.

At K12, Inc.’s stockholder meeting in December, its own investors criticized the schools’ lamentable academic performance and voted down its executives’ proposed salary increases. This is just the latest piece of bad news, which has been coming in rafts for K12 since 2013.

As K12’s executives were being rebuffed by stockholders inside the law offices of Latham & Watkins, in Washington, D.C., outside K12 was picketed by members of the California Teachers Association for more or less the same list of educational shortcomings, as Diane Ravitch noted.

Some editorial boards crow when they receive criticism from two opposing sides of a controversial issue. "If both sides are unhappy we must be doing something right" is the familiar refrain, as if there are only ever two sides to an issue or the sides have equal merit.

In the case of K12, however, it is hard not to wonder how much longer the company can withstand this loud unanimity of animus–even a firm Wall Street insiders like convicted fraudster Michael Milken helped launch, as the Center for Media and Democracy (CMD) detailed in "From Junk Bonds to Junk Schools: Cyber Schools Fleece Taxpayers with Phantom Students and Failing Grades."

No major supporters have yet publicly called for pulling the plug, but anti-public education zealots like the billionaire Walton family and the Koch brothers have plenty of other places to invest in to try to bring down "government schools."

Big, Big Payouts to Execs at Taxpayer Expense

In its recommendation that shareholders vote against the pay proposal, the advisory firm Glass Lewis & Co. said K12 exemplifies a "substantial disconnect between compensation and performance results." Glass Lewis gave the company an "F" for how it paid its executives compared to peers.

In 2015, K12 CEO Nathaniel Davis was making $5.3 million and CFO James Rhyu was making $3.6 million. Their base salaries were $700,000 and $478,500, respectively, which were dwarfed by additional pay and stock for their "performance." (See more details on their total compensation in the pdf uploaded below.)

In all, K12’s five highest paid executives received a total of more than $12 million in compensation last year. That’s one of the reasons CMD has called K12 Inc.’s former CEO, Ron Packard, the highest paid elementary and secondary school educator in the nation.

Nearly 90% of K12’s revenues–and thus its huge pay for executives</a–<comes from Americans' state or federal tax dollars.

K12 Inc. also pays each member of its Board of Directors between $155,000 and $216,000 annually for a few hours of work each year—far more than local school board members make for much more time spent in general. (See uploaded K12 proxy filings below for the details.)

While K12’s promoters love to mention that it is a publicly traded company, it is also trading at its lowest stock price since 2010, down 75 percent from its September 2013 peak.

Meanwhile, a new report from Stanford University’s Center for Research of Education Outcomes (CREDO) found that online charters do a very poor job of educating children. In general, students in online charters lose 42 days of reading in a year, and 180 days of instruction in math. And there are only 180 days of instruction in most public school years.

Enrollment has also dropped almost 5 percent from its peak. No less a business authority than Bloomberg Business investigative reporter John Hechinger presented grim prospects for K12 as of late 2014, and no one has revised them upward.

Millions in K12 Ads at Taxpayer Expense Too

This decrease in business has come despite massive advertising and marketing expenditures by the virtual schools industry. K12 has spent untold millions in public funds on ads—a luxury budget item that traditional public schools are not permitted even when competing with K12 for students.

It spent at least $20 million on ads in 2012 alone, but it has not publicly disclosed ad spending in recent years even as its ads have become more ubiquitous in markets like Wisconsin and Arizona, for example. K12 does not disclose its ad budget in its public annual report.

Plus Taxpayer Money Helps K12 Pay to Play with ALEC Politicians

K12 also spends taxpayer money lobbying state and federal officials. It recently got a seat, for example, on the corporate board of the American Legislative Exchange Council (ALEC), where for years it has also paid for a seat and vote on ALEC’s "Education and Workforce Development" Task Force, which advances a "cash for kids" lobbying agenda.

ALEC corporations spend tens of thousands of dollars each year for such access to lawmakers, and K12 has also paid many thousands of dollars to underwrite some of ALEC’s docket of events for legislators and lobbyists.

Through the ALEC Task Force, K12 has actually had an equal vote with state legislators on so-called "model" bills to divert taxpayer funds away from traditional public schools toward the objectives of ALEC’s private sector funders, to help their bottom-lines and/or legislative agenda.

ALEC’s "Virtual Public Schools Act," for example, even allows virtual schools to be paid the same amount per pupil as traditional public schools even though operations like K12 have no bricks and mortar school house or desks or air-conditioning or gyms, etc., to maintain.

As CMD’s SourceWatch has documented:

"In 2004 when the ‘model’ bill was drafted and approved, both K12 Inc. and Connections Academy were part of the ‘School Choice Subcommittee of ALEC’s Education Task Force, according to an archived version of ALEC’s website from February 2005. The subcommittee recommended six bills for adoption, including the ‘Virtual Public Schools Act.’ According to ALEC, the bill was drafted by Bryan Flood of K12 along with Mickey Revenaugh of Connections Academy, then-Colorado Representative Don Lee (now a lobbyist for K12, see [below]), ‘and the rest of the Subcommittee.’" (Connections is now part of Pearson PLC, a British mega-corporation headquartered in London.)

K12’s reps at ALEC Education Task Force meetings have been its Senior VP for Government Affairs (lobbying), Bryan Flood, along with its VP for Government Affairs, Don Lee, and its Senior Director of Government Affairs, Bob Fairbank.

ALEC’s Education Task Force is co-chaired by Utah state Sen. Howard Stephenson (R-11). Through the ALEC corporate bill mill, Stephenson has even done a roadshow with K12’s Don Lee to drive more business to K12 through legislation. Given his advocacy of efforts to divert tax dollars from traditional public schools to charters and virtual schools, some press in Utah have questioned whether Stephenson is a public servant or a lobbyist for outside interests. (There is no way to independently verify whether Stephenson has actually ever invested in K12 or Pearson, or not.)

Notably, Lee and Fairbank are both former Colorado state legislators who took the revolving door out of public service into well-paid gigs, like peddling what K12 is selling to legislatures across the country. And, the head of their lobbying shop, Flood, is the former flack for then-Gov. John Engler of Michigan, who is now pulling down big bucks for sitting on K12’s Board of Directors: $55,000 in cash plus $100,000 in K12 stock for a few hours of his time last year.

Making "Friends" Everywhere K12 Goes….

Utah, Arizona, and Wisconsin are not the only states where K12 is active and facing criticism. The "Ohio Virtual Academy," for example, which accounted for 10 percent of K12’s revenue in 2014, received failing grades on a state report card for student test-score progress and graduation rates. A state analysis found that only 37 percent of K12’s Ohio ninth graders earned diplomas within four years.

K12’s operations in California have produced similar results, as In the Public Interest (ITPI) has documented, despite K12’s efforts to blame the state. (CMD has partnered with ITPI on research previously.)

Several online charters have cancelled their contracts with K12, and in Tennessee, education commissioner Kevin Huffman called for shuttering the Tennessee Virtual Academy because it had test results "in the bottom of the bottom tier" and is an "abject failure."

Altogether, K12 has lost management contracts or been threatened with school shutdowns in five states.

The National Collegiate Athletic Association (NCAA) also ruled last April that prospective students from 24 K12 Inc. high schools can no longer count credits toward athletic scholarships.

A pro-union decision by the California Public Employment Relations Board no doubt came as more bad news for K12’s brass. The board ruled that the California Teachers Association (CTA) is the exclusive bargaining agent of the more than 750 teachers at the Simi Valley-based California Virtual Academies (CAVA). Teachers have been seeking a stronger voice in improving working conditions and student learning for CAVA’s 15,000 students.

CAVA teachers had been calling for improvements for years. In March 2015 a study of CAVA by ITPI called for better oversight. In June 2015, CTA filed complaints with school districts that authorized CAVA charters throughout California.

K12 Hoping "Non-Managed" Schools Will Save It?

While no one is publicly calling for K12 to shut down, K12 itself is "diversifying its portfolio" in an apparent effort to ease out of the online charter school business.

K12 has built its brand by operating "managed schools" in which K12 runs and profits from all of the programs at a particular K12 school. In a managed school, the company does all of the teaching, curriculum, assessment for the customers—er, students—who choose it over attending a public school or participating in a traditional home-schooling arrangement.

The new revenue stream K12 is pioneering is in what it is now calling "non-managed schools" in which K12 sells the digital content and platform for a school for some other company or entity to run (and be responsible for the results). Non-managed programs have been growing by leaps and bounds as managed virtual schools have fallen on hard times.

The only problem with this model is that managed schools still bring in much more money than the non-managed kind. Some managed schools, for example, bring in $1,849 per student while non-managed schools bring in only $462 per pupil on average.

But, getting some revenue without being responsible for results may be the way for the future of K12: an analysis of K12 figures comparing September 2015 to the prior year showed that enrollment at "managed" virtual schools was declining 12 percent while it is increasing 34.5 percent at "non-managed" schools.

Non-management could take profiting from taking money out of traditional public schools without real accountability to a new level for K12.

CMD’s Executive Director Lisa Graves contributed research to this report.

k12inc 2.pdf

K12 (LRN) Regains Footing After Massive Sell-off

Stephen L Kanaval

Follow
|
Wednesday, 10 August 2016 15:26 (EST)

K12 (LRN)), a technology-based education provider,is now involved in multiple class action lawsuits alleging that the company lied about its student success rates, parent satisfaction, class size, graduates’ eligibility for the University of California and California State University, among other modes of data that was used in press releases and advertisements.

The class action lawsuits stem from a San Jose Mercury News investigation from April this year that looked to expose K12 as a fraudulent moneymaking enterprise that fabricated a wide variety of claims (summarized above).The investigation aimed to demonstrate how K12, a Virginia-based company, took advantage of California education law that have no specific rule about for-profit firms running charter schools in the state. Initially, K12 established online schools with individual, separate names so that the school and the corporation seemed unlinked for tax-exempt purposes because Federal Tax Laws prohibit charitable organizations from working to benefit a company. However, the report alleges that K12 employees started online schools posing as a “group of parents.” The company tried later to open a brick and mortar school in Contra Costa County, but was denied on the grounds that the Virginia administrative entity would be running day-today decision making. In addition, the report found that teachers lied about attendance to keep taxpayer dollars coming, very few online students earned diplomas, the company has reaped $312 million in profits over the last twelve years, schools that oversee the online academies get a cut of revenues and are inclined to turn the other way when they see inaccuracies, and many students test well-below state standards in reading and math.

Now, that being said, the company has rallied since April and many analysts were buying the stock to capitalize on the lower cost. In its most recent press release this Tuesday, the company saw earnings per share fall and revenues slumped by 9%. Following that, the stock was sliding but rallied again this morning. During the same press release, the company also said that they have settled with the Attorney General of California and no wrongdoing was admitted. The company logged a $7.1 million settlement for 4Q as a net charge that will go to taxpayers and government expenses accrued in the probe. The volatility of LRN is well documented and many buyers will stay away as more lawsuits are coming, but the truth is that the company is still enrolling students in public school areas and at-home.

DISCLOSURE:
The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
 Follow LRN K12 Inc 11.70 154,769

Comments

You have to be logged in to leave a comment.

Take me to log in
Don’t have an account?

K12 Inc. (LRN) Releases Quarterly Earnings Results

Posted by Andrew Walz on Aug 9th, 2016 // 0 Comments

K12 Inc. (NYSE:LRN) announced its quarterly earnings results on Tuesday. The company reported $0.09 earnings per share (EPS) for the quarter, missing the consensus estimate of $0.13 by $0.04. The business earned $221.30 million during the quarter, compared to the consensus estimate of $210.13 million. During the same period in the prior year, the business earned $0.18 EPS. K12’s quarterly revenue was down 6.1% on a year-over-year basis.

K12 (NYSE:LRN) opened at 12.83 on Tuesday. The company’s market capitalization is $481.02 million. The company’s 50 day moving average price is $12.70 and its 200-day moving average price is $11.13. K12 has a 12-month low of $7.11 and a 12-month high of $15.00.

Several equities research analysts have issued reports on LRN shares. Barrington Research restated a “market perform” rating on shares of K12 in a report on Friday, July 15th. TheStreet upgraded K12 from a “sell” rating to a “hold” rating in a report on Friday, July 8th.

K12 Inc (K12) is a technology-based education company. The Company offers curriculum, software systems and educational services designed to facilitate individualized learning for students in kindergarten through 12th grade (K-12). It provides a range of technology-based educational products and solutions to public school districts, public schools, virtual charter schools, private schools and families.

Receive News & Ratings for K12 Inc. Daily – Enter your email address below to receive a concise daily summary of the latest news and analysts’ ratings for K12 Inc. and related companies with our FREE daily email newsletter.

Company with ties to NC virtual school accused of misleading parents in California

Posted 4:53 p.m. yesterdayUpdated 5:57 p.m. yesterday

Raleigh, N.C. — A company with ties to a North Carolina virtual charter school has reached a multimillion-dollar settlement with the state of California over claims it manipulated attendance records, misled parents and overstated the academic progress of students at its online charter schools in that state.

The Virginia-based, for-profit company K12 Inc. has admitted no wrongdoing but will pay $8.5 million to California as part of the settlement.

K12 helped start the North Carolina Virtual Academy, a taxpayer-funded online charter school that launched last year and serves about 1,400 students at any one time. The company provides the school with curriculum and other materials but does not operate the school, according to NCVA’s head of school Joel Medley.

NCVA is governed by a board of directors made up of local community leaders, parents and state educators who oversee academics, staffing and other items for the school. Medley said it’s unfair to compare NCVA to K12-affiliated schools in other states.

“We’re not California. We need to be careful with generalization,” he said, noting that states have different laws and policies for how online charter schools are run. “This has had no impact on us. We’re continuing to do business as normal.”

North Carolina debuted two virtual charter schools last AugustNCVA and North Carolina Connections Academy, which has ties to Pearson, a London-based education company. The schools were launched as part of a four-year pilot program to determine whether virtual charters can succeed in North Carolina.

Their first year has been marked with questions about their high student withdrawal rates. In March, a report to the State Board of Education found that about 500 students, or about 26 percent of those who had signed on to take courses, had withdrawn from each school in the first five months of operation.

Virtual charter school leaders, including Medley, say those numbers are misleading because some students plan to take online classes for only a brief period.

In a letter to state school board members in March, Medley said “higher withdrawals are not a testament to a virtual school’s quality but rather the nature of the online model.” He pointed to virtual schools in other states, including Florida, which he says have higher withdrawal rates.

He urged people to be patient with NCVA.

“With this being a pilot, we’ve got four years. Give us four years,” he said. “Give it time.”

Charter Groups Want More Regulations for Virtual Charter Schools

Posted

By David Safier

on at 4:00 PM

click to enlarge

  • Courtesy of PhotoSpin

Now this is an interesting development. Some prominent charter school organizations have published a report advocating stricter regulations to improve the performance of virtual charter schools, also known as on-line schools. This isn’t an entirely new development. Charter school organizations have been trying to weed out poorly performing schools from the charter ranks, and this is their latest effort. More at the end of the post about the positives and negatives of this push.

Three organizations, National Alliance for Public Charter Schools, National Association of Charter School Organizers and 50CAN, joined together to publish A Call to Action To Improve the Quality of Full-Time Virtual Charter Public Schools. The organizations support virtual charters, but they’ve read the reports about how poorly students at those schools perform compared to students at other public schools and believe the schools should be more carefully regulated.

The facts about the virtual schools in the report look to me to be accurate. A vital bit of information is that 70 percent of the schools are run by for-profit organizations, directly or indirectly, which means the profit motive is going to trump education whenever the two are in conflict. Some other facts: there are 135 full-time virtual schools in the country; 79 percent of their students are in virtual schools with more than a thousand students; virtual school serve more students in poverty and fewer English language learners than traditional public schools.

The report’s recommendations are specific and, if implemented, could doom one of the biggest players, K-12 Inc., a publicly traded corporation (Arizona Virtual Academy, or AZVA, in one of its schools) whose many sins I’ve written about over the years and whose failings are being subjected to increasing scrutiny. The proposal is that enrollment be limited to hundreds, not thousands of students, and if the schools want to grow, they need to meet performance goals. That would be a stake in the heart of K12 Inc. whose profits are based on continual growth and whose stockholders are growing increasingly skittish (its stock is currently trading at about 11, down from a 2011 high of 36). AZVA has over 4,000 students. Another branch, Ohio Virtual Academy, has over 10,000 students. The corporation would crumble if it had to cut its schools’ student populations dramatically.

The report also recommends that virtual schools be funded based on their real costs, another potentialstake in the heart of the for-profit model. Right now, most virtual schools get close to the same per-student state funding as brick-and-mortar schools even though they don’t have physical buildings to pay for and maintain, and their teachers often have twice the student load of teachers in other charters and school districts (A 50-to-1 student-teacher ratio is the standard at K12 Inc. schools). The report estimates that per student costs at virtual schools are 60 percent of the costs at brick-and-mortar schools. Take away their inflated public funding—remember, taxpayers pay for charter schools, just like we pay for school districts—and they lose their profit margins.

It’s good to see charter school organizations actively pursuing some of the bad actors in their midst, and I agree with almost everything I read in this report. However, there’s a bit of a caveat I need to add. When they go after poorly performing charters, their targets are almost always schools with students from low income families. It’s true, some of those schools are doing a lousy job, just like some district schools do a bad job with their low income students, but some charters serving those students do terrific work, even though their test scores are at the low end of the spectrum because of socioeconomic factors beyond the schools’ control. If charter organizations work together with state regulators to carve out the genuinely bad schools, that’s a good thing. However, their motives may not be that pure. Every time a charter with low test scores is closed, regardless of the reason, the average test scores for the remaining charter schools rise. Closing charters serving low income students for any reason, good or bad, can give the charter PR people the kind of undeserved bragging rights they love. “Look at our scores! We’re more successful than school districts,” they can say, even though their higher scores may be a result of serving a different population. The poster child for this type of self congratulation is the BASIS chain which has a variety of ways to screen out academically undesirable students, then brags about its students’ academic achievement. The “education reform”/privatization folks would love to be able to say the same kind of thing about charters as a whole, and the easiest way to do that is to close schools serving low income students.

Former L.A. charter school leader fined for conflict of interest

A former local charter school operator has agreed to pay a $16,000 fine for misconduct that includes using public education funds to lease her own buildings.

Under a tentative settlement with the state’s Fair Political Practices Commission, Kendra Okonkwo acknowledges that she improperly used her official position “to influence governmental decisions in which she had a financial interest,” according to documents posted Monday by the state agency.

The settlement or “stipulation” notes two instances of wrongdoing: establishing leases for the school in two buildings that Okonkwo owned and arranging for public funds to pay for renovations to these structures.

The school, Wisdom Academy for Young Scientists, lost its charter to operate and closed last year.

Parents at 20th Street Elementary confront district’s rejection of their takeover attempt

“In this matter, Okonkwo engaged in a pattern of violations in which she made, used or attempted to use her official position to influence governmental decisions involving real property in which she had a significant financial interest,” the commission said.

Okonkwo declined to comment, but the commission cited several factors for not imposing a larger fine, including that “Okonkwo understands the seriousness of the violations and accepts responsibility for her actions.”

The South Los Angeles school, which opened in 2006, had been targeted by regulators for several years.

See more of our top stories on Facebook >>

The violations cited this week by the state date from 2010 and 2011, when Okonkwo earned a total of $223,615 as the elementary school’s executive director. She also received about $19,000 a month in rent from the school. She attempted to eliminate the appearance of conflict by assigning the property to a new, separate corporation, for which her mother signed the leases. But the arrangement did not pass legal muster, according to the state.

The other violation pertains to Okonkwo signing contracts for school-funded renovations worth $62,000. Okonkwo addressed this conflict by resigning as executive director. Someone else then signed the renovation contract.

Charters are independently operated and exempt from some rules that govern traditional campuses. Wisdom Academy began under the jurisdiction of the L.A. Unified School District, which refused to renew the school after its initial five-year charter expired.

A report to the school board cited “serious concerns pertaining to violations of conflict-of-interest laws against self-dealing on the part of the school’s executive director as well as insufficient governance by the … board of directors.”

The L.A. Unified action did not close the school because, under state law, a charter can appeal to the Los Angeles County Office of Education, which chose to take over as the supervising agency.

Interested in the stories shaping California? Sign up for the free Essential California newsletter >>

But the county office eventually turned against the school as well, revoking its charter in 2014, and leading to its shutdown at the end of the last school year.

The county cited a report by state auditors, who concluded that administrators may have funneled millions in state funds to Okonkwo, her relatives and close associates.

Charter school awarded $7.1 million in case against LAUSD

Charter school awarded $7.1 million in case against LAUSD

Some of the allegations bordered on the bizarre.

Auditors questioned, for example, the use of school funds to pay a $566,803 settlement to a former teacher who sued the organization for wrongful termination after she was directed by Okonkwo to travel with her to Nigeria to marry Okonkwo’s brother-in-law for the purpose of making him a United States citizen.

The organization’s payment of the settlement was inappropriate because Okonkwo was not acting within the scope of her school employment, auditors concluded.

The school took its fight to survive all the way to the state board of education.

Follow the Times’ education initiative to inform parents, educators and students across California >> 

In papers filed with the state, Wisdom’s leaders accused auditors and the county office of misconduct and “open hostility … against this African American operated school,” calling it “the culmination of years of unfair treatment and retaliation … because a few [county office] staff members dislike our school’s founder Kendra Okonkwo, her family, the thickness of her accent, and the color of her skin.”

State officials declined to overrule the charter revocation.

howard.blume@latimes.com

Twitter: @howardblume 

ALSO

Criminal hackers now target hospitals, police stations and schools

Hastert paid to hide sex abuse, then lied about it, federal filing alleges

Lockdown lifted at South L.A. school; student had reported a man with gun

Ohio’s charter schools ridiculed at national conference, even by national charter supporters

Children stands in line for a turn on a bounce house/obstacle course during the new Pearl Academy open house as a large banner encourages passers-by to sign up for classes Friday, June 21, 2013 in Lakewood. This is at the former Saints Cyril and Methodius school building. The open house was being hosted by White Hat Management, a company that operates lots of charter schools in Ohio.

Plain Dealer photography staff

By

The Plain Dealer
Email the author | Follow on Twitter

on March 02, 2015 at 12:23 PM, updated

DENVER, Colorado – Ohio, the charter school world is making fun of you.

Ohio’s $1 Billion charter school system was the butt of jokes at a conference for reporters on school choice in Denver late last week, as well as the target of sharp criticism of charter school failures across the state.

The shots came from expected critics like teachers unions, but also from pro-charter voices, as the state considers ways to improve how it handles charters.

Ohio has about 123,000  kids attending nearly 400 charter schools – public schools that receive state tax money, but which are privately run.

One after another, panelists at the conference organized by the national Education Writers Association targeted Ohio’s poor charter school performance statewide, Ohio’s for-profit charter operators and how many organizations we hand over charter oversight keys to as the sponsors, or authorizers, of schools.

“Be very glad that you have Nevada, so you are not the worst,” Stanford University researcher Margaret “Macke” Raymond said of Ohio. 

Places like Massachusetts and Washington, D.C., she told reporters from across the country, have high standards for charter school performance.

“Then you have folks at the low end, of which Ohio is a strong case,” said Raymond, who released a report on Ohio’s charter performance in December.

Stanford’s Center for Research of Educational Outcomes (CREDO), found that students learn less in Ohio’s charter schools than in traditional districts – the equivalent of 36 days of learning in math and 14 days in reading.

The National Education Association’s David Welker, a member of NEA’s charter policy team, said Ohio’s system has been taken over by “grifters” and “cheats” – the for-profit companies that run many Ohio schools.

He was suspect about Ohio’s attempts to rein them in, saying, “the horse has left the barn.”

The National Alliance for Public Charter Schools, a major national organization supporting the charter school movement, didn’t disagree.

“There are some operators who are exploiting things,” said Todd Ziebarth, a vice president of the Alliance.

He specifically named K12 Inc. and White Hat Management as major offenders. K12 is the nation’s largest provider of online charter schools and runs Ohio Virtual Academy, while White Hat is an Akron-based operator of many low-scoring charter schools that has regularly been a large donor to Republicans in Ohio. 

As Ziebarth started naming White Hat and K12, panelist Michael Petrilli of the Fordham Institute jumped in to add The Electronic Classroom of Tomorrow (ECOT) to the list. That online school is run by William Lager, another major donor to Ohio Republicans.

Just last month the Akron Beacon-Journal reported that former Ohio House Speaker William Batchelder formed a lobbying company that will have former House staffers lobby for ECOT.

“Mike could probably go down a list of Ohio operators,” Ziebarth said.

Petrilli nodded and added: “Ohio needs a top-to-bottom overhaul of its charter school sector.”

Fordham is both a charter supporter and critic. It sponsors, or authorizes, some charter in Ohio and promotes school choice efforts, while also wanting better quality. Fordham helped sponsor the CREDO study in Ohio, as well as another study suggesting ways to reform charter laws in Ohio.

Alex Medler of the National Association of Charter School Authorizers added his own criticisms of Ohio’s system, but far more subtle ones.

But Medler had already made his views on Ohio’s charter system clear a year ago, when he derided Ohio’s charter school free-for-all as “the Wild, Wild West” of charters.

Both Gov. John Kasich and Republicans in the Ohio House have made separate proposals to change the oversight and management of charter schools. A third proposal is coming soon from the Ohio Senate and State Auditor Dave Yost is expected to propose some additional changes this week.

Some of the suggested that Fordham seeks have been incorporated into House Bill 2 or Kasich’s charter reform plan.

While both proposals so far are receiving praise for taking on some important issues, some want them to go further.

For another account of the criticism at the conference in Denver, see this report from the Akron Beacon-Journal.

To follow education news from Cleveland and affecting all of Ohio, follow this reporter on Facebook as @PatrickODonnellReporter

Ohio ignores online school F’s as it evaluates charter school overseers

Online schools like Ohio Virtual Academy, ECOT and OHDELA with poor state report card grades won’t be counted in this year’s reviews of charter school oversight agencies.

(LANCE MURPHEY)

By

The Plain Dealer
Email the author | Follow on Twitter

on June 14, 2015 at 8:00 AM, updated

COLUMBUS, Ohio — It turns out that Ohio’s grand plan to stop the national ridicule of its charter school system is giving overseers of many of the lowest-performing schools a pass from taking heat for some of their worst problems.

Gov. John Kasich and both houses of the state legislature are banking on a roundabout plan to improve a $1 billion charter school industry that, on average, fails to teach kids across the state as much as the traditional schools right in their own neighborhoods.

But The Plain Dealer has learned that this plan of making charters better by rating their oversight agencies, known as sponsors or authorizers, is pulling its punches and letting sponsors off the hook for years of not holding some schools to high standards.

The state this year has slammed two sponsors/authorizers with “ineffective” ratings so far. But it has given three others the top rating of “exemplary” by overlooking significant drawbacks for two of them and mixed results for the third.

The state’s not penalizing sponsors, we found, for poor graduation rates at dropout recovery schools, portfolios of charter schools that have more bad grades than good ones and, most surprising, failing grades for online schools. 

Online school F grades aren’t counted

We found that the state isn’t counting the performance of online charter schools — one of the most-controversial and lowest-performing charter sectors —  in the calculations in this first year of ratings.

That means that many F-rated charter schools that serve thousands of students won’t be included when their oversight agencies are rated this year.

The Department of Education says recent drops in grades for online schools are “inexplicable” and that it has to develop a way to grade these “unique” schools. 

The omission caught some of the state’s major charter supporters by surprise. The Ohio Alliance for Public Charter Schools, which says that a strong ratings plan is key to improving charters, was certain until recently that online schools would be a factor in the ratings.

Consider the Ohio Council of Community Schools, which collects about $1.5 million in sponsor fees a year from the more than 14,000 students attending Ohio Virtual Academy and OHDELA, the online school run by White Hat Management.

The F grades that the state gave those schools last year for failing to teach kids enough material over the school year didn’t count against the council when it was rated early this year. The result? A perfect academic rating of 100 percent and an overall rating of “exemplary,” the highest available.

This year’s ranking also leaves out dropout recovery schools, another controversial group of 90 charter schools, because separate report cards for those schools aren’t complete.

Mostly “ineffective,” but still “exemplary”

Even without the online schools, the rating system doesn’t set a high standard for the schools a sponsor oversees. Instead of setting a high bar and challenging staff and overseers to meet it, The Plain Dealer’s review shows that the Department of Education set a low standard that’s met much more easily.

In fact, a sponsor can oversee more students in schools that are “ineffective” than are “effective” and still be lauded as “exemplary” this year and next year. Sponsors only have to have 41 percent of students in “effective” schools to meet the state’s goal this year.

Those standards will increase over time, with an eventual goal of 66 percent of a sponsor’s students in “effective” schools. But even by the 2016-17 school year, the state will only require 55 percent.

So the Buckeye Community Hope Foundation, which sponsors 52 schools, wasn’t hammered in its rating this year despite having only 38 percent of students in “effective” schools. 

Since 38 percent is so close to the 41 percent standard, the foundation only lost a few points in its rating and snagged an “exemplary” mark.

Department of Education spokesman John Charlton said online and dropout recovery schools will be included in ratings next year, and that the target for having effective schools will increase over time.

“Keep in mind this is the first year of the evaluation process, and we expect to make improvements to the system,” Charlton said.

Ratings have high stakes

Why do these ratings matter? Because supporters of the charter school concept have portrayed them as a way to put pressure on sponsors to make Ohio’s charter schools something to be proud of, not viewed as a drag on the state’s education system.

Kasich and the legislature are considering tying some incentives and sanctions to the ratings in bills that could be passed by the end of this month. An easy path to the top rating of “exemplary” won’t separate strong oversight from mediocre when cash and other benefits are handed out.

For example, Kasich proposed early this year setting aside $25 million in the state budget for charter schools to spend on new school buildings, but he wants the money to be available to schools with “exemplary” sponsors. His plan passed in the Ohio House,

The Senate may change that plan in the next few days, making the money  available only to highly rated schools, not sponsors.

Kasich and the House have proposed letting schools run by exemplary sponsors seek tax levies from voters, if the local school district agrees. That’s allowed only in Cleveland now.

And Kasich and the House have proposed allowing schools run by exemplary sponsors to offer kindergarten and collect state tax dollars for each kindergarten student.

As a penalty, Kasich and the House have proposed adding a lower rating of “poor” in the ranking, giving these sponsors one year to improve or be shut down.

And though the standards will increase over time, the ratings completed this year will last for three years. Sponsors won’t face any effects from dropout schools, online schools or needing to have more “effective” schools until 2018.

They won’t be rated under higher standards until after the state passes a new two-year budget in 2017 that could offer even more perks and penalties.

Where do these ratings come from?

The state legislature voted to start rating sponsors in 2012 and set up a basic structure in House Bill 555.

Charter school supporters nationally look at sponsor/authorizers as fundamental to making charter schools run well. These agencies are usually local school districts that create one or two charter schools in their cities, but can be statewide charter boards, county Educational Service Centers or, in a national rarity, other nonprofit organizations.

As we reported last year, observers in other states view Ohio as the “wild, wild west” of charter operations because it has so many sponsors and so few rules governing them. The new evaluation system in Ohio was viewed as a way to compel improvement in sponsor quality and, in turn, make schools better.

As ordered in HB 555, academic performance makes up just a third of a sponsor’s rating. The other two components are compliance with all state and federal codes governing sponsors and how well they meet industry standards.

As a result, one third of each sponsor/authorizer rating is based on the quality practices suggested by the National Association of Charter School Authorizers.

How the academic portion would be handled was left up to the Department of Education.

Not counting online schools is a surprise

The state agency decided to drop online schools that serve 40,000 students across the state from the evaluations. In letters to sponsor/authorizers announcing the results of their reviews, David Hansen, executive director of the department’s  Office of Quality School Choice, said that the 2013-14 online school test results will simply be the “base year” to evaluate future performance.

“I wasn’t aware that they (online schools) were not counted in the evaluation,” said Lenny Schafer, executive director of the Ohio Council of Community Schools.

Chad Aldis, vice president of Ohio policy and advocacy of the Fordham Institute, the other charter sponsor that has already received an exemplary rating, said he was unaware of that too. Even though Fordham has been rated, it does have the academic scoring rubric used by the state.

And Darlene Chambers, president and CEO of the Ohio Alliance for Public Charter Schools, said Thursday that she was sure online schools are being counted. She has told people for months, often in formal PowerPoint presentations, that Performance Index scores the state calculates for all of a sponsor’s schools were part of the evaluation.

Performance Index combines test scores across multiple grades and subjects and is the state’s main measure of how much kids know. The sponsor PI scores include online schools.

“E-school outcomes are not being ignored,” Chambers said. “It is captured in that now.”

But when told that the state created a new academic measure that excludes online schools, Chambers said: “If it exists, I’ve not seen it. This is the first time I’ve heard of it.”

Charlton said the Department of Education decided to use the value-added ratings of schools — a measure of student academic progress — instead of the Performance Index in the evaluations.

And the department also chose to set aside value-added results for e-schools, he said, because of concerns over how those scores are calculated.

Concern over scores for online schools

Shafer said a change for the 2011-12 school year about which first-year students in online schools were counted in state report card results caused a dramatic lowering of scores for online schools. Data provided by him shows online schools mostly met or exceeded value-added targets for student growth before the change, but most failed to meet them after the switch.

Charlton said the Department of Education dropped the online schools because of this concern.

“Because the change in the system for measuring performance has had a significant and inexplicable impact on the e-school data, the department decided to take a year to look at those results, identify what caused the significant changes and address those causes by creating a more accurate performance evaluation system,” he said.

It is unclear if there is a calculation “glitch,” as Schafer calls it, or if online schools saw lower grades because report cards started counting under-served kids that should have been counted all along.

Dropout recovery ratings are incomplete

Unlike the online schools, the state planned for a few years to exclude dropout recovery schools — charter schools that serve kids returning to school or at risk of leaving. The legislature decided in 2012 to keep them out because separate report cards for these schools would not be finished in time.

These 90 schools don’t appear on regular state report cards because they serve a different type of student and the state has different expectations for them.

Charlton said these schools will become part of sponsor evaluations next year, once measures of student academic growth there kick in.

“There will be a learning gains measure available starting next year for dropout recovery,” Charlton said. “DOPR (Drop Out Prevention and Recovery) schools are being graded as soon as the grading system is in place.”

For now, sponsors like the Ohio Council of Community Schools face no consequences for overseeing schools like the Life Skills Center of Toledo, that meets no graduation standards. The school graduates only 2.2 percent of students on time.

A tough new growth standard

Instead of using Performance Index as most expected, the Department of Education is using the value-added calculation of how much learning kids accomplish over a school year.

The Department of Education has not published its academic rating criteria. Repeated requests to a link for it went unanswered.

But Charlton said here’s what the department used in the sponsor evaluations:

Charter schools with an A or B grade in value-added — scores that are above average — are counted as “effective” schools.

Schools with a C in value-added — the average grade meant to show that a school met learning expectations — need to have an A, B, or C in Performance Index to be considered “effective.”

If you have a D or F in value-added — grades that reflect kids making less than a year’s progress over a school year — your school is ineffective, regardless of performance score.

That’s a strong departure from the state’s traditional focus on Performance Index, a measure of academic achievement.

We have asked the department to explain why it made this choice, but have not heard back.

To evaluate a sponsor/authorizer of multiple schools, the state counts the number of students in schools that meet the “effective” criteria vs. those in schools that are “ineffective.”

It then looks at the ratio of “effective” school “seats” to “ineffective” ones.

More “ineffective” than “effective”

This first year, the state is asking sponsors’ to have a 0.7 to 1 ratio of effective to ineffective seats — less than one effective for every ineffective one — in their portfolios. As a percentage basis, that’s the 41 percent effective mentioned earlier.

If a sponsor meets that target, it receives all 100 points for academic performance in its evaluation.

That means that the Fordham Institute that had an almost equal number of ineffective seats to effective ones at the 10 schools it sponsors, met the state’s bar by 141 percent and earned a perfect academic score.

That came despite overseeing schools with value-added F grades, like Sciotoville Community School in Portsmouth and Cleveland’s Village Prep, normally a well-regarded school for student growth that had abysmal results last year.

And the low bar gave Buckeye Community Hope Foundation only a small penalty for having a ratio of 0.6 effective seats to each effective one.

The target percentages are supposed to rise each year, Charlton said.

Here are the expected ratios:

2013-14: 0.7 to 1.

2014-15: 0.85 to 1.

2015-16: 1.05 to 1.

2016-17: 1.25 to 1.

Eventual goal: 2 to 1.

Though sponsors have known that their academic performance would be evaluated since 2012, Charlton said the state agency is phasing in the standards because of the contracts that sponsors have with individual schools.

Those contracts, which can last five years, spell out academic goals. Sponsors can’t change the expectations midway through, Charlton said.

To follow education news from Cleveland and affecting all of Ohio, follow this reporter on Facebook as @PatrickODonnellReporter

Charter Groups Call Out Virtual Schools

In August 2014, there were 135 full-time virtual charter schools operating in 23 states and the District of Columbia.

A coalition of charter school advocates banded together Thursday to take a shot at some of their own – virtual charter schools – and urged state policymakers to tighten regulations on their lesser-known school-choice stepsisters, which have come under fire for poor student performance.

“When national groups that advocate for and champion charter schools question the impact of virtual charter schools on student achievement, policymakers should take note,” said Chad Aldis, vice president for Ohio policy and advocacy with the Thomas B. Fordham Institute, a conservative-leaning education policy organization.

RELATED CONTENT

Propping Up the School-to-Prison Pipeline

The groups – the National Alliance for Public Charter Schools, the 50-State Campaign for Achievement Now and the National Association of Charter School Authorizers – published a set of sweeping recommendations for how states should overhaul their virtual charter schools, complete with calls for shuttering the poorest performers.

Among the many detailed recommendations, the groups called on states to set minimum academic performance standards for virtual charter schools whose charters are in the process of being renewed, and for enforcement mechanisms to ensure that all charter schools, including full-time virtual charter schools, meet those minimums.

In addition, the groups recommended that states create a method to hold charter authorizers accountable for results, and said an entity should be tasked with regularly monitoring those authorizers’ performance. States should also require charter authorizers to show via annual audits that they are using all of their oversight money for oversight functions.

“These provisions are tailored to the unique problems that have emerged among too many full-time virtual charter schools, which require states to enact significant policy changes,” said Todd Ziebarth, senior vice president for state advocacy and support at the National Alliance for Public Charter Schools.

[READ:
Best High Schools: Top Charter Schools]

Greg Richmond, president and CEO of the National Association of Charter School Authorizers, urged those bodies also to work within existing state policy frameworks to close chronically low-performing virtual charter schools.

“Authorizers have a legal and a moral responsibility to close chronically low-performing charter schools of any kind, including full-time virtual charter schools,” he said. “In many cases, this would not require a change to state law.”

RELATED CONTENT

STEM Should Be Part of Every Pre-K Program

As of August 2014, there were 135 full-time virtual charter schools operating in 23 states and the District of Columbia – about twice as many as in 2008 – and serving approximately 180,000 students. A majority of the schools are run by for-profit organizations and serve large numbers of poor and white students.

The recommendations come on the heels of reports by the Center for Research on Education Outcomes, the Center on Reinventing Public Education and Mathematica Policy Research that showed when compared with their classroom-based traditional public school counterparts, full-time virtual charter schools fail across multiple metrics.

For example, in math and reading in a given year, full-time virtual charter school students learn essentially no math compared with their peers in classroom-based traditional public schools, according to the Center for Research on Education Outcomes report. In fact, students in virtual charters, the report showed, experienced the equivalent of 180 fewer days of learning in math and 72 fewer days of learning in reading in comparison with traditional public school students.

Moreover, all subgroups of students enrolled in virtual schools – including when students are broken down by race, economic background and native language, as well as students in special education – reportedly perform worse in terms of academic growth than their classroom-based peers.

“If traditional public schools were producing such results, we would rightly be outraged,” the groups charged in their set of recommendation. “We should not feel any different just because these are charter schools.”

RELATED CONTENT

The View From a Testing Giant

The recommendations underscore that there is a place for virtual charter schools, especially for rural students seeking to avoid a lengthy bus ride, home- or hospital-bound youth who want to stay in school despite an illness, and high school students looking for an alternative to dropping out.

Still, the groups called on state policymakers to ensure the sector is more tightly monitored so students are not slipping through the cracks.

“A few states have opted to simply ban full-time virtual charter schools, but this solution risks limiting parental choice without giving otherwise high-performing virtual charter schools a chance to operate,” said Nina Rees, president and CEO of the National Alliance for Public Charter Schools. “This is why we need a better regulatory framework to govern full-time virtual charter schools.”

Eight states do not allow full-time virtual charter schools, according to the alliance report: Delaware, Maryland, Massachusetts, New Jersey, New York, Rhode Island, Tennessee and Virginia.

Currently, enrollment in full-time virtual charter schools is highly concentrated in three states – Ohio, Pennsylvania and California – which collectively enroll over half of full-time virtual charter school students nationwide, according to National Alliance research.

In Ohio alone, some schools enroll upward of 10,000 students.

“If Ohio leaders are serious about improving student outcomes for virtual-school students, they’d be wise to consider these recommendations,” Aldis said.