Do charters skim profit, or spend smarter?

When Vickie Markavitch discusses the finances of traditional public schools vs. charter schools, she starts with a table of expenses, taking care to note the figures her analysis uses come from the state Senate Fiscal Agency, a reliable, nonpartisan source.

Then the superintendent of the Oakland Intermediate School District starts her rundown. The per-pupil state funding allowance is an average of what schools spend, she says, “and third grade doesn’t cost as much, high school needs more.” It’s also comprehensive for all programs, i.e., education plus co-curricular activities like band, athletics, etc., “which don’t come cheap.”

Most charter schools in Michigan are K-8, where costs are lower. They tend to be small, cater to niches and don’t offer comprehensive education, Markavitch says. They serve fewer students with special needs, and the ones they serve tend to have less serious hurdles to overcome. It all adds up, Markavitch claims, to charters spending, on average, $1,300 less per pupil than traditional schools. This is money that districts like the ones in Oakland County desperately need, she argues.

When Bob Lombardi discusses the same topic, he tells a different story. When the Flagstaff, Ariz., school he runs, Northland Prep, was expanding, they built a new building with 14 classrooms. The school’s board authorized Lombardi to spend $80,000 to outfit it. He spent $298, $2 short of the size of his petty-cash fund. He did it by shopping surplus sales at nearby Northern Arizona University, going through desks being discarded in refurbishments, cherry-picking the best and hauling them away himself on a rented flatbed. All-in, he estimates his final cost at 50 cents per desk.

For his teachers, he bought a trailer-load of discarded Steelcase desks, disassembled them and put them back together -- using undamaged legs from one, drawers from another -- and sent the discarded parts to a recycling center as scrap metal (for which he was paid). He figures each one cost $4.50.

He did the same with chairs, filing cabinets and bookcases, rolling up his sleeves to take damaged arms off otherwise perfectly acceptable office furniture, giving it new life. With the money he saved, he was able to buy overhead-mounted projection systems for classrooms, retrofit his building's lighting and -- most important -- give his teachers 3 percent raises and even a Christmas bonus.

The two anecdotes illustrate the best and worst of charter-school finances. To Markavitch, charters are like health-insurance companies that will only insure young, healthy people who don’t require much care. To Lombardi, they are a place where personal initiative, nimbleness and adaptability can flourish, bypassing stodgy bureaucracies and putting resources where they’re most needed.

To some extent, both are correct.

It's pronounced 'mip-sers'

Markavitch, in running down her numbers, says repeatedly that she doesn’t dislike charters. But as an administrator in a publicly funded district, she thinks they need to play by some new rules -- for the good of the entire system, both charters and traditional schools (which she prefers to call “community-governed”).

With recent reforms in the Michigan Public School Employees Retirement System -- MPSERS -- she said it’s high time for charters, which have been exempt from paying into the system, to start. With every pupil who leaves his local public school for a charter, the burden on the former is increased, as fewer teachers pay into the system.

MPSERS provides pension and health-care benefits for retired employees, supported by contributions made by current employees and by individual school districts. The amount districts pay has risen sharply in recent years as health-care costs and unfunded pension liabilities have risen. Recent reforms now require new school employees to contribute to a hybrid defined-benefit/contribution plan, but the vast majority of members still are in defined-benefit plans.

“Public school academies get state money, they want to be called state schools, then they should be in the MPSERS program,” she said. “Either get rid of MPSERS entirely or require them to get in. If they were paying their share, we wouldn’t be paying $900 (per pupil). You don’t get the average unless you spend the average.”

According to the Michigan Association of Public School Academies, there are about 5,000 teachers in charter schools. Of those, about 1,150 are part of the MPSERS program. Some charters pay into MPSERS, "usually for employees hired who already have time in the system and want to continue to earn retirement under the system." Other charters offer portable 401(k) plans for their employees.

Lombardi, out in Flagstaff, doesn’t have much to say about retirement accounts. (In Arizona, both charter and traditional-school teachers pay into the state’s retirement system.) But as a veteran of traditional K-12 education, he remembers what it would have taken him to outfit his school under a former employer – competitive bids, approved vendors, and at least $50,000, he said.

“It wouldn’t allow me to do it this way,” he said, chuckling over his school full of bargains. “In the public-school system, we spent so much money, and some ended up wasted. It’s a joy to have rules that allow me to operate not only as a school, but as a small business.”

In some ways, this is an apples-oranges comparison. But it neatly encapsulates the argument over charter finances. Markavitch claims charters are getting too much of a free ride in the name of promoting innovation in education. Very few provide transportation and most don’t take the most challenged special-ed students, she says. In Oakland County, special ed costs $15,478 per services-receiving pupil; charters spent $5,282, Markavitch said.

Quisenberry counters the difference in special-ed students isn't as great, pointing to 2008 figures from the Michigan Department of Education that found "virtually no differences in proportions of students with different disability types between charters and traditionals." In the 2009-10 school year, state data shows just over 9 percent of charter students received some kind of special-ed services; in traditional schools, the figure was 14.4 percent.

Lombardi says that, free from the layers of bureaucracy and oversight, he is able to give his students and teachers the benefit of his bargain-hunting in the things that matter less in a quality education. His desks and chairs were put together like Frankenstein and are in '70s colors, but they’re clean and sturdy. Why can’t public schools be that smart about it?

“It’s fun to do this, because everything you save, you put into the kids,” said Lombardi.

Markavitch would settle for more transparency in spending.

“This is a movement to privatize public education,” she said. “I’m a capitalist, but not with public tax dollars. I’m not opposed to charter schools. But we need to make sure they're high quality before they open their doors. Parents should want our state to vet these schools well. The parents don't have time to do that.”

Professor on profit: $1,000 per student

Experts also say the profit factor is too murky for public dollars. Gary Miron, a Western Michigan University professor who has spent years studying charters, singles out National Heritage Academies as a company that has been enormously successful. With 44 schools in Michigan, more than any other state, they are making $1,000 in profit per student, per year, Miron said.

“As a private company, NHA does not disclose financial information,” said Joe DiBenedetto, spokesman for the company. “Given the structure of our management agreements with the school boards that have hired us and the multi-million upfront investment NHA makes with each school, we do not expect to make a profit over the term of the initial five-year charter the schools receive. For our average school, it will take up to 10 years to recoup that investment.”

Charter schools, like traditional public schools, receive a set "foundation grant" from the state to operate for each student they enroll. The amount matches the grant to the traditional public school district in which the charter operates or $7,110, whichever is lower.

To Dan Quisenberry, president of MAPSA, the arguments about supporting the state’s burdensome retirement program for teachers don’t carry much weight.

“State funding is really about educating kids, not sustaining our systems in Michigan,” he said.

He and Markavitch know one another, and both acknowledge respect for the other. They both agree that education in Michigan needs to improve.

“We can’t say we need to do the same things better, through the same systems. I'd argue that's impossible," Quisenberry said. "The only way you change things is to introduce dramatic differences, and that’s what charters are.

“I’m a believer in the invisible hand of the market. The more opportunities that are out there, inevitably we will improve things.”

Staff Writer Nancy Nall Derringer has been a writer, editor and teacher in Metro Detroit for seven years, and was a co-founder and editor of, an early experiment in hyperlocal journalism. Before that, she worked for 20 years in Fort Wayne, Indiana, where she won numerous state and national awards for her work as a columnist for The News-Sentinel.

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Thu, 03/15/2012 - 10:34am
It was during the Engler years that Michigan shifted to a "pay as you go" type of funding for public school employee retirement.Millions were shifted from the retirement fund to the general budget. This shifted money has never been repaid.So, the 20% charge-back payments to the Retirement System from School Aid foundation grant money each year are the result of legislative action twenty years ago. If "profit" from each charter school student is $1,000 or more per year, one can see that it is not out of the goodness of their hearts that charter operators promote their cause. The sponsoring universities also receive a 3% cut of the charter's budget, which is quite a money-maker for the universities. So, between the charter operators and the sponsoring universities with their hands out, the real reasons for promoting charters becomes clear. "Show me the money" is the new mantra.
Thu, 03/15/2012 - 3:22pm
So the charter makes a profit of about $1000 per student, but they do not educate some of the most difficult to educate children (children with emotional, social or cognitive problems). They do not provide many of the enrichment classes (not to mention athletic programs) of the public schools. The cost of transportation is carried by the parent. So why should my tax dollars that are paid, in part, to support the common good be used to line the pockets of the for profit charter school system. There is a creative charter school administrator that is able to find desks for $.50, so he has enough for his programming and still the profits go to line the pockets of the charter company? How is this good for kids? I know that not all charters are for profit and their funding is used for the kids, but more and more entrepreneurs are entering the "for profit school business" taking away from an enriched education of all children. There is clear data driven evidence (to use the fashionable term of the day) that shows charters are not the magic bullet to improve the learning of children. So, I ask again, if they are not better, why should my tax dollars be going to support the system of dollar sucking for profit companies instead of public schools that serve all children? No place in the inscription below does it say so the rich can get richer. Inscribed on the Statue of Liberty: Give me your tired, your poor, Your huddled masses, yearning to breath free, The wretched refuse of your teeming shore, Send these, the homeless, tempest tossed, I lift my lamp beside the golden door.
Fri, 03/16/2012 - 11:56am
While I applaud Bob Lombardi for his frugality and apparent passion for his role, he is guilty of thinking the only cost in his personal project to furnish a new building is in dollars. "Tempus Fugit," Bob: How many HOURS did you spend at surplus sales, personally inspecting desks and hauling them on a rental truck, loading and unloading, then disassembling and reassembling teachers' desks, chairs, filing cabinets and bookcases? Did you charge the district for your time? Did you use any staff in your effort? Did THEY charge for their time? For instance, say Bob's salary is prorated to $60/hour, and he spent 100 hours doing all that work. $6,000 is still less than the $80,000 the District authorized (which would have been less in actuality given a competitive bid process), but it's NOT "petty cash." Then there's liability: What if one of your "Frankenstein" desks or chairs breaks, causing injury? You are directly liable, as is the District for giving you the green light. It may not happen, but if it does that could turn out to be the most expensive $298 ever spent.This is one reason why districts USE contractors -- they're licensed and bonded in case of mishap, which is part of the price they charge
Thu, 03/15/2012 - 7:38pm
Responding to the comments left by T.W.Donnelly and JanofMI: That would have been my take on it, too. But, I have come to an even newer realization that is even more damning than that. Just as Goldman-Sachs has taken advantage of every "muppet" they could, it seems that the new ethos of the investment world is to locate any as-yet untapped source of profit, rape and pillage and spit out the bones. Public education is one of the largest casualties--it's a big pot of money, and who better than a bunch of venture capitalists to exploit it? Thanks for sharing this with me, Jan. It makes me want to look that much harder at the latest proposals in Michigan to open the floodgates to virtual schools. How sad that even as we examine the social and economic inequities of public education, we enable its' destruction.
Fri, 03/16/2012 - 11:46am
An interesting and fair article, which raises real questions about where that $1,000 per student charters are able to save should go. It certainly explains why it is that 80% of the current charters in Michigan are managed by for-profit companies. There's gold in them thar pupils! I had one thought that might address part of the problem: The average per-pupil allotment from the state is for K-12. Most charters are K-8, skipping the more expensive high school years. What if the per-pupil funding formula was TIERED -- elementary, middle school, high school -- to reflect the lower costs at the elementary level vs. the higher costs of high school? And what about "cyber schools," which as currently envisioned would get the FULL per-pupil allocation but with almost ZERO operating expenses (no buildings, no janitorial or maintenance staff, no utility bills, no food service costs, no furniture) long before every charlatan with a slick sales pitch and a website lines up at that trough? Without real controls and regulations with teeth to curb excesses,
Sat, 03/17/2012 - 3:40pm
The three statements made by Dan Quisenberry do nothing to rationalize the charter school exemption from paying into the pension system nor to support the continued use of charter schools. 1) 'To Dan Quisenberry, president of MAPSA, the arguments about supporting the state’s burdensome retirement program for teachers don’t carry much weight. “State funding is really about educating kids, not sustaining our systems in Michigan,” he said.' Retirement costs are part of teacher compensation. Teacher compensation IS part of the cost of educating kids. Therefore, state funding should go toward retirement costs. 2) 'Quisenberry said. “The only way you change things is to introduce dramatic differences, and that’s what charters are.' Did he really say this? The statement does nothing to support charter schools. Logically, you can change thing slowly or dramatically. There is not just one way. 3) “I’m a believer in the invisible hand of the market. The more opportunities that are out there, inevitably we will improve things.” Why does he believe it is inevitable that they will improve things? In a capitalist system, there are winners and losers. Some charter schools will win and some charter schools will lose. That's capitalism. There is no inevitability that things will improve.
Jon Blakey
Sat, 03/17/2012 - 3:40pm
First, I must admit I speak from a limited perspective having worked for the same charter management company for the last eight years. No two of them are exactly the same in how they earn their profits from managing charter schools. I do know they want to stay in business, so offering well rounded programs that serve diverse needs is important to most of them. My limited experiences in reading charter proposals for the state also suggests that some are attempting to cater to populations not needing special education services. I believe this is a small minority of schools (college prep type high schools) since charters are public schools and are expected to take all interested applicants. As in all debates, the averages often hide notable exceptions. My experience in the charter school environment tells me that many, if not most charters, have their fair share of special education students. They also pay for their building leases from the per pupil funding they receive, since they are not able to have millage's for bonds to build buildings (unless they are chartered by a public school district) . Many also pay for transportation services for many of their students. Most also offer breakfast and lunch programs that may or may not pay for themselves. The schools I have worked with also have low income numbers in excess of 60%, thus necessitating spending considerable dollars for intervention and other support services needed in high poverty environments. Again, I know not all charters fall in this "high poverty" category. I actually question the need for charter schools if there is not a poverty issue in the district in which they are located since most school districts with low poverty numbers do just fine academically. Charter schools are also being closed in increasing numbers due to lack of viability in finances and academic achievement. How are we doing with the regular public schools in that area? And is their failure due to charter schools taking away students and funding, or their ineptness? I do not know the answer to that question. I believe that most of the profit for management companies comes from the lower wages and benefits they provide their teaching and support staff. As mentioned in the article only about 20% pay into MPSERS. I suspect the rest have some form of 401K programs that are mostly funded by the employees with a small match by the company. That amounts to a considerable cost savings. Many also do not pay extra for "pay steps" that most school districts have in their teacher contracts. Raises are often cost of living increase at best. This pay differential has other consequences for charters including high turnover rates in teachers and the inability to attract the higher quality applicants. This is currently less of a problem due tot the poor economy and the fact that Michigan universities produce more teachers than are needed in Michigan. Enough said. Hope this adds some useful information to the discussion.