California Schools Magazine Winter 2016 : Page 14

Senior Director of Communications Troy Flint, t Marketing Director Serina Pruitt, Since 1999, charter schools have been able to organize in California as nonprofit corporations. Non-profit corporations have to annually file an informational “tax return,” a Form 990, with the Internal Revenue Service. Form 990 discloses a variety of information about the corporation, including the names of officers and directors and their compensation, the compensation of the highest paid employees, the top revenue sources and expenditures and their assets, including interests in real property. However, for-profit corporate vendors that are squeezing into California’s charter school market have no such informational reporting requirements. This enables individuals who may otherwise have to disclose their compensation on a Form 990 to keep it behind the shield provided by the tax code to for-profit corporations. Three districts in southern California have had enough. By filing a lawsuit in San Diego County, they have exposed individuals who are occupying positons and receiving salaries from several corporations at once. The method of these individuals is clear: get as many petitions approved without identifying the corporations and the people they are involved with that may end up involved with operating the charter school. This scheme becomes problematic when the non-profit corporation that is supposed to “operate” the school later becomes controlled by another corporation, and then that corporation farms out whatever services they can to yet another nonprofit or for-profit corporation operated by many of the same individuals connected to the petitioner. What also has become problematic is when a charter school transfers a percentage of its revenue to another corporation for ill-defined “management” and/ or “administrative services.” As a result, the executives of these interlocking corporations are able to receive compensation from each school that overall will exceed the salary of comparable staff positons paid by their authorizer. And it’s not uncommon for these positons to be filled by friends and family without ever advertising or taking an application for the position. But that’s not all. It’s not uncommon for charter schools, especially new charter schools, to have cash flow problems. To remedy this situation and to further feather the nest of those benefitting from creating a maze of interlocking corporations, the operator assigns its rights to the state funding received by the charter school to a for-profit corporation in exchange for bridge funding during the fiscal year, whether they need it or not, before the state funds have arrived. The result of this funding scheme, which comes at a high cost to taxpayers, is the reduction in tax dollars spent on students. The reduction of per-pupil spending can be significant and is being pulled off by those whose motive is clear: to benefit themselves by dipping into the public revenue stream of every charter school they have established. The failure to expressly subject charter schools to the elements of good governance required of school boards, especially the law that prohibits executing contracts benefitting a public official, has contributed to for-profit corporations infiltrating California’s charter schools, often without the knowledge of the authorizer. Because of the unbridled opportunity to “earn” excessive compensation far in excess of one’s labor, this scheme is bound to proliferate until it is stopped. In the meantime, school and county boards and the State Board of Education when hearing petitions on appeal, must thoroughly vet each petitioner. In addition to seeking legal remedies, another way for authorizers to respond to the state’s failure to regulate the self-interest of charter operators is to require petitioners to identify every charter school they or the corporations they either control or have an interest in and to disclose all the compensation they receive from both public and private sources for operating these schools. Also, each school’s academic performance history and graduation rates when applicable, should be disclosed. Without state action, the control over who is truly operating each charter school rests with those elected or appointed to make sure the corporate governance that is being practiced is done to benefit students, instead of those adults in it for their own financial gain. CS Staff Writers and Contributors Hugh Biggar, Aaron Davis, Gayle Romasanta, Graphic Design Manager Kerry Macklin, Senior Graphic Designer Carmen Rodriguez, Circulation and Advertising C S B A O FFI C E R S President Chris Ungar, San Luis Coastal USD President-elect Susan Henry, Huntington Beach Union HSD Vice President Mike Walsh, Butte COE Immediate Past President Jesús Holguín, Moreno Valley USD CEO & Executive Director Vernon M. Billy California Schools (ISSN 1081-8936) is published quarterly by the California School Boards Association, Inc., 3251 Beacon Boulevard, West Sacramento, CA 95691, (916) 371-4691. $2 of CSBA membership dues goes toward the subscription to California Schools magazine for each board member and superintendent. The subscription rate for each CSBA nonmember is $20. Periodicals postage paid at West Sacramento, CA and at additional mailing office. Postmaster: Send address changes to California Schools , 3251 Beacon Blvd., West Sacramento, CA 95691. Articles submitted to California Schools are edited for style, content and space prior to publication. Views expressed are those of the authors and do not necessarily represent CSBA policies or positions. Articles may not be reproduced without written permission of the publisher. Endorsement by CSBA of products and services advertised in California Schools is not implied or expressed. 14 Winter 2016 | Governance Issue

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