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A guided tour of the biggest education issue in Nevada — and one of the state’s fastest-growing industries 

Before a state judge put Nevada’s high-profile and hotly contested school-voucher program on hold (the ruling is being appealed), fewer than 5,000 families had applied to spend public money on private schools via what are officially called “education savings accounts.”

Meanwhile, more than 35,000 Nevada students are enrolled in charter schools in the current school year — a 21 percent increase over just last year. Over the past five years, charter enrollment has more than doubled, increasing by 133 percent.

As in the voucher program, state per-student spending follows students to charter schools, too, albeit under more varied and often more generous calculations. If those 5,000 families ever get their on-average $5,100 vouchers, about $25 million in public money will be spent on some form of private school. That’s about a 10th of the $254 million that, according to data compiled by the state Department of Education, Nevada taxpayers spent on 39 charter schools, some with multiple campuses, operating in the state in 2014-15.

Public spending on charters is only going to grow. New charter schools, and new campuses for existing schools, opened last fall (helping to account for the aforementioned 21 percent year-over-year increase in enrollment), and still more charters are scheduled to open by the 2016-17 school year … and, presumably, beyond.

Support comes from

Charter schools are publicly funded, but privately operated. The result is a charter-school industry, encompassing what can be a dizzying array of arrangements and contracts between the schools, their unelected boards, state agencies, property developers, for-profit management companies, nonprofit arms of private companies, hedge funds and investment firms, and myriad consultants, contractors and education-industry vendors. Virtually every dollar everyone in the charter-school industry makes is provided by the taxpaying public.

 

Nevada’s market leader

Of the quarter-billion dollars Nevada taxpayers provided to charter schools in 2014-15, more than a fifth of it — $54 million, according to state data — went to schools managed by a single for-profit company, a Florida-based firm called Academica. Established in 1996 and boasting close ties to then-Florida Gov. Jeb Bush, Academica has been the center of numerous controversies in that state, particularly after the Miami Herald reported that the firm used public money to lease real estate from development companies owned by the same people who own Academica, brothers Fernando and Ignacio Zulueta. Academica has also come under fire in Florida for, among other things, setting up a separate “college” in one of its charter high schools and charging taxpayers hundreds of thousands of dollars to provide students with two-year “degrees” of dubious worth.

Academica is not a publicly traded company, and any financial information about the firm is difficult to come by, let alone the type of granular financial reporting that might indicate how much of Academica’s Nevada revenue stays in Nevada, as opposed to flying out of the state as profit.

Meanwhile, there is no doubt whatsoever that the firm’s revenue from Nevada is going to grow. The company opened two schools last fall, and Academica is in the process of creating at least four more schools in Southern Nevada. The company is also expanding into Washoe County.

Technically, Academica is just the management company, and doesn’t build new schools. Technically, to open a charter school, a group of citizens must form a charter school board and then apply to a sponsoring institution for approval (since its establishment by the state Legislature a few years ago, that institution is almost always the State Public Charter School Authority). It’s not Academica, but the school itself and its board that would ultimately have to ask for state money to build or buy a school.

As a practical matter, Academica is not only relied upon every step of the way, but the instigator. No doubt some charter schools are the result of concerned citizens and parents banding together, from the bottom up, as it were, to fill what they perceive to be a particular educational niche or void. With a new Academica school, the far more likely scenario involves a for-profit company making market-based decisions on location, timing, demographics and such, not unlike Walmart determining where to open a new Sam’s Club. Upon determining that a new project pencils out, Academica finds the statutorily requisite citizen’s charter school board. (The state does not require a charter school board to take competitive bids before selecting a management firm, and such a bidding process would be unthinkable in schools being spearheaded by Academica.)

Even then, it still isn’t the management company or the charter or its board that is building new charter schools.

 

Enter the investment funds

To be eligible for state funding to build or improve a charter school facility, the school has to have been opened for three years. So it needs financing to bridge the gap between the school’s opening and its eligibility for state facility financing (it’s already receiving operating funds from the state).

The Turner-Agassi Charter School Facilities Fund is one of several for-profit investment funds in the nation that have attracted capital from a) foundations, institutional investors and individuals who are “for” education; and b) hedge funds, investment banks and other investors drawn to generous federal tax credits on income earned from the public through charter-school profits.

Started by Southern California financier Bobby Turner in partnership with long-time Las Vegas charter-school champion Andre Agassi, Turner-Agassi has provided bridge financing for at least four Academica building projects in Nevada and is doing the same for most of Academica’s aggressive expansion in the state.

Here’s more or less how it works:

Turner-Agassi puts up money to develop property for a charter school. After three years, during which time the school, which is to say the public, rents the property from the investment fund, the charter is eligible for state financing to buy the property from Turner-Agassi.

The school is purchased from the investment fund with money raised by revenue bonds issued through the state Division of Business and Industry —
public debt. Charter-school bonds in Nevada are so-called limited-obligation bonds, backed by the school’s revenue (which comes from the state education budget), as opposed to general obligation bonds, backed by revenue from a tax increase. Limited obligation bonds typically pay higher interest rates than general obligation bonds, which translates into higher interest payments for the public when it pays off the debt.

In 2012, Clark County voters rejected a tax increase to build new schools and improve older ones. But those voters are paying for new schools anyway, and since limited-obligation bonds typically promise higher returns to investors than general obligation bonds, the public is likely paying higher interest rates to pay down charter school debt than it would have paid to build and improve traditional public schools.

Project dates listed on Turner-Agassi’s portfolio online indicate Academica will be eligible for a first batch of state loans to purchase the investment fund’s developments in 2017.

Meanwhile, regardless of who owns the property the charter school is in, the management company is charging the school, which is to say the public, for management/professional fees on top of salaries, insurance, energy and other operating costs. Those fees can be spread through various categories of school balance sheets provided to the state, but those reports show that in Academica’s case, management fees totaled, at the very least, $3 million in the 2014-15 school year.

The arrangement between Turner-Agassi and Academica is only one model that might be used to finance construction in the charter-school industry.

For instance, a few years ago, Imagine Schools, one of the nation’s largest charter firms, made national headlines at its 100 Academy of Excellence in North Las Vegas when 40 percent of the school’s state-provided revenue was spent on lease payments to a real-estate investment trust. As a Nevada Education Department official told the New York Times in 2010, “After paying for real estate and management, 100 Academy has very little left over for education.”

 

Shenanigans and accountability

Academica is the undisputed heavyweight of Nevada’s charter-school industry and has the most aggressive expansion plans in the state. But practices at other charter operations have been attracting more — or at least more critical — official scrutiny.

The state of Nevada provided Silver State High School in Carson City nearly $5 million in the 2014-15 school year. Along with all the ways a school might spend the public’s money, Silver State decided one of them was investing in the Wall Street derivatives market. When a member of the school’s board brought the investment to the attention of the State Public School Charter Authority (SPSCA), the authority ruled the investment a no-no and ordered the school closed at the end of the current school year.

Quest Academy, with four campuses in Southern Nevada, received more than $10 million from the state in 2014-15. In October the SPSCA documented how members of the school’s board had hired family members in violation of nepotism regulations. The SPSCA has subsequently dissolved the board, appointed a receiver to oversee school finances, and the SPSCA could ultimately revoke or refuse to renew the school’s charter. This comes three years after the SPSCA forced Quest to restructure its board and fire a principal upon discovering staff was paid thousands of dollars in unauthorized bonuses, and the principal was spending a bunch of unauthorized money on travel and shopping.

As for charter schools being the cradle of innovation, the pedagogical emphasis for which charters are perhaps most renowened is "teaching to the test" even more intensely than testing-obsessed public schools.

And then there are the cyber schools. Yes, in Nevada, online schools are charter schools, too. The largest, Nevada Virtual Academy, operated by the corporate giant K12 Inc., received nearly $30 million in public funds in 2014-15 to provide online education to 2,600 students, a per-student cost of $11,500. Per-student spending at Academica schools averaged, by contrast, less than $8,000.

Higher per-student spending at an online school seems counterintuitive. After all, there is no property to develop, no classrooms or desks. But as cyber schools have emerged as one of the largest segments of the charter-school industry, they’ve become renowned not only for poor performance, but also for frenetic enrollment churn. Online schools market heavily to attract students, but online learning isn’t for everyone, and many students withdraw to return to brick-and-mortar schools. That churn could manifest itself as higher costs in lots of ways. The state can be charged for students who are no longer in the schools (as was found in a Colorado audit of K12 a few years ago). Or the state gets saddled for up-front student costs even if those students leave later. Or in K12’s case, maybe the company just isn’t very good at holding down costs: Nevada Virtual Academy spent more than $2 million for textbooks last year. Academica, with nearly three times as many students, spent $219,000. State data indicates K12’s management fees, at least $4 million, were also larger than Academica’s.

Proposed rules would effectively give the SPCSA additional authority to force a charter school to fire its management organization and make it easier for the authority to deny a charter school’s renewal. 

The most adamant objections to those rules have been filed by Nevada Virtual Academy and the state’s second largest cyber charter school, Nevada Connections, owned by the international corporate education giant Pierson Inc.

The cases of Silver State and Quest, as well as the proposed regulations, appear to reflect a commitment of the SPCSA and its executive director, Patrick Gavin, to try to hold charter schools accountable.

It might be a tall order. Although Nevada’s charter-accountability regulations were hailed as improved in a recent national report, that report noted that the SPSCA does not have the requisite staff to conduct consistent monitoring crucial to effective regulation. The standard recommended staff is roughly one monitor for every 1,000 charter-school students. In Nevada, Gavin estimates it is closer to one for every 5,000. The SPSCA is funded by fees charged to authority-sponsored schools, currently about one percent of a school’s operating budget. Boosting those fees will be a top SPCSA priority when the Legislature meets next year.

 

Why are we doing this, anyway?

“Everyone is in favor of choice in education,” Ryan Reeves, director of Academica’s Nevada operations, told the Review-Journal in 2014.

It’s a seductive argument in an era when identity and self-worth are often shaped by where one shops.

And charters are breaking down barriers erected by decades of entrenched education bureaucracy, thus reinvigorating education with a spirit and dedication that just can’t be found in tired public schools lumbering along under the weight of oppressive administrative bloat. Indeed, charter schools are the heart of education innovation.

Or so the argument goes.

Independent analysis suggests otherwise. Assessments conducted by the Center for Research on Education Outcomes (CREDO) at Stanford University are frequently cited by the media and charter-school supporters. Yet even the results of CREDO’s most recent national study were mixed at best, finding charter schools performing slightly, if at all, better than traditional schools at reading, and performing, if anything, worse than traditional schools in math. Critics charge that even CREDO’s modest findings overstate the performance of charter schools.

As for charter schools being the cradle of innovation, the pedagogical emphasis for which charters are perhaps most renowned is “teaching to the test” even more intensely than testing-obsessed public schools — test scores being the key, if not the only, means of assessing educational outcomes in a publicly funded but privately run school.

(Standardized tests, by the way, are produced, marketed and sold by a for-profit testing industry that may be growing as quickly as the charter industry, and some testing firms and charter firms are co-owned affiliates. Standardized tests are also frequently criticized for failing to credibly gauge student mastery of standards that tests are purportedly measuring.)

A good portion of the public acceptance of charters is attributed to what is sometimes called “sector agnosticism” — the view that how a school is managed, or who makes money from it, is irrelevant so long as the results are good.

But charter companies and pro-charter politicians and advocates are anything but agnostic. The rapid growth of the charter-school industry has been accompanied by relentless and disingenuous attacks on public schools and the people who work in them. The interest groups, ideologues and politicians who most zealously promote “school choice” are often the most eager to malign public institutions.

Charter schools emerged on the scene more than a quarter century ago as laboratories where public-school systems could test methods, and the most promising results could be implemented elsewhere in public schools. Some charter supporters, parents and charter-industry executives and investors obviously mean well and still view charters as an overall benefit to the public good. 

But today’s charter industry, much like Nevada’s voucher plan, reflects a chronic civic defeatism. Echoing the perverse social Darwinism of more than a century ago, faith in free-market education is a surrender to pessimism. Society really isn’t incapable of providing a fair educational opportunity to every citizen. Some people are doomed to fail, that’s just the way it is, so best to segregate those with promise, the achievers, in separate schools. As for everyone else, well, too bad for them.

In the meantime, capitalizing on politically correct disdain for public institutions and a consumer culture’s visceral embrace of “choice,” and truly impressed by the steady flow of public money through the public-education revenue stream, the private sector is working feverishly … maybe to create quality schools, but definitely to drain more and more money from that stream.